Corporate tax was introduced in the UAE in January 2022 by the Ministry of Finance (MOF). A 9% corporate income tax (CIT) rate was announced on the net profits of UAE businesses across all Emirates.
Introducing a competitive corporate tax regime into the UAE was the next essential step for the UAE to strengthen its position as a global business hub and attract foreign and regional investments. A corporate tax regime that aligns with international best practices will assist in accelerating the UAE’s development initiatives by providing a new revenue source to assist in the transformation of the country’s business environment and maximise its economic objectives.
The UAE’s business environment is made up of a split between mainland and free zone jurisdictions. There has been some confusion since the CT regime’s introduction in 2022 on where and when corporate tax applies and the definition of taxable persons in the UAE. A top-line summary of the UAE Corporate Tax (CT) regime says that all mainland businesses with licenses issued by the Department of Economic Development (DED) / the Department of Economy and Tourism (DET) are 0% on profits up to Dh375,000 and 9% CIT rates thereafter. The CT regime related to free zone companies is much more complex to navigate. A free zone company is not fully exempt from UAE CT. Freezone companies are exempt from corporate tax and can take advantage of 0% corporate tax rates on their qualifying income, otherwise, the freezone company is subject to 9% CIT rates for non-qualifying income.
The registration for CT opened on June 1, 2023, but was met with a rather sedate and slow initial reaction and response from UAE businesses. The deadlines announced at the time seemed far enough into the business’s future, that it could be deemed ‘something to worry about for later’. The lack of registrations from companies and the slow reaction rate have forced the FTA to speed up its processes by bringing CT registration deadlines forward.
A new update was released by the Federal Tax Authority (FTA) on February 27, 2024. The FTAs published Decision No. 3 of 2024, which set out the revised timelines within which taxable persons need to submit their corporate tax registration application to the FTA. The updated deadlines will depend on the date the resident UAE entity was issued its business license.
Late corporate tax registration
Businesses whose licenses were issued in January or February must register for corporate tax by May 31, 2024. Licenses issued in March or April must be registered by June 30, 2024, and so on. Businesses must understand that regardless of the business’s year of incorporation, taxable persons must file the registration application within 30 to 90 days, depending upon the license issued in its respective month. Businesses should consider this update carefully so they are ready to meet the relevant deadlines and avoid late registration fines. The FTA has confirmed that penalties of Dh10,000 will apply to businesses that fail to register on time.
The UAE continues to iron out its practice and application of corporate tax on businesses in the UAE. We have seen continuous developments since the regime was first introduced and regular updates on what is expected from businesses. What we know and understand about the corporate tax regime is becoming clearer, however, the regime is still under development and UAE businesses are still trying to navigate the changes as they are announced by responding and acting as quickly as possible. It should be reminded that all UAE companies, irrespective of their taxability status, must register for corporate tax, ensure their books are up-to-date, and remain compliant with UAE corporate tax laws.
