Dubai Taxes: All taxes incl. the new corporate income tax 2023

• The tax rate is 9%: You have to pay 9% tax on profits above AED 375,000 (approx. €95,000) per year.

• Accounting obligation: You must keep your accounts in accordance with IFRS standards. Even if you are not subject to taxation, you must provide proof of proper accounting. This means an increased administrative burden + penalties for non-compliance.

• Freezone companies are also affected. Under certain conditions, your Freezone can be excluded. Let us advise you individually on this.

• Anti-abuse rules: The deliberate segregation of business activities to obtain a tax advantage is considered unlawful under the CTL's general anti-abuse rules.

• Expert tip: Adjustment of your financial year to delay the tax burden can be found at the end of the article.

Dubai is known for its tax-friendly policies. Companies operating in Dubai benefit from low tax rates and a simple tax system. However the government of Dubai has now introduced a new corporate tax system to raise revenue and diversify the economy.

1. The new corporate income tax of 9% has been in effect since 1 June. An exemption amount of AED 375,000 (about 100,000$) profit applies. However, the specific rules for salaries and deductions have not yet been fully clarified.

2. An average salary of AED 60,000 (16,000$) per month for a General Manager in Dubai is likely to be tax deductible, assuming it is market rate.

3. For individuals and Freezones in the UAE, there is a turnover allowance of AED 1 million (approximately 270,000$). No registration or reporting requirements are required up to this amount.

4. Mainland firms and non-qualified Freezones can take advantage of the "Small Business Relief", which is valid until 2026 and has a turnover limit of AED 3 million (about 816,000$).

5. Commercial corporate income tax does not apply to capital gains or dividends, even for holding companies incorporated in the UAE.

6. For a Freezone to be exempt, three conditions must be met, relating to the nature of the activities, the prohibitions and the need for full value addition in the Freezone.

7. The introduction of corporate income tax could have both advantages and disadvantages, depending on individual income and business model. The tax legislation could prove disadvantageous for some entrepreneurs if they are above the set turnover and profit thresholds.

Summary: The UAE has introduced a new corporate tax of 9% in 2023, with certain allowances and rules. This could have both advantages and disadvantages for entrepreneurs and companies, depending on their specific circumstances.

Under the new CT system, all companies operating in Dubai that are not registered in a free trade zone are liable to pay corporate income tax. This also applies to branches and subsidiaries of foreign companies. Companies in Freezones can in principle be exempted from corporate income tax provided they meet certain requirements.

Businesses operating in certain sectors, such as tourism, can also benefit from lower tax rates.

Dubai's new corporate tax system is intended to help diversify the country's economy and open up new sources of revenue. The government of Dubai plans to use the revenue from the corporate income tax for the development of infrastructure projects and the promotion of start-ups and small businesses.

The new CT system also includes income from non-self-employment, such as salaries and bonuses, in the calculation of the tax. The employee's marital status is also taken into account when determining the tax rates.

Workers in Dubai must therefore be prepared for higher taxes. However, the Dubai government will continue to pursue a tax-friendly policy to attract foreign investors and companies.

The introduction of the new corporate tax system (9%) and VAT (5%) introduced in 2018 are part of Dubai's broader strategy to diversify its economy and make it a leading business hub. Dubai also plans to invest in several areas over the next few years, including technology, renewable energy and artificial intelligence.

Dubai is known for its favourable tax rates and therefore attracts many international companies. Here you can find an overview of the tax rates in Dubai.

There are different methods of calculating the tax for international companies.

One method of calculating the tax for international companies is the so-called "profit netting". This involves calculating the company's profits in each country and then adding them up. The tax is then applied to the total profit.

Another method is "profit sharing". Here, the profit of the company is divided between the different countries in which it operates. The tax is then applied to the profit made in Dubai.

There are certain exemptions from tax liability, for example for non-profit organisations and government institutions. There are also cases where income and profits of foreign companies are not taxed.

The assessment base for corporate income tax in Dubai is calculated on the basis of income earned by a company within the emirate. There are special rules for the assessment of assets and losses.

If a company operates in Dubai but also earns income in other countries, the income is usually split and taxed in each country. The Dubai tax is then applied to the portion of the income that was earned in Dubai.

A permanent establishment refers to foreign companies doing business or owning real estate in Dubai. If a company has such a branch, it must pay taxes and have a business address in Dubai.

However, there are also exceptions to this rule. For example, companies operating in a free trade zone are exempt from paying tax. Companies that are only temporarily active in Dubai also do not have to pay tax.

When a company earns income in Dubai, this income is generally taxed in Dubai. However, there are exceptions if the income is earned abroad or if the company operates in a free trade zone.

If a company operates in a free trade zone, the income is usually not taxed. However, if the company operates outside the free trade zone, it must have the income taxed in Dubai.

Taxable income in Dubai includes all income earned by a person or company in Dubai. This includes income from business, rentals, capital gains and other sources of income. Taxable income is usually calculated on the basis of the net income remaining after deducting certain expenses such as business expenses and depreciation.

It is important to note that there is no income tax in Dubai. Instead, there is a corporate income tax that only applies to companies. This tax is applied to the taxable income of the company and is 9%.

Companies can deduct losses from previous years from their current income. However, there are special rules for calculating losses and profits, especially for international companies.

It is important to note that losses can only be offset up to a certain amount. If a company incurs losses in one year that exceed this amount, these losses can no longer be offset in subsequent years.

Companies can form tax groups to obtain tax benefits. However, there are certain rules and requirements for the formation of tax groups.

To form a tax group, the companies usually need to be under common control and operate in the same industry. Forming a tax group can help reduce the tax burden of the companies by offsetting losses and profits within the group.

Withholding tax refers to the tax that is deducted from an individual or company and paid directly to the Emirate. The withholding tax rules also apply to international companies operating or doing business in Dubai.

Withholding tax is usually levied on certain types of income such as interest, dividends and royalties. The amount of withholding tax varies depending on the type of income and can range from 0% to 10%.

The tax authorities in Dubai are very efficient and use advanced technology to manage taxes and audit businesses. Here are some tips on how to best fulfil your tax obligations in Dubai.

• Make sure you complete all relevant tax forms and documents properly.

• Keep accurate records of your income and expenses.

• Work with an experienced tax advisor to ensure you are compliant with all tax regulations.

• Keep up to date with changes in tax regulations and adjust your business practices accordingly.

Here you can register yourself and your company for corporation tax: https://tax.gov.ae/en/emaratax.aspx

Transfer pricing is used to determine the value of goods and services between associated enterprises or companies in different countries. Transfer pricing can affect a company's tax liability and there are certain rules for its calculation and application.

It is important to note that transfer pricing must not be manipulated in order to reduce the tax burden. The tax authorities in Dubai are very strict about transfer pricing compliance and can impose heavy penalties if companies violate these rules.

Dubai Corporate Tax Law Expert Tip:
By adjusting your company's fiscal year, you can delay the 9% tax burden. In practice, this means that you do not have to pay corporate income tax or do IFRS accounting until the tax year 2024.

This adjustment must be applied for with the competent authority and recorded in the Memorandum of Association.

Despite the introduction of the new tax, Dubai remains an attractive place to invest and do business due to its low tax rate and good infrastructure. We recommend that you find out about the new tax rules early and seek legal and tax advice if needed.

If you would like to know if your business falls under this regulation or you are thinking about emigrating and starting a business in Dubai, please contact us to see how we can help.