For any business in the UAE, whether foreign owned or not, a comprehensive understanding of the taxation system present in the region is essential for smooth operations. From compliance to financial planning and everything in between, understanding tax structures will help your business thrive by avoiding penalties and optimizing tax efficiency. Keep reading to find out more about the updated tax laws in the UAE which will pave the way for you to adapt to the changes and maximize on financial benefits.
Corporate Tax
Corporate Tax in the UAE was recently brought into the tax landscape. Coming into effect on June 1st 2023, this tax is applied to all companies conducting business in the UAE at the rate of 9% on profits.
If the profits of your business cross the AED 375,000 mark annually, then your business would be subjected to this tax.
If your company has been established in any of UAE’s free zones, you are corporate tax exempt. However, you must not conduct any business within the UAE mainland, along with meeting other conditions that differ on a case by case basis.
Adherence to OECD’s Base Erosion and Profit Shifting (BEPS) framework is standard in the UAE. Therefore, this may have an effect on the taxation policies of multinational companies operating in the UAE.
Value Added Tax (VAT)
VAT rates in the UAE are set at a rate of 5%. VAT is levied on most consumer and industrial goods and services, imports included.
If your business operates in the health, education or essential commodities sectors, you may be VAT exempt. Take note of the difference between VAT Exempt and Zero-Rated. If your business is VAT Exempt, VAT will not be levied. However, a zero rating simply means that VAT is levied at 0%, meaning that your business can reclaim input VAT.
If the taxable supplies and imports of your business cross the AED 375,000 mark, you must register for VAT. You may also voluntarily register if your taxable supplies and imports exceed AED 187,500.
Personal Income Tax
One of the reasons why many expats flock to the UAE is because there is no personal income tax. All your salaries and forms of income are not taxed. This has positioned the UAE as an ideal location to save on taxation.
Customs Duties
Goods that are imported into the UAE under normal conditions are subject to a 5% customs duty. In the case of goods that are detrimental to human health or the environment, customs rates will be higher.
In the case of importing goods into free zones, customs duties are exempt, as long as those goods are not transported for trade into mainland UAE.
Excise Tax
Excise tax comes into effect on goods that are harmful to human health or the environment. Some examples include:
- Tobacco – 100%
- Energy drinks – 100%
- Carbonated/sweetened beverages – 50%
Factors to consider as a business owner
Overall, the tax system in the UAE has been implemented to provide a business friendly environment that does not overlook revenue generation for public services. Having said that, it is important to stay compliant with the tax laws that are relevant to your business through processes such as:
- Filing returns
- Maintaining proper accounting records
- Timely payouts
Failure to comply with tax regulations can result in penalties, including fines and legal consequences.
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