Corporate Tax is one type of tax. Such taxesare imposed on net income or net profit of a trade/business entity. It is a form of direct tax. This is because it is directly imposed and taken from one’s income. It is also known as business profit tax or corporate income tax. In the United Arab Emirates (UAE), a federal corporate tax has been introduced for the very first time in history since its independence. UAE is also known as a free tax zone but recently few changes are also introduced.The MOF has provided all the essential and detail guidelines too. The tax will beapplicable to all business activities including Main land and Free Zone.
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The Federal Tax Authority (FTA) will be a responsible body in the UAE. FTA is the regulatory body who are responsible for administering, collecting, and enforcing the corporate tax regime in the country. Nonetheless, the Ministry of Finance will handle international tax agreements along with the exchange of tax-related information.
Net profit is calculated after deducting certain expenses and costs.The exact criteria for determining taxable income are yet to be announced in the year. Corporate Tax applies to taxable income. That is defined is above AED 375,000.
For taxable income above AED 375,000, the corporate tax rate will be 9%. Large corporations and huge multinational companies that meet specific criteria may have different tax rates. This means that if you are a freelancer licensed in the UAE and earn a taxable income exceeding AED 375,000, you will be subject to tax. Therefore, freelancers will be paying the UAE corporate tax and are also required to pay the applicable tax. Certain exemptions exist under the UAE corporate tax law.
Besides, investments received from personal investments through shares or debentures also come under the same belt. However, investment is in the form of dividends or returns. Businesses in free zones in country, will be included in it. Only their activities within the UAE will be included. Any business activities conducted outside the UAE will continue to be exempt from corporate tax under the new regime.
It apply to the financial year starting from July 1, 2023. The year will end on June 30, 2024. However, businesses with a financial year starting from January 1, 2023, will end on December 31, 2023.
They will be subject to the corporate tax from January 1, 2024. This requires businesses and individuals to plan. This may include implementing measures, providing training for their staff, and ensuring compliance with the new tax policy.
Here, it is important to note that the UAE corporate tax law is still to be published. A thorough review of the law will be necessary to understand the threshold parameters of corporate income tax. Besides, understanding is also needed in applicable tax rates..
The existing entities may focus on pretax and post-tax returns, as well as double tax treaties. By implementing the new corporate tax regime, the UAE aims to adopt international best practices. Added, this will lead the UAE to a thriving path of success and prosperity.
In conclusion, UAE already counts as being on the path to becoming a global center for investment and business. This will further strengthen its way to become a competitive global leader and advance its strategic objectives. Besides, it is a way to combat negative tax practices.
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