What is corporate tax?

Corporate tax, also known as corporate income tax or business profits tax, is a direct tax imposed on the net income earned by corporations and businesses. This taxation model is widely used around the world as a means for governments to generate revenue from corporate profits.

In the context of the United Arab Emirates (UAE), corporate tax was introduced through the issuance of the Corporate Tax Law on December 9, 2022. This law provided the legal foundation for the implementation of federal corporate tax, which became effective for financial years starting on or after June 1, 2023. Under the UAE’s corporate tax system, unless exempted, taxable income exceeding AED 375,000 will be subject to a statutory tax rate of 9%. Income below this threshold is not subject to taxation. This approach aligns the UAE with many other countries globally that have established frameworks for corporate taxation.

Who needs to register for UAE corporate tax?

Entities subject to corporate tax in the UAE, categorized as residents or non-residents with a permanent establishment or nexus in the country, must initiate the process by registering and obtaining a corporate tax registration number.

Resident persons

Resident entities in the UAE encompass a broad spectrum, including those incorporated domestically, whether offshore, within free zones, or operating on the mainland. Additionally, foreign entities effectively managed and controlled within the UAE, as well as individuals conducting business activities in the country, fall under the category of resident persons. These entities and individuals are subject to taxation on their worldwide income. Resident taxpayers must adhere to registration requirements within specified deadlines, which are determined by the month of trade license issuance. It’s essential to note that these deadlines apply regardless of the year in which the license was issued.

Non-resident persons

Non-resident entities in the UAE comprise companies with a permanent establishment in the country. Additionally, this category includes entities deriving income from UAE sources that are not attributable to a permanent establishment or nexus within the UAE. Taxation for non-resident entities will be applicable solely to the income associated with their UAE permanent establishment or nexus.

Who is exempted from UAE corporate tax?

Certain entities are automatically exempt from corporate tax in the UAE. This exemption encompasses government entities and government-controlled entities. Additionally, the following entities may also be considered as Exempt Persons:

1. Extractive businesses in the UAE
2. Non-extractive natural resource businesses in the UAE
3. Qualifying public benefit entities
4. Qualifying investment funds
5. Pension or social security funds, both public and private
6. Wholly-owned and controlled UAE subsidiaries of certain exempt entities

What Is Accounting?

Accounting encompasses the systematic recording of financial transactions related to a business. This process involves summarizing, analysing, and reporting these transactions to oversight agencies, regulators, and tax collection entities. The financial statements produced through accounting serve as a concise summary of financial activities over a defined accounting period, providing insights into a company’s operations, financial position, and cash flows.

KEY TAKEAWAYS

Regardless of a business’s size, accounting plays a vital role in decision-making, cost planning, and measuring economic performance. While basic accounting needs can be handled by a bookkeeper, larger or more complex tasks often require the expertise of a Certified Public Accountant (CPA). Two key types of accounting for businesses include managerial accounting and cost accounting. Managerial accounting aids management teams in making informed business decisions, while cost accounting assists business owners in determining product costs. Professional accountants adhere to a set of standards known as the Generally Accepted Accounting Principles (GAAP) when preparing financial statements, ensuring consistency and reliability. Accounting serves as a critical function in strategic planning, external compliance, fundraising, and operations management, highlighting its importance across various aspects of business operations.

What Is the Purpose of Accounting?

Accounting stands as a cornerstone function within nearly every business structure. In small firms, this responsibility may fall to a bookkeeper or accountant, while larger companies often boast substantial finance departments governed by a comprehensive accounting manual and staffed by numerous employees. These departments ensure coherence and accuracy across financial operations. Reports generated through various accounting streams, such as cost accounting and managerial accounting, provide invaluable insights for management in making informed business decisions. Financial statements, summarizing a large company’s operations, financial position, and cash flows over a specified period, represent condensed and consolidated accounts derived from myriad individual financial transactions. Consequently, achieving professional accounting designations requires years of dedicated study, rigorous examinations, and a minimum duration of practical accounting experience.