Beyond having the most sophisticated infrastructure in the world and being positioned strategically, the United Arab Emirates is becoming a more desirable destination to do business. The recent implementation of a corporate tax system has added a new level of appeal, particularly for startups and SMEs. One important aspect of this system is the 0% corporate tax rate on a part of taxable income. But who is actually qualified to receive such a benefit? By being aware of these subtleties, you can make the most of the tax system in the United Arab Emirates to improve your business’s growth and financial situation. You may get more assistance with this legislation by getting in touch with Proactive Zone, one of the top tax advisors. We would be pleased to assist you.
Who is a Taxable Person under UAE Corporate Tax Law?
A taxable person under UAE corporate tax law refers to any legal entity or individual engaged in business or commercial activities within the United Arab Emirates. This includes:
– Limited Liability Companies (LLCs)
– Public Joint-Stock Companies
– Branches of Foreign Companies
– Sole Proprietorships
Understanding the 0% Tax Threshold
Certain entities, such as the UAE government, public benefit entities, and qualifying investment funds, are exempt from corporate tax. For specific guidance on whether your business entity qualifies for an exemption, consulting with corporate tax advisors is recommended.
The 0% corporate tax rate in the UAE applies to a specific portion of taxable income, set at AED 375,000 per financial year (approximately USD 102,000). Essentially, any business earning taxable income up to AED 375,000 will not be liable for corporate tax on that portion. This threshold is applicable individually to each taxable entity, regardless of how many businesses they operate. Therefore, if an individual owns multiple businesses and each earns taxable income below AED 375,000, all those businesses will benefit from the 0% tax rate on their respective incomes.
After the Threshold, What Takes Place?
Once a business exceeds the AED 375,000 threshold, a flat corporate tax rate of 9% applies to the entire taxable income, without a progressive tax structure. For example, if a business earns AED 500,000 in taxable income, it will pay 0% tax on the first AED 375,000 and 9% tax on the remaining AED 125,000 (AED 500,000 – AED 375,000), totaling AED 11,250 (AED 125,000 x 9%).
Tax consultants such as Proactive zone can assist in structuring businesses effectively to maximize the benefits of the 0% tax threshold.
A network of free zones exists in the UAE, and it provides a range of incentives to draw in enterprises. Operating within approved free zones, Qualifying Free Zone Persons (QFZPs) may be entitled to different regulations. At Proactive zone, we can help you comply with particular laws and regulations pertaining to free zones.
Special considerations apply to Qualifying Free Zone Persons (QFZPs):
When it comes to their “qualifying income,” which comes from both transactions with other free zone enterprises and activities conducted within the free zone, QFZPs can take advantage of a 0% corporate tax rate. Nevertheless, any revenue produced outside of the free zone or categorised as “non-qualifying revenue” may be liable to the corporate tax rate of 9%.
