1.  What is corporate tax?

Corporate tax is a form of direct tax that is charged according to the total profit or income earned by the business or other corporations. It is based on a business’s taxable income. 

Corporate tax is paid by businesses just like income tax by individuals. It is also referred to as Corporate Income Tax or Business Profit Tax. 

2.  How to calculate the taxable income?

Businesses earning profits above AED 375,000 are charged a 9% tax rate, whereas below the threshold value, it is 0%.

So, taxable income is calculated as,

Taxable income = Total income – adjustable deductions * 9/100

For example, a company earning profits of AED 700,000.

So,  Taxable income = (700,000 – 375,000)*9\100 = 325,000*9\100

Therefore, the taxable income will be AED 29,250.

3.  What is the new corporate tax rate that companies in the UAE must pay?

As per the FTA (Federal Tax Authority), the new corporate tax rate that is effective from the 1st of June, 2023 is as follows:

• 0% – For taxable income up to AED 375,000
• 9% – For taxable income above AED 375,000

4.  What are the steps for corporate tax registration?

The five steps for corporate tax registration are as follows:

• Step 1: Gather Required Documentation 
• Step 2: Go to the e-Services portal 
• Step 3: Create a User Account 
• Step 4: Finish the Registration Form
• Step 5: Wait for Certification and Approval

Please refer to our blog on UAE corporate tax registration for more information.

5.  Will companies have to pay UAE corporate tax along with Emirates-level taxes?

Under specific scenarios, enterprises that obtain natural resources from the UAE and participate in specific non-extractive operations that are liable for taxes at the Emirate level will not be covered by UAE Corporate Tax.

Other companies may have to pay both corporate tax and taxes at the emirate level. It will not be possible to exclude or decrease the sum of corporate tax payable for taxes paid at the emirate level.

6.  What is the aim of free zones in the UAE?

Under every emirate, there is a designated area known as a free zone that allows for total foreign ownership and charges no taxes. The goal is to create a particular industry and provide superior infrastructure that belongs to it. 

However, entrepreneurs must get in touch with the free zone authorities to find out if the area qualifies for 0% tax.

7.  Who should register for corporate tax in the UAE?

Any business operating in the UAE must adhere to the new corporate tax rate. Foreign companies or individuals must pay 9% when their threshold income is above AED 375,000.  

Corporate tax applies to everyone with a business license operating in the UAE. This includes foreign nationals who frequently conduct business or trade there, as well as banks and companies engaged in real estate construction, trading, and management. 

8.  Will companies have to pay UAE corporate tax along with VAT in the UAE?

If you are a registered business in the UAE, you will have to pay for both VAT and corporate tax separately. If your company has not registered for VAT, you must still pay corporate tax.  

9.  Is it mandatory for foreigners or individuals to pay the new corporate tax?

No. Not all foreign nationals and individuals must pay corporation tax. For instance, in the UAE, people who get income from savings schemes, bank accounts, or salaries are exempt from corporate tax. 

Whether they work in the public or private sectors, foreign investors are exempt if they earn money from payments of dividends, capital profits, interests, royalties, and returns on investments.

10.  Why does the UAE impose a 9% tax rate for businesses?

The low 9% tax rate was implemented with small and medium-sized enterprises in mind. In addition, the federal government intends to promote the UAE’s growth in order to meet its strategic objectives and make it the most desirable location for foreign investment and commerce. 

It also aims to avoid disruptive tax procedures and fulfill its obligations to satisfy the international norm for tax fairness.

How Paci.ai Can Help You?

Businesses should prioritize utilizing modern integrated software to ensure a seamless transition to the new corporation tax era in the UAE. Paci.ai is incredibly user-friendly and provides comprehensive guidance at every stage. 

There will be more oversight over the company’s financial flow, and operational efficiency will rise. If your bookkeeping is correct and balanced, it will be simpler to comply with tax regulations. All of the company reports are easily accessible to you.

You may get responses to your queries about the new company tax in the UAE at Paci.ai. Although new regulations, particularly tax-related ones, can be confusing, you shouldn’t have any concerns when you’re with us.

Connect with us now to get more information on corporate tax laws and financial management.