With the corporate tax rule taking effect this year, the UAE’s Ministry of Finance has issued an Explanatory Guide to give firm owners clarity on the new legislation and what it means for companies.
1. Mandatory Registration and Compliance
All businesses, including those in free zones, are required to register for corporate tax, maintain proper accounting records, and submit tax filings to the Federal Tax Authority (FTA).
2. Corporate Tax Rates
- Businesses with a taxable income of up to AED375,000 will enjoy a 0 percent corporate tax rate.
- Profits exceeding AED375,000 will be subject to a 9 percent corporate tax rate.
3. Free Zone Benefits
Qualifying free zone entities will benefit from a 0 percent corporate tax rate.
4. Small Business Relief
Startups and small businesses meeting specific criteria can apply for Small Business Relief. Those with an annual turnover of up to AED3,000,000 will be exempt from corporate tax.
5. Dividends and Capital Gains
Under certain conditions, dividends and capital gains from share holdings might be exempted from corporate tax.
6. Transfer Pricing
Thresholds and documentation requirements for transfer pricing aim to reduce compliance burdens for small and medium-sized enterprises (SMEs).
7. Tax Group Formation
Related companies meeting specified conditions may form a tax group for certain benefits.
8. Foreign Tax Credits
Foreign tax credits will apply to non-exempt foreign-sourced income to prevent double taxation.
Understanding these key points is crucial for businesses to navigate the corporate tax landscape and ensure compliance with the regulations set forth by the Federal Tax Authority.
