Who is subject to the new UAE corporate income tax?

Aug 15, 2023

Dubai, one of the most attractive destination for the freelancers due to its pro-business environment, strong economic growth and lack of income taxes. As of 2022 rumors about the establishment of a potential corporate income tax has collapsed the dreams of many entrepreneurs like a house of cards.

However, the introduction of this tax is intended solely to consolidate the Emirates' position as a leading global hub for business and investment, and to reinforce its desire to reaffirm its commitment to international standards and OECD rules on tax transparency.


The new corporate income tax in Dubai

On 1st of  June 2023 a federal decree-law (Federal Decree-Law No. 47 of 2022) announced the entry into force of a corporate income tax equal to 9%. However, this tax will not affect all of the companies established in Dubai. 

This tax was not introduced to reduce the tax attractiveness of the United Arab Emirates but rather to stabilize the position of the United Arab Emirates as a preferred business and investment destination.


What are the companies and the revenues subject to the corporate income tax in Dubai?

Entities established in free zones will not be subject to tax on their so-called «qualified» income. Their results will remain tax-free in Dubai for the income from activities carried out within the free zone.

The  free zones of Dubai offer a lot of opportunities for business. Located in one of the most dynamic hubs in the world, the free zones are attractive destinations for local and foreign companies looking for a favorable business environment and privileged access to global markets. 

You can carry out a wide range of activities under free zone companies but sometimes you may establish a mainland company. If it is the case, no worries, revenues will be taxed at 9% only for the part that exceeds AED 385,000.

It should also be noted that the seventh chapter of this decree-law provides that a certain number of incomes will not be subject to the corporate income tax. This refers to dividends or income derived from the holding of equity securities in domestic or foreign companies. The aim is to avoid double taxation to the level of the subsidiary and the holding company. 

How to calculate taxable income ?

The taxable income of a company in Dubai is generally determined by the net profit realized during the tax period. The eligible expenses and tax deductions should be substracted from gross revenues. Eligible expenses include operating expenses, such as salaries, rents, supplies, overhead, etc. 

Tax deductibility principles are similar to other countries: 

  • Deductible expenses are those incurred in the interest of the company, for professional purposes; 
  • Non-deductible expenses are those that are not incurred in the interest of the company. As in most countries, these are the charges incurred in order to pay tax, or fines, dividends, etc. 
  • Mixed expenses are deductible up to the amounts incurred in the interest of the company;
  • Expenses related to capital assets are deductible using the depreciation method. The deductible percentage is defined in a reasonable manner (proof of wear and tear or according to usual practices); 
  • Additional costs (restaurants, gifts for customers, etc.) will be deductible up to 50% of their amount. 



    How to declare and pay my corporate income tax?

    There are no surprises. Once the company is created (whether on the mainland or in the free zone), it must register with the relevant tax authorities in order to obtain a registration number. 

    The income tax return should be filed annually. Residents and non-residents must file an income tax return with the relevant tax authorities, usually the Dubai Tax Authority (DTA). It is crucial to respect the deadlines for filing tax returns to avoid any penalties. 

    As the filing deadlines may vary, it is recommended to regularly check the information provided by the tax authorities. After filing the tax return, it is essential to pay the income tax due. 

    As the rules are constantly evolving, it is essential to consult a professional to assist you in the process of creating your company and in order to be legally and tax compliant. 

    In order to realize your project in the best conditions, we suggest you to make an appointment with our team of tax specialists and investment experts, in order to carry out your project in the United Arab Emirates. 

    You might also like