UAE: Will residents have to pay 9% corporate tax on their wages from next year? – information

The government released the law last week, revealing some important details for businesses to prepare for the new tax regime

file photo

The UAE will impose a corporate tax of 9 percent from 1 June 2023, setting a profit threshold of AED 375,000 for companies.

The setting of the threshold is in line with the government’s efforts to support SMEs and start-ups.

The government published the corporate tax code last week, revealing some important details for companies to prepare for the new tax regime. Here are all the important details about corporate tax that UAE residents and companies need to know:

When does corporate tax come into effect?

Corporation tax will come into effect on 1 June 2023.

What is the minimum threshold for paying corporate tax?

Companies and individuals with annual profits in excess of Dh375,000 must pay a 9% tax.

Is it the lowest corporate tax rate in the world?

Yes. This is one of the lowest corporate taxes in the world.

Do other countries also impose this tax?

Yes, almost every country imposes it, many of them at more than double the rate of the UAE.

Does corporate tax apply to turnover or profits?

Corporation tax will be levied on the company’s profits rather than its total turnover.

Are UAE residents who earn more than Dh375,000 taxable?

No, it does not apply to wages.

Also read:

Are management fees earned by the business owner from the entity taxable?

Where payments or benefits to related persons are deductible as expenses from income on an arm’s length basis (market norm levels), any excess payments or benefits are subject to corporate tax. Affiliated persons include owners and directors of the taxpayer.

What about income from bank deposits, savings plans and real estate market investments?

Corporation tax does not apply to personal income from bank deposits, savings plans and investments, dividends or foreign exchange gains. With regard to real estate income, if it is derived from an economic activity (rental, sale, transfer, etc.), it may be subject to corporate tax under the conditions stipulated in the administrative decision. However, if the income is earned from real estate investments in which the investment manager conducts business activities, it may qualify for exempt income.

Does corporate tax apply to freelancers?

Individuals with a freelance license will be subject to corporate tax based on self-sponsorship and income above thresholds.

Do non-residents also have to pay corporate tax?

Non-residents are also subject to corporate tax if they have a permanent establishment in the UAE and have state-sourced income in the country (i.e. from the sale of goods, rendering of services, etc.). Non-residents are not subject to corporate tax on income from operating aircraft and ships in international space. Non-residents are not subject to corporate tax on income earned by investment managers of real estate or any other investment.

Who is exempt from corporate tax?

Qualifying free zone entities that meet all the conditions set out in the UAE Corporate Tax Law Enforcement Regulations will be exempt from taxation. Natural resource extraction activities are also tax-free, however, they are subject to existing emirate taxes. Activities of government entities (excluding commercial activities), pension funds, investment funds and public benefit organizations are exempt from corporate tax.

Are records required to be kept?

Yes. All taxpayers are obliged to keep records and documents for seven years after the end of the tax period.

When should I file my tax return?

All taxpayers are required to file an annual corporate tax return within nine months of the end of the relevant tax period.

Can a group file a single tax return and pay a single tax?

Yes, a group of multiple organizations can apply for a tax group, which is taxed separately and is required to file a return consolidating the profits of all tax group members.