The UAE government has officially issued a federal decree-law imposing a 9% corporate tax on taxable business profits in excess of AED 375,000. The new law was announced in December 2022 and is scheduled to go into effect on June 1, 2023.
Historically, the UAE has relied primarily on oil revenues as an important source of income. However, in the face of fluctuations in world oil prices and the long-term goal of diversifying the economy, the UAE government aims to reduce dependence on oil revenues. The introduction of corporate tax helps diversify revenue sources and helps generate revenue from non-oil sectors.
When will the new Corporate Tax in the UAE become effective?
An entity that has a financial year starting on July 1, 2023, ending on June 30, 2024, will be subject to corporate tax from July 1, 2023.
A business with a financial year starting on January 1, 2023, and ending on December 31, 2023, will be subject to tax from January 1, 2024.
What is the area of influence of corporate tax?
The Government of the UAE has been proactive in aligning its tax regime to international standards and commitments. The introduction of a corporate tax helps the UAE align with global tax practices and demonstrates its commitment to international tax cooperation. This helps promote a transparent and fair business environment, attract foreign investment, and strengthen economic ties with other countries.
How applies corporate tax in the UAE?
Corporate tax in the UAE is calculated at 9% of the net profit shown in the financial statements of the company. Only if the taxable net profit exceeds 375,000 AED will the 9% corporate tax be levied. In other words, up to 3, 75,000 AED in net profit is taxed at 0%.
If the net profit is 4, 75,000 AED, the corporate tax is 9,000 AED (4, 75,000-3,75,000 X 9/100).
Who is required to pay corporate tax in the UAE?
All the businesses whose taxable profit (net) is more than 375,000 AED fall under the purview of corporate tax and are required to pay a certain percentage of net profit as corporate tax. It is essential to consult with tax professionals or refer to official government sources to understand the specific requirements and exemptions regarding corporate tax in the UAE. These professionals can provide personalized advice based on your business structure, activities, and applicable regulations.
How Corporate Tax Influence the Economy and Competitiveness in the UAE
The implementation of corporate tax in the UAE marks a shift in the country’s tax landscape. The economic impact of this change, including its effects on business competitiveness, foreign investment, and the overall business environment, must be closely tracked. Businesses should adapt to the new tax regime while continuing to look for ways to grow and sustain themselves.
Axolon ERP forward for businesses with proposed corporate tax in UAE?
- Axolon ERP can be customized to include tax calculation rules and parameters specific to the proposed UAE corporate tax. The system can automate tax calculations based on applicable rates and thresholds, making tax compliance easier. Axolon ERP can generate tax reports, including profit calculations, tax liabilities, and any other documentation required, thereby streamlining tax reporting and filing requirements.
- Axolon ERP offers powerful financial management modules that can help businesses track and manage their finances efficiently. With corporate tax implementation, businesses need accurate financial records and reporting capabilities to calculate and manage their tax obligations. Axolon ERP can help create financial reports, manage accounts, and track income and expenses, providing the financial visibility needed for tax compliance.
- As the business environment changes and tax regulations change, Axolon ERP adapts to comply with updates and adjustments. The system can be customized and configured to incorporate any changes to corporate tax rules or reporting requirements, ensuring ongoing compliance and accurate financial management.
It is important to note that, while Axolon ERP Software Dubai can assist businesses in managing their corporate tax operations, it is critical to consult with tax professionals or advisors for comprehensive guidance and to ensure compliance with the specific tax regulations and requirements in the UAE.