Dubai has long been known as a tax-friendly business hub, attracting global investors with its zero corporate tax policy. However, to align with international tax standards and enhance revenue sources, the UAE introduced a new corporate tax regime, effective June 1, 2023. This marks a significant shift in the country’s taxation landscape, impacting both local and multinational businesses operating in Dubai.

What is the New Corporate Tax Rate?

Under the new corporate tax framework, businesses in Dubai are subject to:

• 0% tax on taxable income up to AED 375,000
• 9% tax on taxable income exceeding AED 375,000
• Different tax rates for large multinational enterprises subject to OECD’s Pillar Two framework (for companies with global revenues exceeding EUR 750 million)

Who is Affected by the Corporate Tax?

The corporate tax applies to:

• All businesses and commercial activities in Dubai, except for those explicitly exempt.
• Foreign entities generating business income in the UAE.
• Free zone companies that conduct business with the mainland (although they may still benefit from preferential tax treatment).

Who is Exempt?

Certain entities are exempt from corporate tax, including:

• Government and government-controlled entities.
• Businesses engaged in natural resource extraction (already subject to Emirate-level taxation).
• Charitable organizations and public benefit entities meeting specific criteria.

How is Corporate Tax Calculated?

Corporate tax is calculated based on net profits as per the financial statements prepared in accordance with internationally accepted accounting standards. Deductions for business expenses, depreciation, and tax credits apply as per UAE tax laws.

Compliance and Filing Requirements

• Businesses must register for corporate tax with the Federal Tax Authority (FTA).
• Annual tax returns must be filed within 9 months of the end of the financial year.
• Proper bookkeeping and financial records must be maintained to ensure compliance.

Implications for Businesses

• Increased financial planning: Companies must factor in corporate tax liabilities when planning budgets and expenses.
• Potential price adjustments: Businesses may adjust pricing strategies to accommodate tax obligations.
• Impact on Free Zones: Free zone entities must carefully structure their transactions to optimize tax benefits.

Conclusion

Dubai’s new corporate tax marks a shift toward greater fiscal sustainability and global compliance. While it introduces new financial responsibilities, proper tax planning and compliance measures can help businesses navigate this transition smoothly. Consulting with tax professionals can ensure businesses maximize benefits while staying compliant with the new regulations.