The UAE rolled out a standard 9% corporate tax starting from the financial year beginning on or after June 1 to reduce its dependence on oil and gas and boost its attractiveness as a commercial hub.
It brought companies’ income exceeding $102,000 within the taxable bracket, while taxable profits below the threshold will be subject to a 0% rate. According to the UAE Federal Tax Authority, companies could register using the EmaraTax digital tax services platform.
The UAE has provided tax incentives and reliefs to continue supporting the business ecosystem. Businesses and corporations can use diverse strategies to access relief using eligible tax credits, deductions, and exemptions.
While the new laws are multifaceted, we look at several ways to tap relief on corporate tax.
FORMING A TAX GROUP
Shiraz Khan, Partner and Head of Tax at law firm Al Tamimi & Company, explains that one of the ways to tap relief on UAE’s corporate tax is to form a tax group with other companies with 95% common ownership.
“This would allow it to file tax returns on a consolidated basis reducing compliance burden as well as eliminating any on transactions within such a group.”
Arun Leslie John, Chief Market Analyst at Century Financial, advises utilizing tax deductions. Under the new tax law, companies can claim deductions for certain business expenses.
“For example, dividends and capital gains a UAE business earns from its qualifying shareholdings will be exempted from corporate taxes. Additionally, qualifying intra-group transactions and reorganizations will not be subject to corporate tax, provided the necessary conditions are met, these measures can lower the company’s taxable income, resulting in reduced tax liability.”
Khan explains UAE companies can benefit from an exemption from capital gains on the sale of shares in the UAE and foreign companies and dividends received from their foreign shareholding as long as they meet certain criteria. These criteria include 5% ownership or $1.3 million invested, 12 month holding period, and a minimum 9% tax rate in a foreign country.
John recommends considering tax credits typically offered for specific activities or investments. “In the UAE, businesses engaged in the extraction of natural resources are exempt from corporate tax, as these businesses will remain subject to the current Emirate-level corporate taxation.”
SETTING UP IN A FREE ZONE
As free zones offer several economic incentives, the UAE corporate tax regime continues to uphold the incentives to boost its appeal. Businesses operating in free zones can pay 0% tax on income from certain qualifying activities and transactions. A qualifying company can benefit from tax exemption if incorporated, established, or registered in a free zone. It can also benefit from a 0% corporate tax rate on earned income from transactions with mainland UAE businesses or those in a foreign jurisdiction.
FOR SMEs AND STARTUPS
The UAE has also created a program encouraging startup and small business creation. Small and micro-enterprises can claim the relief when their revenue and previous tax periods are below $816,000 for each period. However, once a taxable person exceeds the threshold in any period, they will no longer be eligible for the program.
John notes that understanding and effectively utilizing relief mechanisms can empower businesses to optimize their tax position within legal boundaries.
Besides an enhanced cash flow that could be allocated to other strategic areas, John pointed out that capitalizing on tax exemptions can offer companies a competitive edge over competitors. “The reduced tax burden allows for the potential utilization of savings to lower prices, enhance product quality, invest in marketing efforts, or offer additional services. This advantageous position attracts more customers and fosters an expansion of market share.”