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A Guide to UAE Corporate Tax in 2023

For several years, the United Arab Emirates was a jurisdiction with very low taxation. The citizens were not required to pay taxes on their income, and most companies did not have to pay any type of corporate tax. The bulk of the country’s revenue was generated by nationalized and privately-owned fossil fuel extraction industries that paid roughly 50% tax on their earnings. In addition, foreign banks had been paying a 20% corporate tax on their operating profits, while Dubai’s hotels and restaurants had also been paying specific taxes.

However, in recent years, the United Arab Emirates has been attempting to diversify its economy away from fossil fuels. As a result, there are now an increasing number of enterprises that currently do not pay any taxes at all. With the government expecting less revenue from the fossil fuels industry and the economy growing at a rapid pace, it is reasonable for the government to impose a tax on business revenues to enable further investment in infrastructure, education, and healthcare.

In 2018, the United Arab Emirates initially implemented a VAT tax, which levied a 5% charge on all consumer purchases. Subsequently, A federal decree-law has been announced by the UAE which will impose a corporate tax rate of 9 per cent on taxable business profits exceeding AED375,000. This new law called the Corporate Tax Law, was declared in December 2022 and will be effective from the financial year commencing on June 1, 2023

The corporate tax rates can be summarized as follows: 

  • 0% tax rate on the portion of the taxable income below AED375,000.
  • A 9% tax rate applies to taxable income that surpasses AED375,000.

Companies will be liable to pay the UAE Corporate Tax from the start of their initial financial year that commences on or after June 1, 2023.

Several categories of entities and individuals are exempt from corporate tax, including:

  • Government entities
  • Government-controlled entities
  • Individuals engaged in an extractive business
  • Individuals engaged in a non-extractive natural resource business
  • Qualifying public benefit entities
  • Qualifying investment funds
  • Public pension or social security funds that are subject to regulatory oversight of the competent state authority
  • Private pension or social security funds that are subject to regulatory oversight of the competent state authority
  • Juridical persons incorporated in the State that are wholly owned and controlled by an exempt person, and who carry out certain activities related to the exempt person
  • Any other person as determined by a decision of the Cabinet at the suggestion of the Minister.

Who is subject to taxation under the Corporate Tax Law in the UAE?

  • UAE-based companies and other legal entities.
  • Individuals who conduct business activities in the UAE, and foreign legal entities that have a Permanent Establishment in the UAE. 
  • Juridical persons established in UAE Free Zones are also subject to Corporate Tax, but those that qualify as Qualifying Free Zone Persons may benefit from a 0% tax rate on their Qualifying Income. 
  • Non-resident individuals or entities that do not have a Permanent Establishment in the UAE may be subject to a Withholding Tax of 0% on UAE-sourced income not related to their Permanent Establishment.

How to Calculate taxable income?

To compute the Taxable Income of a Tax Group, the parent company needs to create consolidated financial statements that enclose all subsidiary members of the group for the relevant Tax Period. To calculate the Taxable Income of the Tax Group, any transactions occurring between the parent company and each group member, as well as any transactions between the group members themselves, would be removed.

What are the Corporate tax deadlines?

Taxpayers are granted a generous timeframe of up to 21 months from the commencement of their financial year to prepare for tax payment and compliance, as per the regime’s deadlines.

For instance, if a business has a financial year that initiates on June 1, 2023 and concludes on May 31, 2024, it will have from June 1, 2024 to February 28, 2025 to file its corporate tax returns and make tax payments.

Similarly, if a business’s first tax period runs from January 1, 2024, to December 31, 2024, it must submit its tax return and payment between January 1 and September 30, 2025.

Is there a plan to tax personal income in Dubai?

No, presently, there are no proposals to levy taxes on people’s income in Dubai or the rest of the UAE. The only type of personal income tax charged in Dubai is the 5% VAT tax, which applies to all consumer goods and services.

Is there a plan to impose a capital gains tax on dividends in Dubai?

No, presently, there are no propositions to introduce a capital gains tax on dividends obtained in the United Arab Emirates or Dubai. As of March 2022, investors and business owners are not liable to pay any capital gains tax on dividends received from the businesses they have invested in.

Will companies operating in free zones be subject to taxation?

It is not totally clear yet how the new UAE corporate tax will apply to corporations functioning in free zones. As per the government statement, companies in free zones will continue to profit from the specific incentives that were pre-agreed in their respective free zones. However, in the future, free zones may change their constraints and potentially enforce the tax.

If free zone companies execute business with mainland enterprises, they will typically be required to pay the corporate tax on the revenue generated from those operations. Free zone companies will also have to register and submit a corporate tax return, despite not having to pay any taxes.

How can we help?

At GenZone, we specialize in providing tax reduction strategies, asset protection, and citizenship services to high-net-worth individuals, entrepreneurs, and business owners. We collaborate with our clients to develop strategies, launch startups, and expand businesses in the UAE and the wider area.

Join hundreds of other entrepreneurs who’ve launched successful companies in the UAE free zones and benefit from the continued 0% corporate tax rate.

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