In the United Arab Emirates (UAE), the Federal Law No. 7 of 2017 on Tax Procedures (the Tax Procedures Law) governs the administration and collection of taxes, including corporate tax. The UAE has implemented a corporate tax regime, which applies to certain entities conducting business in the country.
Under the corporate tax law, taxable persons include companies incorporated in the UAE, foreign companies with a permanent establishment in the UAE, foreign companies without a permanent establishment in the UAE but with income sourced from the UAE, and branches of foreign banks operating in the UAE.
However, certain industries may be exempt from corporate tax in the UAE, such as the oil and gas sector and companies engaged in the production of basic food commodities. Additionally, small and medium-sized enterprises (SMEs) may be eligible for reduced tax rates.
Corporate tax is an important source of revenue for governments around the world, including the UAE. Here are some key reasons why corporate tax is important:
Revenue generation: Corporate tax is a major source of revenue for governments, which can be used to fund public services and infrastructure projects, such as healthcare, education, and transportation.
Fairness and equity: Corporations benefit from government services, such as the legal system, infrastructure, and security, and therefore have an obligation to contribute their fair share of taxes to support these services.
Economic stability: A stable and predictable corporate tax system can promote economic stability by providing businesses with a clear understanding of their tax obligations, which can help them plan and invest for the long term.
Fiscal policy: Corporate tax can be used as a tool of fiscal policy to influence the economy. For example, tax incentives or penalties can be used to encourage investment or discourage certain types of behavior.
International competitiveness: Corporate tax rates can impact a country’s competitiveness in the global economy. A competitive corporate tax rate can attract foreign investment and promote economic growth.
Overall, corporate tax plays an important role in supporting government revenue, promoting fairness and equity, ensuring economic stability, and influencing fiscal policy and international competitiveness.
According to the UAE Federal Tax Authority, taxable persons for corporate tax purposes include:
1. Companies incorporated in the UAE: Any company incorporated in the UAE, including free zone companies, is subject to corporate tax.
2. Foreign companies with a permanent establishment in the UAE: Foreign companies that have a permanent establishment in the UAE are also subject to corporate tax. A permanent establishment is defined as a fixed place of business through which the foreign company carries out business activities in the UAE, either wholly or partially.
3. Foreign companies without a permanent establishment in the UAE but with income sourced from the UAE: Foreign companies that do not have a permanent establishment in the UAE but generate income from sources within the UAE are also subject to corporate tax. This includes income from services provided or assets located in the UAE.
4. Branches of foreign banks operating in the UAE: Branches of foreign banks operating in the UAE are subject to corporate tax.
It is important to note that certain industries are exempt from corporate tax in the UAE, such as the oil and gas sector and companies engaged in the production of basic food commodities. Additionally, small and medium-sized enterprises (SMEs) may be eligible for reduced tax rates.
Accruon Consultants & Accountants Group UAE is committed to helping you analyze and put into place a corporate tax system that is specifically suited to the requirements of your business.
