Learn the key differences between Corporate Tax and VAT in the UAE, who they apply to, and how BMS Auditing can help your business stay tax-compliant and penalty-free.
The United Arab Emirates remains a top destination for international businesses, with an appealing regulatory environment and numerous geographic advantages. Nevertheless, with the changing tax landscape, companies in the UAE need to remain updated and compliant. Two tax types that every business owner and entrepreneur needs to know are Corporate Tax and Value Added Tax (VAT).
Let us discuss the core features and also the main differences between these two forms of taxes and how BMS Auditing can help your UAE tax compliance journey.
What is UAE Corporate Tax?
Previously, the UAE did not charge corporate tax on business profits. Nevertheless, as part of its mission to establish a diversified and internationally integrated economy, the UAE enacted a Federal Corporate Tax law on December 9, 2022. The tax is intended to cement the UAE's position as an international business hub while conforming to international tax standards.
Corporate tax in the UAE covers
- All business and commercial activities within the emirates.
- Companies that are not within Free Zones under qualifying conditions.
- Large multinational entities (MNEs) under the OECD's BEPS 2.0 framework (Pillar Two).
Exemptions from Corporate Tax:
- Income accruing to persons in their private capacity (e.g., wages, investment returns).
- Businesses engaged in natural resource extraction activities (regulated at the emirate level).
- Qualified Free Zone persons, subject to certain conditions.
- Dividends received from UAE or foreign businesses.
- Profits on intra-group transactions or group restructurings
Corporate Tax Rates
- 0% on taxable income between AED 375,000 and AED 375,000
- 9% on taxable income above AED 375,000
- MNEs are subject to additional rates as per OECD guidelines
What is VAT (Value Added Tax) in the UAE?
Value Added Tax (VAT) is an indirect tax paid on the final consumption of most goods and services in the UAE. It became effective on January 1, 2018, at a standard rate of 5%. VAT is distinct from corporate tax in that it is charged on each stage of the supply chain and eventually borne by the end consumer.
A business should register for VAT if its taxable supplies amount to more than AED 375,000 annually.
VAT is not applicable on:
- Certain financial services
- Passenger transport of local origin
- Residential properties
- Bare land
VAT-Free Zones (Designated Free Zones): Sales transacted within stipulated Free Zones are generally free from VAT subject to the set provisions.
Registered traders have to:
- Charge VAT on taxable supplies
- Submit regular VAT returns to the Federal Tax Authority (FTA)
- Keep adequate VAT records and documents
- Why Understanding UAE Tax Laws Matters
As the UAE shifts towards a more diverse tax system, it is critical that businesses learn and adjust to the new rules. Compliance errors or ineffective tax planning can lead to:
- Fines and other related penalties
- Lost tax credits or exemptions
- Regulatory approval delays
- Reputation and business disruption damage
How BMS Auditing Can Help
At BMS Auditing, we have a decade of experience in assisting companies in coping with the changing tax landscape in the UAE. Our professional team is well-equipped with both VAT and Corporate Tax legislation and provides customized services to make your company tax-compliant while optimizing tax efficiency.
Our Services Include:
- VAT Registration and Filing
- Corporate Tax Planning and Compliance
- Tax Return Preparation and Review
- Business Restructuring for Tax Efficiency
- Assistance with FTA audits and inquiries
- Strategic Tax Consultation for Free Zone and Mainland companies
Our experts collaborate with clients and deliver actionable insights and dependable support. Whether you are a new business or a well-established company, BMS Auditing ensures that your tax obligations are fulfilled with confidence and precision.
Partner with BMS Auditing for Corporate Tax and VAT Compliance
Since the UAE continues to advance its tax infrastructure, knowing the difference between Corporate Tax and VAT is vital for business success. Whilst corporate tax affects profits in business, VAT targets purchases by consumers. Having both under control is necessary for sustainable growth and regulatory adherence.
BMS Auditing ensures that your company keeps pace with all tax compliance and takes advantage of all available exemptions and incentives. Allow us to simplify tax issues and you can concentrate on what matters most — growing your thriving business.
Call BMS Auditing today for expert assistance with Corporate Tax and VAT services in the UAE!
