Corporate Tax for Small Business

CT Tax Rate for Small Businesses 

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On the 1st of June 2023, the corporate tax rate will be 9% of the net profit made by businesses in the UAE. In order to support small businesses and start-ups, the corporate tax rate will be ‘0’ % if the net profit is up to AED 375,000. 

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Impact on Small Business 

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The new UAE Corporation Tax will require a change in mindset for the tax and finance department of any business. Moving forward, transactions and book entries will need to be undertaken with Corporation Tax in mind. 

It will be of utmost importance for small businesses in the UAE to follow tax technology best practices, followed stringently in other countries already. This includes e-audits, e-compliance, e-assessments, and e-invoicing.  Not only will these elements need implementation, but they also need to be robust enough to be changed as the Federal Tax Authority updates its requirements. 

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Businesses Based in Free Zones

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Free zone Businesses will be subject to UAE Corporation tax, however the Federal Tax Authority will continue to honour the tax incentives in place by the various Freezone authorities. This is because many have historically offered tax fee incentives for 20 years when forming a company there. This however is not applicable to those trading on the mainland and calculating the correct tax would need to be done accurately with the appropriate documentation. Businesses would still be required to file a Corporate tax return even if they are based in a freezone.

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Small Business Relief

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The UAE Ministry of Finance announced the introduction of the Small Business Relief for Corporation Tax Purposes and some of the key takeaways for entrepreneurs to be aware of is a follows:

1. This applies to Mainland businesses (qualified freezones are exempt)
2. Revenues should not exceed AED 3m for each tax period
3. The small business relief will only apply until December 2026
4. Businesses cannot be separated into different licences to artificially claim the Small business relief for each entity
5. Tax losses will not be carried forward for subsequent periods
6. Multinational companies will be exempt if the group revenues are more than AED 3.15bn

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Corporate Tax Credit on Losses

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Companies would be able to offset losses against profits thereby not being penalised for loss making periods and therefore supporting businesses in the UAE. This would be applicable subject to strict requirements of claiming back the loss which would require appropriate documentation.

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Withholding Tax

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Other tax regimes in the GCC have Withholding tax (WHT) rules on payments outside the country. It seems that there would not be any WHT due on dividends, interest, royalties and other similar payments in the UAE

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WHT is the tax collected at source by the payer on behalf of the recipient of the income.

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Accounting Adjustments

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In some circumstances, accounting adjustments may affect the calculation of corporation tax. These may include:

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1. Impairments of assets and liabilities.

2. Assets and Liabilities held on capital account whilst taking into consideration

3. any unrealised gains or losses.

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Exempt Income

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The Corporation tax law has made reference to Exempt income. Which is the income where no Corporation tax is due. This includes dividends and other profit distributions from foreign and UAE based companies subject to certain criteria.

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Corporate Tax Registration

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It is expected that all companies would need to register for Corporation Tax in the UAE.

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Corporate Tax Submission

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Corporate Tax filing is expected to be submission once a year and is based on the financial year of the business. It is also expected to be filed electronically.

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Penalties and Fines

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There is an expectation of late registration and late submission penalties levied on companies for non-compliance. Similar rules to the VAT law whereby late payment penalties is likely to be included also.