The United Arab Emirates has positioned itself as a tax-friendly destination, promoting Corporate Tax (CT) measures that cater to businesses of all sizes. UAE Corporate Tax applies universally across all emirates, subject to Federal Tax Authority (FTA) requirements. 

Corporate Tax will come into effect for many businesses on January 1, 2024, and there are many factors to consider in order to prepare for its implementation. This includes understanding the implications of CT on your legal, financial and operational profile, as well as planning for the people, processes and systems required to comply with the rules. 

Whether you are already prepared for the new regulations or trying to jump into the last car, this piece will help you to understand the intricacies of Сorporate Tax in construction, shedding light on its key benefits, compliance requirements, and frequently asked questions.

Understanding UAE Corporate Tax Relief

Corporate Tax applies to all entities in the UAE, regardless of ownership. It is a reduction in tax liabilities for corporations, including construction, fostering financial flexibility. Tailored to meet international standards and local business needs, it serves as both an incentive for growth and a promoter of responsible business practices.

Key Benefits of Corporate Tax 

• Revenue Generation. Corporate Tax serves as a crucial revenue source for the UAE government, enabling the funding of public services and infrastructure development.
• Global Competitiveness. Competitive CT rates attract foreign businesses and investors, enhancing the UAE's global competitiveness as a business-friendly destination.
• Enhanced Cash Flow. СT improves cash flow, facilitating investments in technology, workforce expansion, and growth initiatives.
• Promotion of Entrepreneurship. CT acts as a catalyst for budding entrepreneurs, fostering the establishment of new enterprises.
• Economic Stimulation. By redistributing wealth to businesses, tax relief fuels economic activities, contributing to an increase in the country's GDP.

To-do List for Companies

• Every company should register for Corporate Tax from June 2023. Businesses are subject to CT from the first financial year beginning on or after June 1, 2023. For many companies, this year begins on January 1, 2024.
• Free zone companies also need to register for corporate tax.
• Even if you already have a Value Added Tax (VAT) number you still need to register for CT.
• UAE corporate tax law requires you to keep certain accounting records. Your company's tax liability will depend on what your accounting records say about your business.

Important Notes

• If you are exempt from paying corporate tax or fall under the small business exemption rule, your accounting records should support your position.
• File a corporate tax return with the Federal Tax Administration (FTA). This step must be completed after the end of your first taxable period.
• Even if you qualify for tax exemptions or tax credits, you still need to claim them by filing a tax return with the FTA.
• While not all companies have to pay CT, every company, even those in free zones, must follow these points.

UAE Corporate Tax Relief Policies

The UAE Ministry of Finance introduced Federal Decree-Law No. 47 in 2022, outlining a comprehensive corporate tax policy. This includes Small Business Relief (SBR), exemptions for individuals, and attractive tax benefits for entities operating within qualifying free zones.

Small Business Relief (SBR)

• For businesses with annual revenues below AED 3 million.
• Specific eligibility criteria apply, excluding Multinational Enterprise Group or Qualifying Free Zone Person.
• Compliance involves submitting records to the Federal Tax Authority (FTA) and maintaining accurate records for seven years.
• Tax losses or net interest expenditures from the relief period cannot be carried forward.

Intra-Group Transfer Relief

Applicable to intra-group transfers, with specific requirements like UAE residency and consistent accounting standards.

Freezone Entity Relief

Freezone entities can benefit from the zero percent corporate tax rate, with strict compliance requirements.

FAQs on UAE Corporate Tax

Here, we will give you more detailed information for you regarding the UAE Corporate Tax law, its rates, the difference with the value-added tax, and criteria for each location.

What are CT rates in the UAE?
The Ministry of Finance has introduced a three-tier taxation policy:

• Tier 1: 0 percent Tax Rate for profits up to AED 375,000.
• Tier 2: 9 percent Tax Rate for profits exceeding AED 375,000.
• Tier 3: Different Tax Rate for large multinational companies.

How can I become a Qualifying Free Zone Person?
You have special conditions if your business is incorporated in FZ, subject to criteria for a "Qualifying Free Zone Person." You must maintain adequate substance, derive qualifying income, comply with transfer pricing requirements, and keep accounts.

Do small business relief rules apply to my business?
Free taxation is designed for start-ups, Small and medium-sized enterprises (SMEs), and micro-businesses with revenue under AED 3 million.
Businesses meeting the criteria are exempt from corporate tax.

What is calculating taxable profit?
Taxable profit is revenue minus business-related expenses, with specific rules for salaries, interest, and entertainment expenses.

What are exempt income sources and industries?
They are various entities, including government entities, businesses dealing with natural resources, and charitable organizations, that may qualify for corporate tax exemption.

Are VAT and Corporate Tax interchangeable?
VAT and corporate tax are not interchangeable. Businesses must pay corporate tax on net profits, while VAT is collected from customers.

Are there any administrative penalties for non-payment?
Effective from August 1, 2023, administrative penalties ranging from AED 500 to AED 20,000 will apply to violations of the corporate tax law.

With a competitive and internationally compliant tax regime, coupled with an extensive network of double tax treaties, the UAE solidifies its status as a premier destination for business and investment.

As the UAE solidifies its position with one of the lowest corporate income tax rates globally, businesses navigating the intricacies of corporate tax relief can leverage this comprehensive guide to ensure compliance, understand exemptions, and make informed financial decisions.