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.