The tax regime of any jurisdiction plays an essential role in determining the ease of doing business. Prohibitively high taxes can make it expensive for a company to do business and also increase administrative hassles. As a result, investors may lose confidence in the economy.
An attractive and favorable tax regime in UAE has remained a significant incentive for investors across the globe. As a result, the UAE occupies the top position for ease of doing business among the Middle Eastern and North African countries.
Here is a brief primer about the corporate tax structure in the UAE
What is a corporate tax?
Corporate taxes are taxes levied on the profits made by a corporate entity. Lower corporate taxes boost investments and accelerate economic growth. With higher after-tax returns, corporations are more likely to invest in better technology, increasing workers’ productivity and earnings in the long run.
Corporate taxation in the UAE
Corporate income tax
At present, the federal government does not impose any corporate income taxes. The Emirates levy corporate income taxes through individual decrees. However, this is only applicable to the foreign oil and gas companies that receive concessions from the UAE government and branches of foreign banks.
The corporate income tax rate is capped at 55 percent for oil and gas companies. The specific tax rate is set out in the concession agreement. In the case of branches of foreign banks, the corporate income tax rate is 20 percent, calculated based on annual earnings from the audited financial statements. Additionally, oil and gas companies need to pay royalties on production.
Companies that are set up in Free Trade Zones (FTZs) of UAE don’t have to pay any corporate income tax. Moreover, FTZs also offer tax incentives to make it even more lucrative for investors to set up a business. For instance, FTZ located in Ras Al Khaimah provides 15 to 50 year renewable tax holidays and exemptions from paying import duty on goods imported to FTZs. Moreover, the tax holidays can be availed with 100% foreign ownership and repatriation of profits.
Companies that are registered in the UAE don’t have an obligation to file corporate tax returns, irrespective of where the business is registered.
Withholding taxes
These taxes are deducted at source on payments made by a company or individual, considered a resident of a country, to an individual or company outside such a country.
The UAE does not impose any withholding taxes. Companies that are incorporated in the UAE don’t have to pay taxes on any dividend income from a foreign or local investor. Dividends paid to the shareholders of the company are not subject to any withholding payments.
The UAE is also a signatory to approximately 90 double taxation avoidance agreements, including 42 with European countries and 23 with Asian countries. In 2019, it also signed a double tax treaty with Saudi Arabia, the first of its kind to be executed between the Gulf Cooperation Council or GCC countries. As a result, several foreign companies enjoy lower domestic withholding tax rates and relief from foreign tax compliances.
Customs and Excise Duty
Excise duty of 50 to 100 percent is levied on products harmful to humans or the environment.
These products are:
- carbonated drinks
- energy drinks
- sweetened drinks and juices
- tobacco and tobacco products
A 5 percent customs duty is levied on products that are entering the UAE. Domestically produced goods with appropriate certificates of origin enjoy certain exemptions from payment of customs duty within GCC countries and select states of the Arab League.
Goods imported to the FTZs are exempted from customs duty. However, if such goods exit the FTZ and enter mainland UAE, customs duty may be levied.
Other corporate taxes
Several Emirates levy a municipality tax on properties, payable by both the owner and the tenant. For instance, the Emirate of Dubai levies municipality tax of 5 percent of the annual rental value for tenants and 5 percent of the specified rental index for property owners. Some Emirates also charge registration fees for the transfer of title in any real estate. For instance, the Emirate of Abu Dhabi levies registration fees of 2 percent of the property transfer value.
In 2018, the UAE introduced a unified value-added tax (VAT). VAT is charged at the rate of 5 percent on all goods and services, with exemptions such as:
- Preventive healthcare services
- Crude oil and natural gas
- Educational services
- Specified financial services
- Investments in precious metals
Companies in mainland UAE also don’t have to pay any taxes for the transfer or disposal of shares. UAE also does not impose any taxes for the buyback of shares. However, companies need to pay applicable fees to the regulator for registering the buyback.
Companies need trade licenses to operate in the UAE. The municipalities of each Emirate levy taxes at the time of issuance or renewal of such licenses, including a tax of 10 percent of the annual rent of offices and warehouses and 5 percent of the expenses incurred for providing employee accommodation.
Get all your corporate tax queries resolved
Despite taxation measures such as VAT, UAE remains a popular low-tax jurisdiction in the Middle East that attracts a significant number of investors, looking to establish an international presence. While the tax regime is straightforward, it can be challenging to understand the fine print on your own.
You can put an end to your struggles by soliciting help from the team at Centurion Consulting. Our qualified business and finance experts can provide the necessary tax advice to help you set up your UAE company. We can also address all your queries regarding incorporation, compliance, strategy, and even carry out market research so that you can get a lay of the land before you take a decision.
Schedule a 45 min free online or offline consultation with one of our experts at Centurion Consulting and clarify all your doubts about taxes and compliances for corporates in the UAE.
