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All You Need To Know About The Official Corporate Tax In UAE

Did you know that on January 31, 2022, the United Arab Emirates government has confirmed that a new corporation tax will be implemented?

The UAE has never traditionally taxed the income of companies, except for a small number of sectors, including foreign banking and resource exploitation. However, many more businesses operating in the area will have to start paying the new 9% corporation tax rate as of the fiscal year commencing on June 1, 2023.

Will every firm in the UAE be impacted by the new corporation tax? If not, what types of firms are required to file and pay the tax?

In this blog, let’s uncover more facts about the new company tax in the UAE and its implications for you.

What Is Corporate Tax In The UAE?

Corporate tax in the UAE can be defined as a type of direct tax assessed on the net profit or income of businesses and other legal entities engaged in business. It is also known as the “business profits tax” or the “corporate income tax

In a nutshell, corporate tax is a tax levied on a company’s net profit that requires businesses to pay taxes on a portion of their profits

The corporation tax rate in the UAE for 2023 will be 9% of any firm earnings that exceed 375,000 AED. Businesses that produce less revenue than this amount continue to pay no taxes at all.

Following the Global Minimum Corporate Tax Rate agreement, the government of the UAE has also declared that major multinational corporations with income of more than EUR 750 million will be required to pay a 15% tax.

Why Did The UAE Implement A Federal Corporation Tax?

Businesses and tax experts have been talking about the corporate tax in Dubai since it was announced. With this declaration, the UAE is on track to pass the GCC’s other three nations to become the fourth to enact a federal business tax.

Federal corporation tax has been implemented in the UAE to advance the nation’s standing as a premier global center for trade and investment and quicken the strategic goal of growth and transformation. Additionally, the idea of corporate taxes helps avoid detrimental tax tactics and fulfill international requirements for tax transparency. 

Businesses must comprehend the idea of corporation tax because it is new in the UAE. To strengthen Dubai’s position as a worldwide center for creative startups with reasonable registration expenses, including no corporation taxes, this comprehensive corporate system was developed in the UAE.

Dates To Remember For UAE Corporate Tax Filing: 

Based on the business’s financial year, the corporate tax in Dubai will either become effective on 1 June 2023 or 1 January 2024. All of the emirates will be subject to corporate tax. 

Businesses with tax years that start in January will not be required to begin paying tax on income earned before January 1, 2024.

Which Businesses Must File Tax Returns?

Any taxable business must pay corporate tax on any taxable income they receive during a tax period. Corporate tax will typically be levied once a year, with the taxable business determining their burden through self-assessment. 

In other words, the taxable business files a corporate tax return with the Federal Tax Authority to assess, calculate, and pay the corporate tax.

Business taxes, VAT systems, tax-free zones, and the lack of federal income tax are just a few of the policies that make up the UAE’s corporate tax regime.

Tax will be imposed on legal entities having illustrious legal persons, such as PJSCs, PSCs, LLCs, LLPs, and others. Additionally, any foreign legal company that is a resident of another country and generates money in the UAE will be taxed.

Although free zones will pay 0% corporation taxes in exchange for adhering to all legal requirements, this also applies to free zone businesses that conduct business with the mainland. Corporate tax regulations may also apply to UAE non-residents and residents.

Who Is Exempt From Corporate Taxation?

The new corporation tax legislation will contain a participation exemption from corporate tax upon selling stock or earning dividends in a subsidiary firm. Additionally, corporations that are entirely owned by the government are exempt from corporate taxes, as are public benefit organizations, investment funds, nonprofit organizations, and firms that exploit oil and other resources.

In a nutshell, businesses established on the UAE’s mainland will indeed be subject to a certain level of taxes, but in Dubai’s free zones, corporate and personal taxes on company revenues are exempt.

How Should I Get Ready to File Corporate Taxes?

  • Initially, you need to read the corporate tax law and the supplementary materials that are available on the Federal Tax Authority and Ministry of Finance’s official websites.
  • Determine if your company will be liable for corporate tax. If yes, you need to confirm from which date it starts, using the data at your disposal.
  • Learn about the regulations that apply to your company under the corporate tax law, such as:
    • When and how your company must register for corporate tax; 
    • When will your company should file and submit a corporate tax return;
    • What will be the tax or accounting tax period for your company;
    • What financial documents and data your company must maintain for corporate tax reasons;
    • What choices or applications your company may or should make to comply with corporate tax laws;
  • Always keep an eye on the Federal Tax Authority and Ministry of Finance’s official online sites for updates and guidance on the Corporate Tax system.

How Do I Register For, File For, And Pay Corporate Tax In The UAE?

Obtaining a corporate tax registration number and registering for corporate tax will be necessary for all taxable persons, including free zone businesses. The Federal Tax Authority may also require some exempt businesses to file for corporate tax. 

For every tax period, taxable business must submit a corporate tax return within nine months after the conclusion of the applicable period. 

The payment of any corporate tax owed concerning the tax period for which a return is submitted would typically have to be made by the same date.

Software To Manage Your Company’s Corporate Tax Filing:

As we go closer to June 2023, which is not a long way off, there is a lot to be revealed about federal corporate tax in the UAE

Business owners might feel that they have ample time to be ready for corporation tax given the projected implementation date. 

Financial statements are going to become even more important for firms since there is a lot to learn and grasp about the intricacies of the new corporation tax legislation. This is so that the corporation tax that a firm is required to pay may be calculated using the net profit shown on their financial statements. 

The proper amount of corporation tax will be calculated based on the accuracy of the company data, which will also define the accuracy of the financial accounts. 

We are assuming that, at this point, you must have determined how beneficial the company management software will be to your enterprises. Your firm may quickly be tax-ready if you have the option to auto-generate financial statements like profit and loss accounts, balance sheets, Day book, Trial balance and General ledgers etc.

How Can POSBytz Assist You With Your Corporate Tax Filing? 

POSBytz is reliable software that includes several business modules to handle your company’s expanding demands. One of POSBytz’s strong points is its ability to provide quick business reports on accounting, inventories, and financial statements, including the balance sheet and profit and loss account. What else do you want? 

Along with assisting you in preparing for filing the corporate tax in 2023, it also offers full assistance for UAE VAT, from creating tax invoices to accurately completing VAT reports. 

Being business-ready entails taking the necessary steps now to ensure a smooth transition to the corporate tax era, rather than waiting until the corporate tax in the UAE is implemented. 

Having the proper business management software like POSBytz must be at the top of your priority list, not just for corporation tax purposes but also to operate your company more effectively than previously.

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