The UAE has long been known as a tax-efficient place to do business, attracting global organisations and investors with its favourable economic climate and relatively low taxation. However, with the introduction of a federal corporate tax regime in June 2023, the UAE has joined the ranks of countries implementing corporate taxation.
Corporate tax in the UAE is levied on the net profits of businesses at a standard rate of 9%, with specific sectors (such as oil and gas) subject to different tax regulations. Businesses that earn annual profits exceeding AED 375,000 are required to pay this tax, while smaller companies and certain free zone entities may benefit from exemptions. The tax applies to UAE-incorporated businesses and foreign entities permanently established in the country.
Filing corporate tax returns is not merely a legal obligation but also a critical element in maintaining compliance with the UAE’s financial regulations. Accurate and timely filing ensures that businesses avoid penalties, maintain transparency with government authorities, and keep their operational credibility. By submitting corporate tax returns, companies can also safeguard themselves from audits or disputes with the Federal Tax Authority (FTA).
Filing tax returns also allows businesses to optimise their financial planning. By accurately reporting income and expenses, companies can take advantage of any available tax deductions, exemptions or relief measures. So, in this article we will cover how to file your corporate tax return in the UAE with a detailed step-by-step guide, and we will also look at corporate tax rates plus common exemptions and incentives for businesses.
Filing your corporate tax return in UAE: step-by-step
Filing corporate tax returns in the UAE is a multi-step process that requires careful attention to detail and adherence to regulatory deadlines. Let’s break it down:
- Gathering financial documents: Maintaining accurate and up-to-date financial records is crucial. UAE tax laws require businesses to keep proper documentation of all financial transactions and tax-related matters (including balance sheets, income statements, receipts for deductible expenses, and so on), ensuring that everything is in order when it’s time to prepare your tax return.
- Tax registration: Obtain a Tax Registration Number (TRN) from the FTA. This involves submitting the necessary documentation to register your business for corporate tax.
- Determining your tax obligations and deadlines: Once your records are organised, the next step is to calculate your taxable income. This is done by considering allowable deductions and exemptions in accordance with UAE tax regulations. A properly prepared tax return will accurately reflect your business’s financial position and help avoid any future issues.
- Completing the corporate tax return form: After the tax return has been prepared, it must be submitted to the FTA via their e-Services portal. It is essential to ensure this is done before the specified deadline to avoid penalties for late submission.
- Payment of tax: Along with filing, any tax liability must be paid by the due date. Delayed payments can result in fines, so it is important to budget and manage your cash flow effectively to meet this obligation.
- Tax audits: In the event of a tax audit, the FTA may request further details or supporting documents to verify the accuracy of your tax return. Ensuring your records are in order will make the audit process much smoother, should it occur.
Understanding corporate tax rates and exemptions
The UAE Corporate Tax Law is applicable across all Emirates and governs all business and commercial activities, with the exception of certain exempt entities, which include:
- UAE government entities
- UAE government-controlled entities
- Entities involved in extractive businesses within the UAE
- Entities involved in non-extractive natural resource businesses within the UAE
- Qualifying public benefit entities
- Qualifying investment funds
- Public pension or social security funds, or private pension or social security funds regulated by the competent authorities and meeting additional prescribed conditions
- Entities fully owned and controlled by exempt persons
- Any other entities designated by the Cabinet upon the Minister’s recommendation
The UAE corporate tax rates are as follows:
- 0% for taxable income not exceeding AED 375,000 and for the qualifying income of a Qualifying Free Zone Person (QFZP).
- 9% for taxable income exceeding AED 375,000 and for non-qualifying income of a QFZP.
Common exemptions and incentives for businesses
Let’s now look at some common exemptions and incentives:
- Small business relief: If a business’s revenue doesn’t exceed AED 3m annually between 2023 and 2026, it can choose to be exempt from tax. Once this threshold is surpassed, regular corporate tax rates will apply. Businesses applying for this relief won’t need to comply with certain tax provisions, such as exempt income and transfer pricing rules. However, splitting a business to stay under the threshold is prohibited, and the FTA can adjust tax liabilities if this occurs.
- Intra-group transfers: Tax relief is available for asset or liability transfers within qualifying groups. To qualify, businesses must be UAE tax residents, commonly owned (at least 75%), share the same financial year, and use the same accounting standards. The relief may be reversed if an asset or liability is transferred outside the group within two years.
- Business restructuring relief: Tax relief is also provided for business restructurings, including mergers and spin-offs, where part or all of a business is transferred in exchange for shares. This relief is conditional on businesses being UAE residents, sharing the same financial year, and adhering to valid economic reasons for the transfer. Tax relief may be reversed if shares or assets are transferred again within two years.
- Free zones (FZs): Companies in free zones are considered taxable but may qualify for a 0% corporate tax rate on qualifying income. To benefit from this, a free zone person (QFZP) must meet several conditions, such as maintaining adequate substance (assets, adequate number of qualified employees, etc), deriving qualifying income, and adhering to transfer pricing rules. Non-qualifying income, such as transactions with non-free zone persons, will be taxed at 9%.
- Qualifying income: Income from free zone transactions, certain investment activities, and ownership of intellectual property may be eligible for the 0% rate, provided it meets the qualifying criteria.
- Excluded activities: Certain activities, like transactions with natural persons (i.e., individuals) or regulated financial services, are excluded from the 0% tax rate and are subject to the standard 9% rate.
- De minimis requirements: QFZPs can have up to 5% or AED 5m in non-qualifying revenue before being taxed at the standard 9% rate. If these limits are exceeded, the business will be subject to regular taxation for at least five years.
- Domestic permanent establishment (PE): A QFZP with a mainland presence in the UAE is considered a domestic PE and will be taxed at 9% on income earned outside the free zone. However, this won’t affect the 0% tax rate on its qualifying income within the free zone.
About Creative Zone
Navigating the complexities of corporate tax in the UAE can be challenging, but with the right support, businesses can ensure compliance while maximising available benefits. Creative Zone Tax & Accounting is a division of Creative Zone, Dubai’s largest and most trusted company formation specialist, with over 12,000 successful registrations. With over a decade of experience, the team handles clients from various industries, offering a highly qualified team, excellent customer reviews, and quick turnaround times.
Our team of tax experts offers personalised assistance, helping you understand your tax obligations, gather necessary financial documents, calculate your tax liability, and file your returns with the FTA. Whether you’re a small business, part of a larger corporate group, or operating within a free zone, Creative Zone ensures that your company meets all regulatory requirements while taking full advantage of available tax reliefs and exemptions.
By partnering with Creative Zone, you can focus on growing your business while we handle the intricacies of corporate tax compliance. Contact us today.
