Corporate Tax Exemptions Explained

With taxation in the UAE now introduced to local businesses, a question we have been frequently asked is: are there any exemptions?

Within corporate finance, there are opportunities for businesses to minimize their obligations and improve their cash flow, and the UAE is no different. Here, there are corporate tax exemptions that allow qualifying business owners relief from the tax.

Here, we will highlight some of the key tax exemptions currently in place in the country.

  1. Anything government-related. This applies to both government entities and government-controlled entities. Essentially, the 9% corporate tax only applies to the private sector, with anything public sector exempt. This will likely not have any impact on your business operations, but it’s worth knowing.
  2. Natural resource businesses. Businesses involved in the extraction of natural resources have actually been subject to their own taxation rules for a lot longer than the rest of the country. This is because there is more of a global vision for this industry, as it competes with markets across the world rather than locally. If your business is involved in the extraction of natural resources, there will be no change as a result of the corporate tax.
  3. Any business earning under AED 375,000. The corporate tax is only applicable to businesses that earn above AED 375,000 per tax year. If your business generates less than AED 375,000 a year, it will not be subject to the tax. This is the case for both freelancers and business owners. If you do earn above the threshold, only what is earned above that number is subject to the tax.
  4. Currently, Free Zones. The 9% corporate tax is being rolled out in phases, meaning free zone companies are not currently subject to it. At the moment, it’s only relevant to mainland companies, with announcements expected on Free Zone eligibility in the future. Once an update is provided by the Ministry of Finance, we will share the announcement on our website.
  5. Small Businesses Eligible for Small Business Relief. Until December 31st 2026, the UAE government are offering small business relief for companies with revenue below AED 3,000,000. Your business may well be eligible for the relief, so it’s worth checking with the Ministry of Finance as cases are circumstantial.

We are currently offering business owners a complimentary corporate tax consultation, to ensure you’re up to date with your obligations. Reach out to our team if you have any doubts and we will be more than happy to clear them up for you.

Connect with the team by calling 800 BIZ or email us at setup@bizincorp.ae.

Navigating the UAE’s New 9% Corporate Tax

Setting up a business involves negotiating a labyrinth of rules and regulations, especially when it comes to tax laws. At the Business Incorporation Zone, we’re here to help guide you through these complexities, particularly with the introduction of the UAE’s new 9% corporate tax. 

This change, announced in 2022, has come into effect from June 1, 2023. It sets a 9% tax on profits exceeding AED 375,000 ($102,000). However, don’t fret if this sounds intimidating. This change is designed to foster the growth of small and medium-sized businesses like yours. 

Understanding the Corporate Tax 

The 9% tax will only be levied on profits above the AED 375,000 threshold, meaning you won’t be taxed for earnings below this. This encourages the growth of small businesses and startups, and you can quickly estimate your possible tax liabilities using our online tax calculator

Corporate Tax for Residents & Non-Residents 

If you’re a UAE resident, the new tax law offers certain exemptions. For instance, if you’re a freelancer earning above the AED 375,000 threshold, you will have to pay corporate tax. But remember, income from bank deposits, savings and investment programs, dividends, foreign exchange gains, or real estate income from economic activities won’t be taxed. 

For non-residents with an establishment in the UAE, corporate tax will also apply, although exemptions exist for income from operating aircraft and ships in international space or earnings via an investment manager on real estate or other investments. 

Implications for UAE Free Zone Businesses 

The new tax law has important consequences for businesses in UAE’s free zones, crucial to the country’s international trade. But don’t worry, the law is designed to align with the UAE Government’s economic reform agenda. If you comply with transfer pricing rules and maintain relevant documentation, your business may benefit from significant exemptions. 

Decoding Permanent Establishment and Corporate Tax Rates 

Permanent Establishment is a term you might come across often. In simple terms, it’s about whether a foreign entity has a strong enough presence in the UAE to warrant being taxed. The new tax law imposes a 9% corporate tax rate on taxable profits above AED 375,000. 

Understanding the Withholding Tax Rate and Free Zone Conditions 

You may also hear the term “withholding tax”. This is a tax that applies to certain types of UAE sourced income paid to non-residents. However, it’s set at a 0% rate, meaning, in practice, no withholding tax is due, simplifying things for UAE businesses and foreign recipients of UAE sourced income. 

Finally, for businesses in the Free Zone, the tax law provides preferential conditions under certain criteria, potentially offering a 0% tax rate on their “Qualifying Income”. 

Always Here to Help 

While this might seem a lot to digest, remember we at BIZ are always here to support you. Whether you need help understanding the impact of these new laws on your business, assistance with maintaining the required documents, or advice on how to leverage these changes to maximize your growth potential, we’ve got you covered. 

In addition to this, we can also help with all aspects of your business setup. This includes advising on the optimal location for your business, taking care of all registration paperwork, and even providing post-setup support services. Our team of experts are ready and available to answer any questions or concerns you may have.