NEW Corporate Tax Information For Dubai | CFC Rules | Small Business Relief & Permanent Establishment Rules
Table of Contents
Introduction
We just got one of the most detailed updates on UAE corporate taxes, and while it was an important watch, it was also three and a half hours long! Don’t worry, We’ve got you covered. We’ll break down the most important bits so you can save your time and still know everything you need.
Do You Have a Company Abroad? Here’s What That Means for UAE Corporate Tax
Let’s kick off with one of the biggest misconceptions out there: If you own a company in another country, you might think it’s not subject to UAE corporate tax, right? Wrong!
Even if you’ve set up an LLC in the US, for example, but you’re living in Dubai or managing the business from here, the UAE tax authorities consider it effectively controlled from the UAE. That means it’s subject to UAE corporate tax, just like a local company. So, if you thought sending money to your US LLC to avoid taxes was a smart move—sorry, but it’s not!
Watch our Co-Founder Kevin McKenzie sharing his insights on the latest developments in the UAE Corporate Tax:
Corporate Tax Registration – It’s Mandatory
If your company was registered in 2023, you don’t need to rush to register it within three months like those who formed their companies earlier. But don’t sleep on this—you still need to register for corporate tax. The UAE tax authorities have specific deadlines depending on when your business was set up, so make sure you’re on top of it.
The Corporate Tax Rate: Yes, It’s 9%, but Not for Everyone!
The big headline here is that the UAE corporate tax rate is 9%. But before you panic, this tax only applies to companies that are not considered small businesses.
Here’s where it gets interesting: If your business makes less than 3 million AED in revenue (around $817,000 USD), you don’t have to pay corporate tax—this is known as Small Business Relief. However, if you make even one dirham more than that threshold, you could be on the hook for corporate taxes. But, hang on, it’s not as bad as it sounds.
Understanding Net Income – Here’s Where It Matters
Let’s break it down with an example. Say your revenue is over 3 million AED (you’re now not classified as a small business). In this case, the authorities will look at your net income—this means the amount left after deducting expenses like salaries, wages, and other costs.
If your net income is below 375,000 AED (around $102,000 USD), it’s tax-free. Anything above that is taxable at the 9% rate. So, if you made 1 million AED in revenue and had a net income of 500,000 AED, the first 375,000 AED is tax-free. The remaining 125,000 AED is taxable at 9%, so you’d owe 11,250 AED in corporate tax.
Corporate Tax Filings – Small Business vs. Large Business
Now, depending on whether your business qualifies as small or not, the process of filing your taxes will differ. For small businesses (under 3 million AED in revenue), you only need to report your revenue. Easy, right? But for larger businesses, you’ll need to report both revenue and net income, so it’s more detailed and time-consuming. If this sounds like a headache, you can always book a call with our team, and we’ll handle all your accounting and compliance for you.
Mainland vs. Free Zone – Who Needs to Pay Corporate Tax?
Here’s something a lot of people get confused about: corporate tax applies whether your company is in the mainland or a free zone. There’s a common myth that free zone companies don’t have to pay corporate tax, but that’s not true anymore. If your business is in a free zone and you’re selling services either inside or outside the UAE, you still need to register for corporate tax and follow all the regulations.
However, there’s an exception for businesses engaging in qualifying activities. These include things like manufacturing, trading of raw materials, and holding shares. If your business falls under one of these categories, you might be able to avoid corporate tax altogether. But for most people reading this, your business probably won’t qualify.
Watch Out for Multiple Companies
Trying to be sneaky by setting up multiple businesses to stay under the 3 million AED revenue threshold? The authorities aren’t fooled. If you own multiple companies, they’ll likely be grouped under one umbrella, meaning you’ll still have to pay corporate tax.
So, setting up three different companies in an attempt to spread out your revenue won’t work. You’ll need to report everything under a single corporate structure.
Personal Income – Still Tax-Free!
Now for some good news! Your personal income is still tax-free. That includes your salary, wages, investment income, and real estate gains. So, while you need to register your business for corporate tax, your personal finances won’t be touched by the taxman..
How to Stay Compliant and Save Yourself a Headache?
We know this all sounds a bit overwhelming, but compliance is key. Even if your company doesn’t make enough revenue to pay corporate tax, you still need to register and stay compliant. The penalties for not doing so can be steep.
If this is too much to handle on your own, feel free to book a call with us. We will guide you through the entire process—from setting up your business to filing corporate taxes.
Conclusion
There you have it—everything you need to know about corporate tax in the UAE in a nutshell. Whether you’re running a small business or managing a larger company, it’s essential to understand these new rules so you can stay compliant and avoid any nasty surprises down the road.
Thanks for sticking around, and we hope this helped save you a few hours. If you have any questions or need more guidance, you know where to find us. Until next time, keep growing your business and thriving in Dubai!
