Introduction to the Federal corporate tax UAE

The United Arab Emirates (EAU) announced the introduction of a Federal Corporate TaxAs of June 1, 2023. This marks a significant change for companies operating in the EAU, including independent workers and solo business owners. This blog post will break down what this means for you and your company.

What is the corporate tax rate?

The EAU corporate tax rate is set at 9%. This is relatively low compared to many other countries, which makes EAU an attractive place to do business. However, there is an important distinction:

• Taxable income below AED 375,000: Companies with taxable income below this threshold will be exempt from the corporate tax.
• Tax Income Blief AED 375,000: The standard tax rate of 9% will apply any income above this threshold.

Who needs to pay the corporate tax?

The corporate tax applies to all companies and commercial activities in the EAU, with some exceptions, which include:

• Extraction of natural resources (these remain subject to taxes at the level of separate emirate)
• Individuals who earn salaries

Corporate tax details for freelancers (natural person) and commercial establishment in solo:

• Natural persons who carry out business or commercial activities in the EAU are residents for the corporate tax, the most important thing of their nationality, whether they have a residence visa in the EAU, whether their income is obtained in the time of Sprade Sprady Inte.
• Specifically, the corporate tax only applies to natural persons participating in companies or commercial activities in the EAU and obtaining the billing of these companies or commercial activities that exceed the AED 1,000000 in a Gregorian calendar year.
• A single establishment is a commercial business owned by a natural person, where the owner is not separated from the business. This is due to the direct relationship and control of the natural person on the business and their unlimited responsibility for debts and other business obligations. In this case, the natural person trades in their own name instead of through a separate legal entity.
• While the business includes vocational, commercial, industrial and professional activities, it does not include employment, and the corporate tax does not apply to salary, salaries and other labor income of a natural person. Nor does it include income from personal investments and real estate investments.
• Personal investments are activities that a natural person undertakes in their personal capacity and not through a license (or it is not required to be carried out through a license), and the activities are not reduced to a commercial business
• Real estate investments are activities carried out by an individual in relation to the direct or indirect sale of sale, lease, subtend and rental or real estate property in the EAU that are not carried out through a license).

The threshold of 1 million:

• Registration threshold: Independent workers and unique owners in the EAU are required to register for the corporate tax if their excessive annual billing 1 million within a calendar year (January to December).
• Tax Income Threshold: While the Becesnicy registration fits 1 million AED, the 9% real corporate tax only applies to commercial profits that exceed 375,000 AED within a financial year.
• Vs. revenue: It is important to distinguish between these two:
  • Flying: total income generated before any expense.
  • Benefit: the amount left after deducting the commercial expenses of the billing.

Example:

If an independent graphic designer earns 1.2 million AED in a year but has 500,000 AED in commercial expenses, they would have to register for the corporate tax (because it exceeded the billing threshold). However, its taxable income would be 700,000 (1.2 million – 500,000). Only the portion above AED 375,000 (AED 325,000 in this case) would be subject to the 9%tax.

Why is the threshold of 1 million aed:

This threshold, together with the taxable income threshold of 375,000 aed lower, ensures that many freelancers and small businesses are not strongly affected by the new corporate tax. It is designed to mount the EUA’s appeal for entrepreneurs, while ensuring that the largest and most profitable companies contribute their participation.

Important considerations:

• Record maintenance: The precise record of income and expenses is essential for any independent professional, but becomes even more crucial with the introduction of the corporate tax.
• Expert Council: Consult a fiscal advisor to understand your specific situation and stay updated on any change in tax regulations.

For more information, these official resources are useful:

• Federal Fiscal Authority (FTA): https://tax.gov.ae/enfault.aspx
• Ministry of Finance – Frequent Corporate Tax Questions of the EAU: https://mof.gov.ae/corporate-tax-faq/

EAU: It is still a freelancer shelter

Despite the introduction of the corporate tax, the EAU remain a convincing destination for independent workers and solo businessmen. The relatively low tax rate, the generous threshold and government support measures ensure that the Eau Mintainsins their competitive advantage.

In conclusion

While the corporate tax marks a change in the Fiscal Panorama of the EAU, it is important to understand that it implies for its independent or alone business. When taking proactive measures, consulting and staying updated, it can guarantee compliance without problems and prosper continuously in the dynamic business environment of the EAU.