The UAE’s implementation of corporate tax has significant implications for businesses, and the impact depends on whether your company operates in a mainland or free zone setting. This article explores the key differences and considerations for each.

Corporate Tax for Mainland Companies

• Straightforward Tax Rate: Mainland businesses face a standard 9% corporate tax on taxable income exceeding AED 375,000.
• Mitigating Factors: Government support programs and subsidies can offer some relief.
• Accounting Adjustments: Adapting to new accounting practices may require investment in software, advisors, or additional personnel.

Corporate Tax for Free Zone Companies

• Zero-Tax Potential: Qualifying Free Zone Persons can benefit from a 0% tax rate on qualifying income. However, strict requirements apply.
• Non-Qualifying Income Taxed: Any income outside the Qualified Free Zone designation or earned from mainland transactions is taxed at 9%.
• Increased Competition: As the free zone tax advantage diminishes, competition may intensify.

Key Considerations

• Profit Margins: Companies with higher profits will feel a more significant tax impact.
• Industry: Sectors accustomed to higher tax rates (e.g., banking, oil & gas) may experience less disruption.
• Free Zone Trade: Free zone businesses trading with the mainland must comply with transfer pricing regulations to avoid unintended tax liabilities.
• Strategic Assessments: Free zone companies may need to evaluate their competitiveness and consider operational adjustments or relocation for continued profitability.

Registration and Filing Requirements

• Registration: All companies (mainland and free zone) must register for corporate tax, except exempt entities.
• Tax Returns: Annual corporate tax returns are mandatory, with a filing deadline of nine months after the tax period ends.
• Small Business Relief: Companies with a revenue of AED 3 million or less can qualify for relief, essentially treating them as having no taxable income for that period.
• Record Keeping: Proper accounting records are crucial for accurate tax return filing.

Deadlines and Timelines

The first corporate tax returns will be filed in 2025, depending on your company’s financial year:

• June 2023 – May 2024 Tax Period: Registration by January 2023, return filing by February 2025.
• January 2024 – December 2024 Tax Period: Registration by January 2023, return filing by September 2025.

Conclusion

The UAE’s corporate tax introduces complexities for businesses. Carefully analyzing your company’s structure, location, and income streams is vital for determining the optimal tax strategy. Consulting with a tax professional is highly recommended to ensure compliance and navigate the evolving tax landscape effectively.