Corporate tax in Dubai: A comprehensive overview

Corporate tax is a crucial element of tax law and plays an important role for companies operating in Dubai or the United Arab Emirates (UAE). In this article, we provide a detailed insight into the corporate tax regime that has been introduced in Dubai, including its impact on businesses and investors.

What is corporate tax?

Corporate tax is a tax levied on the profits of companies. It is calculated based on the net income of companies and is different for different types of companies.

The introduction of corporate tax in the UAE

In 2019, the UAE announced the introduction of a corporate tax for companies with an annual profit of more than AED 375,000. This was a significant move as the UAE has traditionally been known as a tax haven for businessmen and investors. The corporate tax is currently 9% on profits above the specified threshold.

What types of companies are affected?

• Multinational corporations
• Oil and gas companies
• Banks and financial institutions
• Technology companies

Advantages of corporate tax in Dubai

Despite the introduction of corporate tax, Dubai remains an attractive destination for investment. The advantages include:

• Stable economy: Dubai has a diversified and stable economy that extends beyond the oil sector.
• Infrastructure: Dubai’s modern infrastructure supports companies in their growth.
• International market presence: Access to international markets and a strategic location between the West and the East.

Tax advantages for companies

In addition to the relatively low corporate tax, there are other tax incentives that can benefit businesses in Dubai, such as free zones where companies can benefit from 100% foreign ownership and tax exemptions over a period of time.

How to prepare for corporate tax

Companies should prepare for the change in the tax environment in good time. This includes carrying out a thorough property valuation if property is owned by the business, as well as forward financial planning to anticipate potential tax liabilities.

What are the next steps after the introduction of corporate tax?

Businesses should take the following steps:

• Review financial strategies
• Engage tax advisors to obtain advice
• Make business adjustments in line with the new tax structure

Illustrative example on the topic: Corporate tax

Imagine a technology company incorporated in Dubai makes a profit of AED 500,000 in its first year. As this amount is above the threshold of AED 375,000, the company is taxed at 9% on the amount above AED 125,000. Thus, the company has to pay AED 11,250 in corporate tax. Despite this tax burden, business owners are exploring the benefits of free zones to further optimise their total cost of ownership and operate successfully in the market.

Conclusion

The introduction of corporate tax in Dubai presents a new challenge for many businesses, but also offers numerous opportunities and benefits for business development. To be successful, it is essential for companies to prepare well for these changes and develop a clear plan to comply with the new tax requirements.