Corporate tax and VAT for new companies in the UAE

Corporate tax is a tax on profit. It is worked out once for each financial year, starting from the net profit in your accounts. VAT is a tax on consumption. A registered business adds 5% to its taxable sales, collects it from customers and passes it to the government after deducting the VAT it paid on its own purchases.

Both are run by the Federal Tax Authority, and both are handled online through its EmaraTax platform, which you sign in to with UAE Pass. Registering for one does not register you for the other. A company that already has a VAT number still has to register for corporate tax, and a company registered for corporate tax still has to watch the VAT threshold.

Corporate tax was introduced by Federal Decree-Law No. 47 of 2022 and applies to financial years starting on or after 1 June 2023. Taxable income up to AED 375,000 is taxed at 0%, and the part above AED 375,000 at 9%. Companies on the mainland and in free zones are all within its scope.

Registration is not linked to making a profit. Every company that is subject to corporate tax registers and receives a Corporate Tax Registration Number. Under the registration timeline set by the Federal Tax Authority, a company incorporated on or after 1 March 2024 applies within three months of the date of incorporation, and a late application brings an administrative penalty.

• The trade licence
• The Memorandum of Association or the certificate of incorporation
• Emirates ID and passport of each owner holding more than 25%
• Emirates ID and passport of the authorised signatory, with proof of authorisation

Corporate tax is self-assessed. For each tax period, which normally matches your financial year, the company works out its taxable income and files a return on EmaraTax. The return is due within 9 months of the end of the period, and any tax is paid by the same date. A company with a year ending 31 December files by 30 September of the following year.

Taxable income starts from the accounting profit or loss and is adjusted for the items the law sets out, so it depends on proper accounts. A small business that is resident in the UAE may be able to elect Small Business Relief for a tax period if its revenue stays within the limit set for it. The relief is chosen period by period, and it is not available to a Qualifying Free Zone Person.

A free zone company is a taxable person like any other. It registers, keeps accounts and files a return every year. The law allows a free zone company that meets the conditions for a Qualifying Free Zone Person to benefit from a 0% rate on its qualifying income.

That treatment is not automatic and does not cover every kind of income. The conditions are set out in the tax law and in the decisions issued under it, and they are tested for each company. Do not rely on the words tax free in a free zone brochure. Ask a tax adviser to check your activities and your customers against the conditions.

VAT has applied in the UAE since 1 January 2018 at a standard rate of 5%. A business based in the UAE must register when its taxable supplies and imports exceeded AED 375,000 over the previous 12 months, or are expected to exceed that amount in the next 30 days. Once registration becomes mandatory, the application is due within 30 days.

Voluntary registration is open from AED 187,500, and taxable expenses can be counted towards that figure. This lets a start-up with costs but little revenue register and recover the VAT on its setup spending. Exempt supplies and supplies outside the scope of VAT do not count towards either threshold.

A new company should total its taxable sales at the end of every month, looking back 12 months, so the threshold is not crossed unnoticed. After registration you charge VAT on taxable sales, issue tax invoices, and file a VAT return on EmaraTax for each tax period the authority assigns to you.

Every business in the UAE is expected to keep accurate, up-to-date financial records, whether or not it is registered for VAT. A company below the VAT threshold needs them to show when registration becomes necessary, and every company needs them to prepare its corporate tax return.

Open the business bank account early and keep company money and personal money apart. Use accounting software or a bookkeeper from the first invoice. The tax laws require records to be kept for several years after the period they relate to, and your tax adviser tells you the exact period for each type of record.

• Sales invoices and credit notes you issue
• Purchase invoices and receipts
• Bank statements for every company account
• Contracts, leases and loan agreements
• Payroll records
• Import and export documents
• Ledgers and yearly financial statements

This guide explains the rules in general terms, as published by the Federal Tax Authority and the Ministry of Finance. Tax treatment depends on the facts of each business: its activities, its customers, its ownership and its accounts. A qualified tax adviser confirms the position of your company before you rely on any of it. Caliph helps new companies with corporate tax and VAT registration, and your consultant tells you when an adviser's opinion is needed.