The UAE tax on corporate profits will apply to free zone enterprises in certain situations. Image Credit: Shutterstock

Dubai: All businesses in the UAE will now come under the corporate tax umbrella. The UAE authorities, meanwhile, reaffirm that there be no tax on individuals.

As regards free zones, the 9 per cent tax will apply to those businesses within free zones that derive commercial benefits from the mainland. "The incentives currently being offered to free zone businesses will be honoured for businesses that comply with all regulatory requirements - and that do not conduct business with mainland UAE," said Pankaj Jain, Managing Director at AskPankaj Tax Consultants. "The introduction of corporate tax (CT) for the first time in the UAE is historical - a paradigm shift - for the country and the business community. "

What is the corporate tax structure going to be?

  • It will 0 per cent on taxable income of up to Dh375,000;
  • 9 per cent for taxable income above Dh375,000; and
  • It will be a different tax rate for specified multinationals (having consolidated global revenues in excess of 750 million euros - or Dh3.15 billion - and meeting other conditions.

The CT regime will have wide-ranging implications on accounting, compliance, business costs and profits.

- Pankaj Jain
Who pays and who doesn't pay the new tax
Salary and other personal income

It has been clarified that corporate tax will not apply on an individual’s salary and other employment income (whether received from the public or private sector).

However, income earned from activities carried out under a freelance license/permit will be subject above the minimum threshold of Dh375,000 in annual profit.

Investment in real estate by individuals in their personal capacity should not be subject if the individual is not required to obtain a commercial license/permit to carry out such activity.

What it means for UAE's listed companies

For public listed companies – many of whom are recording bumper 2021 results – the new taxes will require them to rework their dividend strategies and what they set aside for future capital expenditures.

“Corporate tax will be payable on the profits of UAE businesses as reported in their financial statements prepared in accordance with internationally acceptable accounting standards,” said Vijay Valecha, Chief Investment Officer at Century Financial. “There will be minimal room for exceptions and adjustments.

"The corporate tax will apply to all businesses and commercial activities alike. This would mean a lot of turmoil at the onset, just like what we had when VAT was introduced."

Widening the tax net
Corporate tax is a direct tax levied on the profits of business entities. Business owners pays taxes on production, people, property and environmental impact, as well as on income.

Non-residents who conduct a business activity in a GCC country through a permanent establishment are subject to corporate tax.

Corporate tax is also payable by entrepreneurs or business owners in a range of industries — notably oil and banking — in many GCC countries. And there are a wide range of government fees and levies imposed across all business sectors throughout the region.

- Justin George Varghese

This would ensure that UAE follows and maintains the best practices which are done globally and would help boost the economy even further.

- Vijay Valecha