Corporate Tax in Dubai (UAE)

Dubai, the economic hub of the UAE, has long been an attractive destination for businesses due to its dynamic economy, strategic location, and tax-friendly environment. However, recent developments have brought corporate tax into focus, as the UAE introduces a new corporate tax system. In this guide, we’ll explore what businesses need to know about corporate tax in Dubai, its implications, and how to stay compliant.

The Shift Towards Corporate Taxation in the UAE

Historically, the UAE has been known for its tax advantages, including the absence of federal corporate tax. This made Dubai a magnet for global businesses, particularly those in sectors like finance, technology, and tourism. However, starting from June 2023, the UAE announced the introduction of a corporate tax on business profits, marking a significant change in its tax landscape.

The new corporate tax is designed to align with international tax standards and improve the country’s economic stability. It reflects the UAE's commitment to global tax compliance and sustainability. However, the tax regime remains competitive and offers attractive benefits for businesses operating in Dubai.

The Ministry of Finance, in new regulations, said qualifying entities in the UAE's more than 30 free zones - which export tens of billions of dollars of goods to neighbouring states - will be subject to a 0% rate, even when dealing with the mainland on certain strategic activities such as manufacturing, goods processing and logistics services. The government has said it introduced the tax to align with international efforts to combat tax avoidance, as well as to address challenges arising from the digitalisation of the global economy. The UAE does not levy personal income taxes.

Companies will become liable for corporate tax when their financial years start, meaning tax returns will not fall due until 2025. The UAE tax coincides with a new global minimum corporate tax from the Organisation for Economic Cooperation and Development (OECD), signed by 136 signatories including the UAE, to ensure big companies pay a minimum 15% and make tax avoidance harder.

Key Features of Corporate Tax in Dubai

1. Corporate Tax Rate - The new corporate tax in Dubai is set at a standard rate of 9% for taxable profits exceeding AED 375,000. Profits below this threshold will remain tax-free, encouraging small businesses and startups to grow and thrive without the burden of tax obligations.
- For multinational companies, the UAE aims to align with the global 15% tax rate set by the OECD for larger businesses, ensuring compliance with international tax standards.

2. Exemptions and Incentives - The UAE continues to offer attractive exemptions and incentives for certain types of businesses. These include free zone companies, which may continue to benefit from tax exemptions, provided they meet the eligibility criteria and operate within the designated free zones.
- Another key exemption applies to dividends and capital gains, which are generally not taxable for businesses operating in Dubai. This makes Dubai an appealing location for holding companies and international investment operations.

3. Simplified Compliance and Reporting - To support businesses in adapting to the new tax framework, the UAE has introduced a streamlined compliance process. The focus is on reducing administrative burdens, with online filing and reporting systems that simplify tax filing for businesses.
- Companies will need to file annual tax returns, and tax payments will be due based on the fiscal year, which typically runs from January to December.

4. Transfer Pricing Rules - As part of its global tax alignment, the UAE has introduced transfer pricing rules, requiring companies with cross-border transactions to maintain documentation that supports the arm’s length pricing of their intra-group transactions. This aims to ensure that profits are taxed where economic activities occur.

How the Corporate Tax Affects Different Business Sectors

1. Small and Medium Enterprises (SMEs) - Small businesses will have less to worry about, as those with profits below AED 375,000 will remain exempt from corporate tax. This will continue to encourage entrepreneurship and support the growth of local businesses.

2. Multinational Companies - Multinational corporations with substantial operations in Dubai will be subject to the new tax rate, especially those with profits above AED 375,000. These companies must also ensure compliance with the OECD’s BEPS (Base Erosion and Profit Shifting) framework and provide detailed documentation for their international operations.

3. Free Zone Companies - Businesses operating within Dubai’s free zones remain a focal point of the UAE’s tax strategy. Many free zones offer tax incentives such as corporate tax exemptions for up to 50 years. However, companies will need to meet specific criteria, such as ensuring that they are not engaged in business activities with entities based outside the free zone.

4. Holding Companies and Investment Funds - Dubai remains an attractive location for holding companies due to the exemption on capital gains and dividends. This makes it an ideal jurisdiction for international investment funds and holding company structures.

Navigating the Corporate Tax Landscape in Dubai

The introduction of corporate tax in Dubai represents a new chapter for businesses operating in the UAE, but the system is still highly favorable, especially for small businesses and startups. With a low tax rate, strategic exemptions, and a focus on ease of compliance, Dubai remains an attractive destination for businesses looking to grow and thrive in the Middle East.

As the UAE continues to adapt to international tax standards, businesses can remain confident that they are operating in a stable and competitive environment. By staying informed and preparing for the changes, companies in Dubai can ensure they continue to reap the benefits of this dynamic business hub.

Indotco International

Corporate Tax in Dubai (UAE)