On December 9, 2022, the UAE Ministry of Finance introduced corporate tax. It is a direct tax that is levied on all business and entity income. The rules of this tax law will go into effect on June 1, 2023, for fiscal years. In several international countries, this type of taxation is also known as "Corporate Income Tax" or "Business Profits Tax."
What is Corporate Tax in UAE
The Corporate Tax in the UAE will continue to be the most lenient tax rate in the world, making business administration easier. The implementation of this tax will boost UAE revenue, which is crucial for preserving the nation's competitiveness in the international trade and investment market. This modification is therefore expected to promote greater financial accountability in business practices, which will lead to better record-keeping. To preserve worldwide norms for tax transparency and safeguard local start-ups and small businesses, the UAE decided to impose a corporate tax.
Corporate Tax Rates for Free Zones
- 0% Qualifying Income: Businesses operating in Free Zones are exempt from taxes on revenue that supports zone objectives and fosters strategic initiatives.
- 9% Non-Qualifying Income: Taxable earnings outside the scope of the Free Zone are subject to 9% corporate tax, guaranteeing revenue balance.
Corporate Tax Rates for Mainland
- Tax-free income up to AED 3,75,000. This supports small businesses.
- Income exceeding AED 3,75,000 is subject to a 9% tax, which ensures a fair revenue contribution.
Corporate Tax Return Filing
In the UAE, submitting a corporate tax return requires giving the relevant tax authority a thorough report detailing a company's earnings and outlays. This Tax Return lists the Taxable Person's corporate tax liabilities and payments for a certain tax period. Within the time frame established by the Corporate Tax Law, the return must be filed. The taxpayer is obligated to provide any additional documents, data, or information requested by the tax authorities.
In the UAE, corporate tax returns filing is mandatory. All businesses with offices in the UAE are required to file returns and pay taxes by legislation of the Federal Tax Authority (FTA). Businesses with annual revenue under AED 3,75, 000 aren't taxed. UAE tax regulations apply to both domestic and foreign businesses, and failure to file or pay taxes results in penalties.
Tax Persons must follow the Corporate Tax Timeline to file tax Returns in UAE for every 12-month Tax period within 9 months with financial statements.
Timeline to file UAE Corporate Tax
Every Tax Period, which can either correspond to the entire Financial Year or a portion of it, requires a Tax Return from a Taxable Person. The Gregorian calendar year, or the 12-month period during which financial statements are generated, serves as the Tax Period.
1. Financial Year 1 June 2023 to 31 May 2024
In this scenario, the fiscal year is defined as the period beginning on June 1, 2023, and ending on May 31, 2024. This period represents the first 12-month Tax Period that is being taken into account. Businesses must manage their financial activities and records throughout this time to comply with tax reporting requirements.
The Return Filing duration for the First Tax Period is set as being from May 31, 2024, to February 28, 2025, a duration of 9 months. Businesses must comply with the agreed-upon reporting requirements during this period by submitting their tax returns and pertinent documents for the first tax period.
2. Financial Year 1 January 2024 to 31 December 2024
The first tax period lasts 12 months for the financial year starting on January 1 and ending on December 31. The equivalent return filing period runs from January 1, 2025, through September 30, 2025, a duration of nine months. Businesses have this time frame to submit their tax returns and related documents to comply with regulatory regulations.
3. Financial Year 1 April 2024 to 31 March 2025
The first tax period that lasts 12 months is covered by the financial year, which runs from April 1, 2024, to March 31, 2025. After that, the first tax period's return filing window is open for 9 months, ending on December 31, 2025. By submitting their tax returns and related paperwork within this window, businesses may ensure that they conform with all applicable regulations.
Consequences of Missing Tax Return Deadlines: Penalties and Fines
Depending on the jurisdiction and tax regulations, failing to comply with the designated tax period for filing tax returns and fulfilling tax obligations can have several consequences. The Tax authorities impose fines or penalties for delayed or omitted tax return submission, the severity of these fines or corporate tax fines and penalties depends on how long the return was late and how much tax was still owed.
The following formula is used in the UAE to compute late payment penalties for corporate tax:
- A predetermined penalty is assessed in the first month of the delay, typically in the form of a percentage of the total amount of unpaid taxes.
- A fixed penalty is added for each extra month of delay.
- From the due date until the full tax payment is made, interest is charged on the amount of overdue taxes.
Leading Tax Consultancy Services in UAE
The introduction of the corporate tax services in the UAE represents an important step toward achieving international tax norms and generating income. The UAE's lenient tax rates and dedication to tax transparency demonstrate the country's commitment to both economic development and ethical business practices. This new tax system promotes fiscal responsibility, maintains fairness in revenue sharing, and streamlines business administration.
BMS is prepared to effortlessly steer your business. Our knowledgeable team offers specialized solutions in compliance with rules since we are aware of the nuances of local taxes. We guarantee prompt filing, the reduction of fines, and the improvement of your tax position through accurate record-keeping and strategic corporate tax consultants. We carefully handle the new tax environment to ensure compliance and effective financial management. Navigate the corporate tax laws of the UAE with assurance when you collaborate with tax consultants.