What are The Regulations Applicable to Corporate Tax in Dubai?

August/16/2023

Corporate tax in Dubai is well-known for its magnificent buildings, luxury, and shopping, but perhaps most importantly, it is tax-free for both individuals and businesses. Due to the absence of taxes, Dubai has attracted hundreds of businesses and billions of dollars in investment, transforming it into the Middle East’s leading technical and financial center. The United Arab Emirates and Dubai, however, have both recently undertaken considerable tax reforms with the purpose of streamlining their tax systems, bringing them in line with global best practices, and diversifying their state revenues.

Corporate tax (CT) is a form of direct tax levied on the net income or profit of corporations and other entities from their business. Corporate Tax is sometimes also referred to as “Corporate Income Tax (CIT)” or “Business Profits Tax” in other jurisdictions.

In the usual corporate tax in Dubai, the rate is 9%.

There is a three-tier structure, Though:

1. Annual taxable profits up to AED 375,000 (approximately $102,000) are subject to a 0% tax rate.

2. AED 375,000 ($102,000) or more in annual taxable profits are subject to 9% taxation.

3. Multinational companies that fit under Pillar 2 of the BEPS 2.0 framework (consolidated global revenue above AED 3.15 billion) are liable to various rates based on OECD regulations.

Accordingly, if your business must pay taxes in Dubai under the Corporate Tax laws in dubai, it would do so at a rate of 0% on the first $102,000 of profits and 9% on profits over that mark.

For example, An organization with a $200,000 profit, for instance, would have an effective tax rate of less than 4.5%.

What is the System of corporate tax in Dubai?

All businesses and commercial endeavors carrying on business in any of the seven United Arab Emirates emirates are subject to corporate tax in Dubai.

It is assessed on the company’s profits after expenses have been subtracted from revenue. In general, all business-related expenses are tax deductible.

However, some forms of income are not subject to corporate tax in Dubai.

Dividend income, also known as the participation exemption, obtained by the UAE firm from its qualified participations (to be specified in the law).

Gains in capital.

gains from group restructuring.

gains from transactions within the group.

On both domestic and international payments, there will be no UAE tax withheld.

The United Arab Emirates will also be subject to the OECD transfer pricing laws, and this includes businesses with offices in Dubai. The transfer price guidelines and documentation criteria must be followed by all businesses.

Which businesses are subject to pay corporate tax in Dubai?

Any business operating in one of the seven United Arab Emirates including Dubai, must pay corporate tax unless exempt.

Corporate Tax in Dubai does not apply to the following types of entities:

Industries engaged in the extraction of natural resources will continue to be governed by the tax regulations set forth by the relevant emirate.

Persons earning personal income (such as salary or investment income), provided that the source of the money is not a commercial enterprise.

Companies have a Free Trade Zone registration, providing they comply with all legal criteria and avoid doing business with organizations domiciled in the United Arab Emirates.

In general, if your company is operating in Dubai, has annual taxable profits exceeding AED 375,000 (approximately $102,000), and conducts business with companies based in the Emirati territory (mainland business), it will be subject to Corporate Tax in Dubai.

However, if your business is registered in a free trade zone and doesn’t operate on the United Arab Emirates’ continental area, it can be exempt from corporate tax as long as it complies with all legal criteria.

For example, a company providing hospitality services to hotels in Dubai, which are considered mainland business, would be subject to Corporate Tax. On the other hand, a company incorporated in a Free Trade Zone that provides online affiliate marketing services outside of the United Arab Emirates would not be liable for Corporate Tax.

Are companies doing business in Free Trade Zones obligated to pay corporate tax in Dubai?

As previously indicated, businesses based in the Dubai Free Trade Zones may qualify for an exemption from corporate income tax if they refrain from conducting business with the UAE’s mainland and abide by all legal and regulatory criteria.

It is crucial to remember that a company tax return must be completed annually in every Free Trade Zone, even if it is just for informational purposes.

What are the businesses or incomes that are outside the scope of corporate tax in Dubai?

Enterprises earning more than the 3.75 million AED profit threshold must pay corporate tax. But some forms of revenue or business are free from corporate tax. The list of businesses or income free from corporate tax is as follows:

Corporate tax will not apply to individuals. Any income from employment, real estate, stock investments, or other sources of personal income unrelated to a trade or business in the UAE will therefore be exempt from corporate tax.

Not applicable to foreign investors conducting business outside of the UAE

Businesses operating in the UAE are exempt from corporate tax on the capital gains and dividends they earn from their qualified shareholdings.

Not applicable to restructurings and qualifying intragroup transactions