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Getting to grips with the revised rules will be crucial for business owners to avoid breaking the law.BBG member Zyla Accountants is here to help and is currently registering clients for the new taxrequirements.

Here's what you need to know about Corporate Tax in the UAE and how it will impact your business.

Why did the UAE introduce a corporate tax?

Corporate Taxis often seen as a disadvantage for businesses. Prior to the introduction of CT, foreignbusinesses were encouraged to establish themselves in the UAE due to the lack of direct taxation. TheUAE, however, introduced federal Corporate Tax.

This new CT is part of an overall effort to streamline the UAE's tax system and meet internationalstandards. The changes began with the introduction of Value Added Tax (VAT) in 2018, followed byeconomic substance rules (ESR) and country-by-country reporting (CbCR) regulations in 2019.

The goal is not to deter international businesses, but to attract them by bringing the UAE up to globalstandards.

How much is the UAE corporate tax rate?

Taxable income exceeding AED 375,000 will be subject to a 9% corporate tax rate. Income below thisthreshold will be taxed at 0%.

Resident Taxable Persons

Taxable income below AED 375,000 - 0%

Taxable income exceeding AED 375,000 - 9%

Qualifying Free Zone Persons

Qualifying Income - 0%

Taxable Income that does not meet the Qualifying Income definition - 9%

Businesses are subject to UAE Corporate tax based on their residency status. Resident legal entitiesare taxed on their worldwide income, whereas natural persons are only taxed on income derived fromtheir UAE business.

Businesses are subject to UAE Corporate tax based on their residency status. Resident legal entities aretaxed on their worldwide income, whereas natural persons are only taxed on income derived from their UAEbusiness.

Does Corporate Tax apply to everyone?

UAE Corporate Tax applies to the following "Taxable Persons":

- Businesses and other legal entities that carry out their activities in the UAE

- Individuals who conduct businesses or business activities in the UAE (details of who would qualify tobe under this category are yet to be issued by the Cabinet Decision)

- Non-resident legal entities (i.e. foreign companies) with a permanent establishment in the UAE

Legal entities established in a UAE Free Zone are also subject to corporate tax as "Taxable Persons" andmust follow the Corporate Tax Law. Qualifying Free Zone Persons, however, would have an imposing rateof 0% on Qualifying Income and 9% on Taxable Income that is not Qualifying Income.

Who is a non-resident person?

Individuals who are not residents of the UAE, but have a Permanent Establishment in the UAE, or generateincome from the state, are considered non-residents.

Who is a resident person?

For Corporate Tax purposes, companies, businesses and other legal persons incorporated or formed underthe laws of the UAE are considered Resident Persons.

If they are managed and controlled in the UAE, foreign companies and other legal entities can also betreated as residents for Corporate Tax purposes.

Individuals who earn income from a business activity conducted in the UAE will also qualify as ResidentPersons for Corporate tax purposes.

How do you define a permanent establishment?

A permanent establishment is a fixed place or business in the UAE, such as an office, branch, factory, orwarehouse.

Whether a non-resident has a Permanent Establishment will depend on the specific facts andcircumstances of the business. For example, the nature and duration of the business activities, the degreeof control and management exercised, and the presence of assets or personnel in the UAE.

Corporate tax exemptions apply to what types of income?

Dividends and capital gains earned from domestic and foreign shareholdings will generally be exempt fromCorporate Tax. These types of income are exempt from double taxation as a result of this exemption.

In certain circumstances, a Resident Person can choose not to include income from foreign PermanentEstablishments in UAE Corporate Tax calculations.

Should I pay UAE Corporate Tax?

The UAE CT includes a participation exemption for dividends and capital gains earned on subsidiary sharessold. Additionally, UAE companies with foreign branches will be able to either claim a foreign tax credit oran irrevocable exemption for their foreign branch profits. In this way, multinational companies and foreignbusinesses can remain interested in doing business in the UAE.

A UAE shareholder company must own at least 5% of the shares of the subsidiary in order to qualify forexemption. Compared to other jurisdictions, this rate is competitive.

Losses incurred in one financial period may also be offset against future taxable income, up to a maximumof 75%.

Groups of UAE resident entities can be treated as one taxable unit if the parent company holds at least 95%of the shares. It is, however, not allowed for members of the group to be exempt individuals or entitieslocated in free zones.

If you would like support with your Corporate Tax arrangements, Zyla Accountants can provide expertadvice. Contact us today at

www.zylaaccountants.ae