Different Types of Corporate Tax in Abu Dhabi

types of corporate taxes in Au Dhabi

With the introduction of corporate tax in the UAE, companies in Abu Dhabi have to understand their tax responsibilities. This blog discusses the types of corporate taxes applicable in Abu Dhabi, their implications, and how companies can navigate them effectively.

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    Key Takeaways

    • Abu Dhabi imposes corporate tax, excise tax, property tax, customs duty, and VAT with specific rates and exemptions.
    • Corporate tax is 9% above AED 375,000, excise tax goes up to 100%, customs duty is 5%, and VAT is 5%.

    Staying updated, maintaining records, and using technology ensures smooth tax compliance

    Types of Corporate Taxes in Abu Dhabi

     Corporate tax

    All companies with taxable earnings (net) of more than 375,000 AED are liable to corporate tax and have to pay a set proportion of their net earnings as corporate tax. This category includes companies that are incorporated, managed, and controlled in the United Arab Emirates, as well as certain entities located in a free zone. To assist entrepreneurs and start-ups, the corporate tax rate is set to 0% if the total profit is less than 3,75,000 AED.

    The following are the corporate tax rates as stated by the Ministry of Finance:

    • 0% up to AED 375000 in taxable income
    • 9% for the taxable earnings above AED 375,000 and
    • 15% for large multinational corporations (MNEs) that satisfy the criteria set according to ‘Pillar Two’ of the OECD’s BEPS project.

    Here are a few corporate tax exemptions:

    Federal corporation income taxes do not apply to the following organizations:

    • Government-controlled entities;
    • Persons participated in an extractive business;
    • Individuals working in non-extractive natural resource industries;
    • Qualifying organizations for public benefit;
    • Qualifying investment funds;
    • Social security and public pension funds, or a private pension or social security funds that are subject to regulatory supervision of the appropriate entity in the state;
    • Legal entities that are fully owned and managed by specific exempt individuals and that are incorporated in the state; and
    • Freelance Professionals (Subject to Annual Income)
    • Natural Resource Extraction
    • Any additional individuals that the cabinet decides upon at the minister’s recommendation.

    Excise taxes

    In 2017, an excise tax was imposed in the United Arab Emirates. It is applied to certain products that are generally bad for the environment or human health. These goods are known as “excise goods”.

    The United Arab Emirates expanded the scope of its excise duty on December 1, 2019, to cover liquids used in electronic smoking devices and equipment, sweetened beverages, and electronic smoking devices and instruments.

    The applicable tax rates are:

    • 50% on carbonated drinks
    • 100% on tobacco products
    • 100% on energy drinks
    • 100% on electronic smoking devices
    • 100% on liquids used in these devices and tools
    • 50% on products containing added sugar or other sweeteners.

    Municipal or property tax

    Most Emirates enforce a municipality tax on properties, primarily regarding the yearly rental value. Tenants are often responsible for paying the tax. Tenants and property owners may occasionally be required to pay different fees. For instance, in the Emirate of Dubai, the municipality tax on real estate is currently set at 5% for residential buildings (paid by tenants) and 2.5% for commercial properties (paid by property owners).

    A registration fee may be imposed on tthe ransfer of possession of land or real property.

    The direct or indirect transfer of shares in a company that owns real estate may also be subject to the registration fee. These taxes are levied and administered distinctly by each Emirate. 

    Customs Duty

    Imported items from outside the GCC that arrive in the UAE are subject to customs taxes. With minor exclusions for specific product categories, the UAE, a member of the GCC customs union, levies a standard customs charge on most imports.

    Although the rate may differ for particular commodities, the typical customs duty rate is 5%. Certain products, such as food and medications, might not be subject to customs taxes.

    Customs duties apply at the point of entry into the UAE, requiring businesses to pay duties on imported goods. Abu Dhabi has a streamlined customs process in place, which simplifies the process through the Federal Customs Authority and the customs departments across all emirates.

    Value Added Tax (VAT)

    The UAE set up Value Added Tax (VAT) in 2018 as part of its efforts to expand the economy. VAT applies to most goods and services, with some exemptions, including education, healthcare, and certain financial services.

    Currently, the VAT rate is 5%, one of the lowest in the Gulf Cooperation Council (GCC). If a business’s annual taxable earnings reach AED 375,000, they must register for VAT.

    Companies can choose to voluntarily register for VAT to recover VAT on business expenses, even if their earnings fall below this threshold.

    Companies are required to file VAT returns on a quarterly or yearly basis, depending on their revenue size. The FTA’s online site must be used to file the returns, and any outstanding VAT must be paid by the timeframes specified.

    The following primary supply groups will have 0% VAT applied to them:

    • Exports to countries outside the GCC of products and services;
    • International shipping, as well as associated materials;
    • Supplies of specific land, sea, and air transportation vehicles (such as ships and aeroplanes);
    • Certain precious metals of investment grade (such as 99% pure gold or silver);
    • Newly built residential properties, that are handed over for the first time within the initial three years of their construction;
    • Supply of particular education services, and the sale of relevant goods and services;
    • Provision of specific healthcare services as well as pertinent products and services

    The following goods and services are exempt from VAT:

    • Certain financial services
    • Residential real estate
    • Bare land
    • Local passenger transportation.

    Best Practices for Tax Compliance in Abu Dhabi

    Stay Updated with Tax Rules

    The UAE has put in place multiple tax regulations, such as Value Added Tax (VAT) and Corporate Tax. To be compliant in the UAE, you need to:

    • Register for VAT: If your yearly revenue surpasses the mandatory threshold.
    • File Tax Returns: File timely and accurate VAT returns with the Federal Tax Authority.
    • Compliance with Corporate Taxation: Ensure compliance with corporate taxation by understanding the requirements and accurately filing and paying the necessary taxes.

    Abu Dhabi’s regulatory environment is always changing. Staying up to date on new laws, rules, and changes is essential to maintaining compliance with the Emirates. To stay informed about the most recent advancements, interact with legal professionals, go to regulatory seminars, and subscribe to industry newsletters.

    Perform Regular Compliance Audits

    One proactive strategy for maintaining compliance in the UAE is to carry out routine compliance audits. These audits assist in finding possible gaps in compliance and fixing them before they become problems. Consider hiring third-party auditors or consultants to evaluate your compliance status unbiasedly.

    Maintain Accurate Records

     

    Good record-keeping practices are essential for tax compliance. Maintain thorough records of every financial transaction, including revenues, invoices, and expenditures. Utilize modern accounting software to simplify the record-keeping procedure and ensure accuracy.

    Seek Professional Advice

    Businesses can navigate the complicated tax landscape with the help of a certified tax advisor or accounting firm that specializes in tax issues. These experts can guarantee regulatory compliance, offer advice on minimizing tax obligations, and assist in identifying possible tax planning options.

    Make Use of Technology

    Adopt digital tools and accounting software that streamline tax filings, produce accurate reports, and automate tax computations. Automated systems not only save time but also reduce the likelihood of manual errors, improving overall tax compliance.

    Final thoughts

    Abu Dhabi remains a tax-effective business hub, with a low 9% corporate tax, exemptions for small enterprises and Free Zones, and no personal income tax. However, companies should comply with VAT, excise tax, customs duties, and municipality fees in order to operate legally. Staying informed about tax laws and working with a tax professional can assist businesses to optimize their tax strategies and remain compliant.

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