Overview of Taxation in the United Arab Emirates
The UAE does not impose income tax on individuals. However, it applies a 5% Value Added Tax (VAT) on goods and services, charged at every stage of the supply chain and ultimately borne by the end consumer. Additionally, the UAE imposes Excise Tax on certain health-harmful products and Corporate Tax on the net income or profits of businesses and other entities.
Key Information About UAE VAT
- Scope of VAT:
VAT is levied on:
- Goods and services supplied within the UAE.
- Import of goods into the UAE.
- Specific services, including those provided electronically.
- Registration Requirements:
Businesses must register for VAT if:
- Their annual taxable supplies and imports exceed AED 375,000 (mandatory registration threshold).
- They expect to exceed the threshold in the near future.
- Voluntary registration is allowed for businesses with supplies and imports exceeding AED 187,500.
- VAT-Exempt and Zero-Rated Goods/Services
- Zero-rated items: Certain sectors such as education, healthcare, and exports outside the GCC are taxed at 0%.
- Exemptions: Residential real estate, financial services, and local passenger transport are VAT-exempt.
- VAT Filing and Payment:
- Registered businesses must file VAT returns periodically, typically on a quarterly basis.
- Returns should be submitted via the Federal Tax Authority (FTA) EmaraTax portal.
- Payments must be made promptly to avoid penalties.
- Compliance with VAT requirements
While VAT is charged and collected by businesses on behalf of the government and as such should not be considered as a cost, there will be an additional burden in terms of administration and compliance with the legislation. Businesses are required to customise their systems, processes and procedures to ensure they comply with the regulatory requirements, such as for example:
- Charging VAT on supplies at the correct rate;
- Calculating VAT deductible on purchases;
- Calculating the overall net amount of VAT to pay/ refund.
- What are the VAT-related responsibilities of businesses?
All companies are required to record their financial transactions and ensure that their accounting records are accurate and up to date. Businesses that meet the minimum annual turnover requirement (as evidenced by their records) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their accounting records in any event, in case FTA may inspect their accounting records in order to establish whether they should be registered.
"To comply with VAT, businesses will need to consider the need for a mix of Accountant and Tax Advisor in order to ensure up-to-date accounting records that give a clear and accurate view of the financial performance and position of their business in accordance with the accounting standards and the local tax laws".
Key Information About UAE Corporate Tax
Introduction to Corporate Tax
Corporate Tax (CT) was introduced in the UAE with the aim of diversifying government revenue and aligning the country with international tax practices. Effective June 1, 2023, it applies to businesses operating within the UAE.
Scope of Corporate Tax
Taxable Entities:
- UAE-based companies.
- Foreign entities with a permanent establishment in the UAE.
- Free Zone businesses (subject to specific conditions).
- Individuals engaged in business activities within the UAE.
Exemptions:
- Government entities.
- Government-owned companies carrying out sovereign activities.
- Qualified public benefit organizations.
- Certain investment funds and real estate investment trusts (REITs).
- Businesses involved in natural resource extraction (subject to Emirate-level taxation).
Tax Rates:
- 0%: Taxable income up to AED 375,000 to support small businesses and startups.
- 9%: Taxable income exceeding AED 375,000.
- Different rates: May apply to large multinational corporations meeting specific criteria under OECD’s Pillar Two framework.
Corporate Tax Compliance:
1. Taxable Income:
- Calculated based on accounting profits as per International Financial Reporting Standards (IFRS), with specific adjustments.
2. Filing and Payment:
- Annual Corporate Tax return must be filed within nine months of the end of the relevant financial year.
3. Transfer Pricing Requirements:
- Related party transactions must adhere to the arm’s length principle, with proper documentation maintained.
4. Record Keeping:
- Businesses are required to maintain records for at least seven (7) years.
Key Features of UAE Corporate Tax
Free Zone Businesses:
- Eligible Free Zone entities can benefit from a 0% tax rate on qualifying income, subject to meeting regulatory requirements.
Relief Provisions:
- Group tax relief for qualifying groups.
- Business restructuring relief for mergers and acquisitions.
Deductions and Adjustments:
- Business expenses incurred wholly and exclusively for generating taxable income are deductible, subject to certain limitations.
Relief Provisions:
- Group tax relief for qualifying groups.
- Business restructuring relief for mergers and acquisitions.
Current double tax treaties with UAE
Though, currently there is no taxation for most of the business activities in the UAE, the UAE has the Double Tax Treaties network that gives the opportunity to substantially minimize the taxation of the business operations. This aimed to make the UAE a more attractive territory to operate. Generally, under these treaties profits generated from shares, dividends, interest, royalties and fees are taxable only in the state where the income is earned according to mutually agreed terms and conditions. Countries, who signed the Double Tax Treaties with the UAE are:
Algeria, Armenia, Austria, Azerbaijan, Belaurs, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, China, Cyprus, Czech, Egypt, Finland, France, Georgia, Germany, Hellenic, India, India (Amendment Protocol), Indonesia, Ireland, Italy, Kazakhstan, Korea, Lebanon, Luxembourg, Malaysia, Malta, Mauritius, Mongolia, Morocco, Mozambique, Netherlands, New Zealand, Pakistan, Philippines, Poland, Portuges, Romania, Seychelles, Singapore, Spain, Sri Lanka, Sudan, Syria, Tajikistan, Thailand, Tunisia, Turkey, Turkmenistan, Ukraine, Uzbekistan, Venezuela, Vietnam and Yemen.
How do we support you
We support our clients by:
- Reviewing and validating the Client’s business model, flows and capability of the existing systems for VAT compliance i.e. organization chart, buy, sell and consignment based model, transactions with intercompany, free zones and GCC.
- Designing VAT solution / configuration (taxability of products and services, tax codes, invoice layout, VAT reporting, documentation, etc.)
- Providing recommendation on internal controls
- Providing training to the concerned finance personnel
- Assisting in VAT registration process
- Obtaining of VAT certificate for Companies in the UAE from the Ministry of Finance.
- Reviewing & reporting of tax implications, both within a territory and cross-border.
- Advising cross-border clients under the light of U.A.E Bilateral International Tax Treaties on Avoidance of double taxation on income.
"Our Accounting and Tax Services help our clients in maintaining the accounting records and generation of regular accounts and reports tailor-made to each client’s specific needs and regulatory requirements"
How do we support you in the UK
Our correspondent UK office supports the clients in:
- Completing your income tax and corporation tax returns and handling all tax correspondence
- Handling enquiries and investigations from the tax authorities
- Advising on business and corporation taxes
- Advising on remuneration strategies and business structures
- Advising on capital gains tax and inheritance tax
- Assistance with VAT registration
- Advise on VAT planning and administration and advising of the most appropriate scheme
- VAT control and reconciliation
- Help with completing VAT returns.
