Beyond the world’s most advanced infrastructure and strategically placed location, the attractiveness of the United Arab Emirates as a business environment continues to grow. A new layer of attraction, especially for start-ups and SMEs, has been created with the recent introduction of a corporate tax system. The 0% corporate tax rate on a portion of taxable income is a key feature of this system. But who’s really eligible for such a benefit? To optimize your company’s financial position and increase its growth, you can leverage the tax framework of the United Arab Emirates by understanding these nuances. To navigate this legislation further, you can contact one of the best tax consultants i.e. A&A Associate and we would be happy to help.
Who is a Taxable Person under UAE Corporate Tax Law?
Any legal entity or natural person carrying out business or commercial activities in the United Arab Emirates shall be considered to be a taxable person for corporate taxation. This includes:
- Limited Liability Companies (LLCs)
- Public Joint-Stock Companies
- Branches of Foreign Companies
- Sole Proprietorships
It is important to note that certain entities, such as the government of the United Arab Emirates, public benefit entities, and qualifying investment funds, are exempted from corporate tax. Detailed guidance on whether your specific business entity is eligible for an exemption may be provided by the tax consultants.
Understanding the 0% Tax Threshold
The 0% corporate tax rate applies to a specific portion of a taxable person’s taxable income. This threshold is set at AED 375,000 (approximately USD 102,000) per financial year. In simpler terms, any business earning taxable income up to AED 375,000 will not pay any corporate tax on that portion. This threshold applies to each taxable person, irrespective of the number of businesses they operate. So, if you own two separate businesses, each generating taxable income below AED 375,000, both will enjoy the 0% tax rate on their respective income.tax consultants like an A&A Associate can help you structure your businesses efficiently to maximize the benefits of the 0% tax threshold.
What Happens After the Threshold?
Once a taxable person’s income exceeds AED 375,000, the corporate tax rate of 9% applies to the entire taxable income, not just the amount exceeding the threshold. This means there’s no progressive tax structure.
For instance, if a business generates a taxable income of AED 500,000, it will pay 0% tax on the first AED 375,000 and a 9% tax on the remaining AED 125,000 (AED 500,000 – AED 375,000), amounting to AED 11,250 (AED 125,000 x 9%).
Special Considerations for Qualifying Free Zone Persons (QFZPs)
The UAE has a network of free zones that offer various incentives to attract businesses. Qualifying Free Zone Persons (QFZPs) operating within designated free zones may enjoy different rules. We at A&A Associate can guide you further to comply with specific free zone legislation and laws.
QFZPs can benefit from a 0% corporate tax rate on their “qualifying income” derived from activities within the free zone and transactions with other free zone businesses. However, any income generated outside the free zone or classified as “non-qualifying income” might be subject to the standard 9% corporate tax rate.
Conclusion
The UAE’s corporate tax regime offers a competitive advantage for businesses, especially those with lower profit margins. The 0% tax threshold provides significant relief for startups and small businesses. Understanding how this threshold applies and exploring options like free zone setups can be crucial for optimizing your tax obligations. Consulting with tax consultants like A&A Associate who is experienced in UAE corporate tax regulations can