Dubai’s strategic location, top-notch infrastructure, and business-friendly policies have positioned it as a global hub for trade and investment. Nevertheless, understanding the intricate landscape of corporate taxation in this dynamic business arena can pose significant challenges.
Join us as we delve into the crucial facets of corporate tax services and advisory in Dubai, UAE, illuminating the essential considerations for enterprises thriving in this vibrant city.
Dubai’s Tax Landscape – Embracing a New World of Corporate Taxation
Dubai stands as a pivotal business hub in the Middle East, celebrated by investors for its tax-friendly environment. It has long been considered a tax haven offering numerous advantages, particularly for entrepreneurs looking to establish their enterprises in the city’s free zones, where corporate tax is non-existent. However, there are exceptions within the oil and banking sectors in the UAE, where the maximum corporate tax rate is capped at 55%.
Nevertheless, a significant transformation is on the horizon. The UAE’s Ministry of Finance (MoF) has currently presented the Federal Corporation Tax (CT). Effective as of June 1, 2023, this new corporate tax system is set to leave an impact on businesses operating within the country. It’s important to note that corporate tax rates in the UAE now range from 0% to 9%, depending on the taxable income of the company. This shift signals a significant development in Dubai’s taxation landscape, and businesses should prepare accordingly.
As per the UAE Ministry of Finance, Corporate Income Tax rates are structured as follows –
- No Corporate Income Tax is levied on taxable income up to AED 375,000.
- For taxable income surpassing AED 375,000, a Corporate Income Tax rate of 9% is applied.
- Large corporations that meet specific criteria aligned with Pillar Two of the OECD Base Erosion & Profit-Sharing Project, such as global revenue exceeding 750 million or AED 315 billion, will be subject to a distinct tax rate.
The Corporate Tax’s primary objective is to tax the net earnings or earnings induced by companies and other businesses. By instituting Corporate Tax, the UAE strives to solidify its standing as the premier global destination for enterprises and investments. This move not only propels the nation’s development but also underscores its unwavering dedication to upholding international tax transparency standards and curbing illicit tax practices.
Entities Subject to Corporate Tax and the Corresponding Tax Rates
Corporate Tax in the UAE applies to various entities, including UAE-incorporated companies, individuals engaged in business activities within the UAE, and foreign legal entities with a Permanent Establishment in the UAE.
UAE-incorporated companies like Limited Liability Companies (LLCs), Private Shareholding Companies (PSCs), and Public Joint Stock Companies (PJSCs) are regarded as resident persons and are thus liable for Corporate Tax. Foreign companies are considered resident persons for UAE Corporate Tax if they are effectively “managed and controlled” within the UAE.
Resident legal entities are obligated to pay UAE Corporate Tax on income derived from both the UAE and overseas sources. In contrast, non-resident entities are only subject to Corporate Tax on earnings originating from their Permanent Establishment in the UAE or income generated within the UAE.
Entities Exempted from UAE Corporate Tax Legislation
Certain businesses and organizations benefit from exemptions under UAE Corporate Tax law. These include –
- Government Entities – Government entities are exempt from Corporate Tax.
- Government Controlled Entities – Entities controlled by the government, as specified in a Cabinet Decision, also enjoy exemption from Corporate Tax.
- Extractive Businesses – Businesses involved in the extraction of UAE’s natural resources are exempt.
- Non-Extractive Natural Resource Businesses – Certain non-extractive activities subject to Emirate-level taxation are exempt if they meet specific conditions.
Exemptions extend to various entities, including –
- UAE Federal and Emirate Governments
- Wholly Government-owned companies
- Public Benefit Entities
- Investment Funds
- Public or private pension or social security funds
- UAE legal entities are wholly owned and controlled by specified exempted entities.
Understanding these exemptions within the UAE’s Corporate Tax framework is vital for effective planning and capitalizing on the opportunities presented by this favorable tax environment.
Offerings by Corporate Tax Services and Advisory Firms
Corporate Tax Services and Advisory in Dubai, as in many other locations, encompass a wide range of services and consultations geared towards assisting businesses in efficiently managing their tax obligations and ensuring compliance with local tax regulations. Here are some of the key roles and services typically offered by a Corporate Tax Services and Advisory firm or department in Dubai –
- Tax Planning – Corporate Tax Services and Advisory firms in Dubai provide invaluable assistance in devising tax-efficient strategies for businesses. These strategies are tailored to minimize tax liabilities while adhering to UAE tax laws. This often involves structuring business operations in a manner that optimizes tax efficiency.
- Tax Compliance – Ensuring businesses are fully compliant with their tax obligations is a fundamental service. This includes meticulous management of tax filings and payments, encompassing VAT (Value Added Tax) and various other corporate taxes. These firms handle the preparation and timely submission of accurate tax returns.
- Tax Audits and Investigations – Corporate Tax Services and Advisory firms in Dubai act as representatives for clients during tax audits and investigations initiated by local tax authorities. They play a pivotal role in assisting clients in compiling and organizing the requisite documentation to substantiate their tax positions.
- Transfer Pricing – For multinational corporations, setting and documenting transfer prices for transactions between related entities is crucial to ensure compliance with transfer pricing regulations. These firms offer expertise in managing transfer pricing matters.
- Tax Incentives – Identifying and capitalizing on available tax incentives, exemptions, or deductions provided by the Dubai government is a priority. These incentives are often designed to foster specific industries or activities. Corporate Tax Services and Advisory firms guide clients in leveraging these opportunities to their advantage.
- VAT Consultation – These firms offer expert guidance on Value Added Tax (VAT) compliance, registration, and reporting for businesses operating in Dubai. They ensure that businesses meet all necessary VAT requirements and obligations.
- Tax Strategy Development – Collaborating closely with businesses, Corporate Tax Services, and Advisory firms in Dubai aid in crafting long-term tax strategies. These strategies are designed to align with corporate objectives and facilitate adaptation to evolving tax laws and regulations.
- Tax Risk Management – Evaluating and effectively managing potential tax risks is a crucial aspect of the services provided. This proactive approach helps clients mitigate risks, thereby avoiding penalties and legal complications associated with non-compliance.
- Mergers and Acquisitions (M&A) Tax Planning – These firms play a pivotal role in assisting businesses in structuring mergers, acquisitions, and divestitures in a tax-efficient manner. This includes conducting due diligence and facilitating post-transaction integration to maximize tax benefits.
- International Taxation – For multinational corporations, expert guidance is provided on international tax matters. This encompasses aspects such as double taxation treaties, withholding tax, and the complexities of cross-border transactions.
- Tax Training and Education – Corporate Tax Services and Advisory firms extend their services to include training and educational sessions for clients’ finance and accounting teams. These sessions ensure that teams remain well-informed about evolving tax regulations and maintain accurate record-keeping practices.
Dispute Resolution – In the event of tax disputes, these firms actively assist clients in resolving issues through negotiation, mediation, or, when necessary, litigation. Their expertise is instrumental in achieving amicable resolutions.