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What is Corporate Tax in UAE and How to Register for it?

Welcome to the realm of corporate tax in the UAE! In this dynamic business landscape, understanding the ins and outs of taxation is crucial for every company. Whether you're a multinational corporation or a small startup, navigating the realm of corporate taxes can be both daunting and thrilling at the same time.

In this blog post, we'll unravel the mysteries behind corporate tax in UAE and guide you through the process of registering for it. From exploring different types of taxes to discussing who bears the responsibility, we've got you covered. So grab your favorite beverage, put on your thinking cap, and let's dive into this exciting journey together!

Types of Corporate Taxes in UAE

When it comes to corporate taxes in the United Arab Emirates (UAE), there are different types that businesses need to be aware of. Understanding these tax categories is essential for companies operating within the UAE.

1. Corporate Income Tax:

In the UAE, there is no federal corporate income tax imposed on companies. This means that businesses can enjoy a significant advantage compared to other countries where corporate income tax rates can be quite high.

2. Withholding Tax:

The UAE does not levy withholding tax on dividends, interest, or royalties paid by local companies to non-resident entities. This encourages foreign investments and boosts economic growth within the country.

3. Value Added Tax (VAT):

Introduced in 2018, VAT applies to most goods and services provided in the UAE at a standard rate of 5%. Businesses with taxable supplies exceeding a certain threshold are required to register for VAT and charge it on their sales.

4. Excise Tax:

Excise tax is levied on specific products considered harmful or luxury items such as tobacco products, carbonated drinks, and energy drinks. It aims to promote healthier lifestyles while generating additional revenue for government initiatives.

By understanding these different types of corporate taxes in the UAE, businesses can effectively manage their financial obligations and plan accordingly.

Who is Liable for Paying Corporate Tax?

Understanding who is responsible for paying corporate tax in the UAE can help businesses navigate their tax obligations effectively. In general, companies are liable for corporate tax on their profits generated within the country. This includes both local and foreign-owned businesses operating in the UAE.

For locally owned companies, the liability falls directly on them as they are considered separate legal entities from their owners. These companies must file annual tax returns and pay taxes on their profits to the relevant authorities.

In the case of foreign-owned businesses, it's important to note that certain Free Zones in the UAE offer exemptions from corporate tax for a specified time. However, once this exemption expires or if a company operates outside of these designated zones, it becomes subject to corporate tax regulations.

It's worth mentioning that partnerships established within the UAE also have specific rules regarding taxation. Each partner may be individually responsible for declaring and paying taxes based on their share of partnership income.

By understanding who is liable for paying corporate tax in the UAE and seeking expert advice when needed, businesses can manage their financial responsibilities effectively while staying compliant with local regulations.

How to Register for Corporate Tax in UAE

Registering for corporate tax in the UAE is a straightforward process that requires careful attention to detail. The following is the detailed procedure for registering on EmaraTax for Corporate Tax: 
1.Enter your credentials or the UAE PASS to log into EmaraTax. After logging in successfully, the EmaraTax user dashboard will be displayed on the screen. Upon successfully logging into the dashboard, the “Taxable Person” list screen opens. This list will be empty and you will need to add a Taxable Person if there are no Taxable Persons linked to your user profile. To add the new taxable person, click "Create".
2. To begin the registration process, select the Corporate Tax tile on the dashboard and click "Register." Proceeding ahead, the directions and guidelines are shown on the screen. After reading these registration instructions, click the checkbox to verify.
3. To start the Corporate Tax Registration application, click "Start."

4. From the list in the entity details section, choose the business's entity type. As you discover, the input fields vary based on the selected entity.
5. You can continue by clicking ‘Save as Draft’ to complete the desired procedure at your convenient time. 
6. After filling out the required fields, click "Next Step" to save and go on to the "Identification Details" domain.
7. Provide the primary trade licence information in the Identification Details section based on the Entity type that was chosen (in Step 4). 
8. To add all the activity details pertaining to the trade licence, click "Add Business Activities."
9. Click the Add button after adding the required business activity details. Once you make sure all appropriate and essential details are submitted, a verification code will be displayed on your screen.
10. To add owners who control at least 25% or more of the registered entity, click the "Add Owners" button.
11. After entering the owner's pertinent information, click "Add."
12.  Choose "Yes" and include the branch information if the company has one or more branches. Provide the owner's list, relevant business operations, and trade licence details for each branch.
13. After you finish filling in the obligatory fields, select ‘Next Step’ to save your changes and move ahead to the ‘Contact Details' section
14. Provide the information for the business's registered address 
15. Once the required information has been entered, click "Next Step" to save and move on to the "Authorised Signatory" area.
16. To add an authorised signatory and give the necessary information, click the "Add" button.
17. Click "Add" after providing the Authorised Signatory's information.
18.  After finishing, select "Next Step" to save and move on to the "Review and Declaration" area. The pertinent information submitted throughout the application is highlighted in this section. As a result, you must check and formally submit the application.
19.  After the application has been thoroughly examined, click the box to attest to the validity of the data submitted. 
20. To submit the application for corporate tax registration, click the "Submit" button.
Once the application is successfully submitted, a Reference Number is generated for it. Hold the reference number handy for subsequent correspondence with FTA.
By following these steps carefully, you can ensure a smooth registration process for corporate tax in the UAE without any hassle or delays!

Post Registration Procedure

Following acceptance of the application, the FTA will contact the applicant and have the option to approve, reject, or resubmit for more information.
You will receive an email from the FTA with the necessary information if they need any further information from you to help with the application's verification.
After the FTA mails you to confirm that your application was approved, you will be informed of the outcome.

The dashboard will be updated with the new status of your application. You can check the status of your application on the dashboard at any time!

Benefits and Drawbacks of Paying Corporate Tax in UAE

When it comes to corporate tax in the United Arab Emirates (UAE), there are both benefits and drawbacks for businesses. Understanding these can help business owners make informed decisions about their tax obligations.

One of the major benefits of paying corporate tax here, is that it helps fund government services and infrastructure development. This includes improvements to transportation, healthcare, education, and other public amenities. By contributing to the country's growth and development through taxes, businesses play a crucial role in shaping a prosperous future for everyone.

Another benefit is that paying corporate tax can enhance a company's reputation. Being seen as a responsible taxpayer can boost trust among clients, investors, and partners. It demonstrates transparency, and compliance with regulations, and contributes to building long-term relationships based on credibility.

However, there are also drawbacks associated with corporate taxation in the UAE. One concern is the potential financial strain on small or struggling businesses. Paying taxes means allocating funds that could otherwise be invested back into the company for growth or used to cover operational expenses. For some businesses operating on tight budgets or facing economic challenges, this can pose difficulties.

Moreover, increased administrative burden is another drawback of corporate tax payments. Businesses need to ensure accurate record-keeping and timely filing of returns to avoid penalties or legal issues. This requires dedicating time and resources towards maintaining proper financial documentation which may divert attention from core business operations.

Corporate taxation in the UAE has its advantages such as contributing towards national development goals while boosting a company’s reputation; however, it also poses challenges including potential financial strain on small businesses along with additional administrative burdens impacting day-to-day operations.

Understanding and complying with corporate tax regulations is essential for businesses operating in the United Arab Emirates. While the UAE has been known for its tax-friendly environment, recent changes have introduced a framework for corporate taxes.

In this blog, we explored the concept of corporate tax in the UAE and discussed its types, liabilities, and registration process. We also highlighted the benefits and drawbacks of paying corporate tax.

By familiarizing yourself with these aspects of corporate taxation in the UAE, you can ensure that your business remains compliant and avoids any penalties or legal issues. It is advisable to seek professional guidance from experts who specialize in tax matters to navigate through the complexities of registering and paying corporate taxes.

While paying corporate taxes may be seen as a burden by some businesses, it is important to remember that these taxes contribute to the growth and development of infrastructure projects across the country. Additionally, compliance with local regulations enhances transparency and helps build trust among stakeholders.

As the UAE continues to evolve economically, staying abreast of changes in taxation laws will enable businesses to make informed decisions that support their long-term success.