Corporate Tax Parameters and Application in the UAE

The UAE Ministry of Finance’s groundbreaking announcement on January 31, 2022, revealed the region’s lowest corporate tax rate, set at a flat 9%. This strategic move is aimed at fostering a more attractive environment for foreign investments in the UAE.

Corporate Tax Parameters and Application in the UAE

Corporate Tax Applicability Threshold

The Ministry of Finance outlines that corporate tax rates will only be applicable if the income surpasses a defined threshold limit. Net income falling below this threshold will be exempted from corporate tax. The corporate tax applicability limits are as follows:

  • 0% for taxable income up to AED 375,000
  • 9% for taxable income exceeding AED 375,000
  • A separate tax rate (yet to be specified) for large multinationals meeting specific criteria

It’s important to note that a multinational enterprise is identified as a business operating in its home country and internationally through foreign subsidiaries, branches, or other forms of presence.

Types of Businesses Subject to Corporate Tax in the UAE

As per the Ministry of Finance’s announcement, the Federal Tax Authority (FTA) is tasked with administering, collecting, and enforcing corporate tax from:

  • All businesses and individuals engaged in commercial activities under a license in the UAE
  • Free zone businesses in the UAE
  • Foreign businesses and individuals, contingent upon running a trade or business in the UAE in an ongoing or regular manner, determined by factors like management and control, permanent establishment, and income source
  • Banking operations
  • Businesses involved in real estate management, construction, development, agency, and brokerage activities

Key Business Reports for Corporate Tax Computation

The UAE Corporate Tax income regime proposes using the accounting net profit (or loss) position in financial statements as the starting point for determining taxable income. Consequently, financial reports generated by companies in the UAE will be pivotal for this assessment.

Among these reports, the profit and loss account statement holds particular importance. It is prepared to ascertain the net profit earned by the business over a specified period. Corporate tax is levied on this net income, making the profit and loss account a crucial document for tax calculations.

The corporate tax calculation process involves determining the net adjusted income after factoring in allowed deductions and subsequently evaluating taxable business income.

TallyPrime: Facilitating Corporate Tax Compliance

Smart business management is crucial for maintaining financial reports, records, and statements. TallyPrime, a comprehensive business management software, offers integrated features to enhance efficiency and support businesses in meeting tax requirements seamlessly.

TallyPrime’s features include:

  • Instant automatic generation of various financial reports required for tax compliance, financial audits, and business decisions.
  • One-click generation of profit and loss accounts for easy and accurate assessment.
  • Comparative profit and loss statements over different periods for comprehensive analysis.
  • Tailoring financial reports and statements to align with country-specific regulations.

Regardless of your business model or industry, TallyPrime stands ready to assist in meeting tax obligations effortlessly while providing powerful features to support overall business growth.

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