Preparing for the UAE Corporate Tax-2024

Written By Akshaya Ashok, Reviewed By Retheesh R S

Published on 20/01/2025

The United Arab Emirates (UAE) is set to introduce a federal corporate tax (CT) regime in 2024, marking a significant shift in the country's tax landscape. The new Corporate Tax law will impose a tax rate of 9% on taxable profits, with the aim of promoting economic growth, diversification, and fiscal sustainability. As the implementation date approaches, businesses operating in the UAE must prepare for the changes ahead. Effective preparation is crucial to ensure compliance, minimize tax liabilities, and maintain competitiveness in the market. In this blog, we will provide an overview of the UAE Corporate Tax, and its implications for businesses, and offer practical guidance on how to prepare for the new tax regime.

What is the UAE Corporate Tax

The UAE Corporate Tax is a direct tax levied on the net income of corporations and other businesses operating within the UAE. It applies to various entities, including:

• UAE incorporated companies (both mainland and free zone).
• Foreign legal entities that are effectively managed and controlled in the UAE or have a permanent establishment within the country.
• Natural persons conducting business activities exceeding a specified income threshold.
  
  

The introduction of this tax aims to align the UAE with international standards and enhance its attractiveness as a business hub.

Tax Rates and Thresholds

The corporate tax rates for 2024 are structured as follows:

• 0% Tax Rate: Applicable on taxable income up to AED 375,000.
• 9% Tax Rate: Imposed on taxable income exceeding AED 375,000.
  
  

This tiered approach is designed to support small businesses while ensuring larger entities contribute to the national economy. Additionally, businesses in free zones may benefit from different rates depending on their compliance with specific regulations.

Taxable Income and Deductions

Taxable income is calculated based on the accounting income reported in financial statements, with necessary adjustments for:

• Exempt income: Certain types of income may be exempt from corporate tax.
• Non-deductible expenditures: Expenses that do not qualify for deductions under corporate tax regulations.
  
  

For instance, specific limitations apply to interest deductions and other expenses, which can impact the overall taxable income calculation.

Dates and Timelines

• The Corporate Tax Law became effective for financial years starting on or after June 1, 2023.
• Companies adopting a fiscal year aligned with this date will file their first tax returns towards the end of 2024.
• For businesses following a calendar year (January 1 to December 31), corporate tax obligations commence from January 1, 2024, with returns likely due in mid-2025.
  
  
  

What is the Impact on Businesses in UAE

The introduction of corporate tax in UAE marks a significant shift in the business landscape, impacting various sectors and entities. Here’s an overview of the implications for businesses in 2024.

Who Will Be Affected by the Corporate Tax?

• All Businesses: The corporate tax applies to all entities incorporated in the UAE, including mainland companies, free zone entities, and foreign companies with a permanent establishment in the UAE.
• Family Businesses and International Holdings: Family businesses with international holdings may be particularly affected, as they need to reassess their management structures to align with new tax regulations. Entities that are effectively managed from the UAE will be considered tax residents, which can lead to increased tax liabilities if not properly
  managed.
  
  

Industries and Sectors Most Impacted

• Real Estate and Construction: These sectors are likely to face significant changes as they adapt to the new tax regime. Companies engaged in real estate management and construction will need to navigate compliance requirements effectively.
• Financial Services: Banks and financial institutions will also be subject to corporate tax, impacting their profitability and operational strategies.
• Free Zone Entities: While some free zone businesses may benefit from lower tax rates (0% on qualifying income), they must ensure compliance with specific criteria to avoid higher rates on non-qualifying income.
  
  
  

Potential Benefits and Challenges for Businesses

Benefits

• Increased Financial Transparency: The introduction of corporate tax enhances financial reporting practices among businesses, leading to greater transparency and potentially improved access to international capital markets.
• Competitive Tax Environment: Despite the introduction of corporate tax, the UAE's rates remain competitive compared to global standards, which may continue to attract foreign investment.
  
  

Challenges

• Compliance Costs: Businesses may face increased costs associated with compliance, including hiring tax professionals or investing in new accounting systems to manage their tax obligations effectively.
• Strategic Adjustments: Companies will need to reassess their financial strategies and possibly restructure operations to optimize their tax positions while ensuring compliance with both local and international regulations

How to Prepare  for the UAE Corporate Tax

Preparing for the UAE Corporate Tax in 2024 requires a thorough review of your business's financial records, accounting systems, and operational processes. To ensure a smooth transition and minimize tax liabilities, follow these steps:

1. Review Financial Records and Accounting Systems

• Ensure accuracy and completeness of financial records, including income statements, balance sheets, and general ledgers. 
• Review accounting policies and procedures to ensure compliance with UAE Corporate Tax laws.
• Consider implementing tax accounting software to streamline tax compliance and reporting.
  
  

2. Assess Tax Implications on Business Operations

• Analyze the impact of Corporate Tax on your business's profitability, cash flow, and financial performance.
• Identify areas of the business that will be most affected by the tax, such as revenue recognition, expense deductibility, and transfer pricing.
• Consider seeking professional advice from a tax consultant or accountant.
  
  

3. Identify Areas for Tax Optimization

• Review your business's supply chain, procurement processes, and contractual arrangements to identify opportunities for tax savings.
• Consider restructuring your business operations or supply chain to minimize tax liabilities.
• Identify areas where tax incentives or exemptions may be available, such as free zones or special economic zones.
  
  

4. Develop a Tax Planning Strategy

• Develop a comprehensive tax plan that aligns with your business's overall strategy and goals.
• Consider scenarios for different tax rates, deductions, and exemptions.
• Establish a tax risk management framework to ensure compliance and minimize tax risks.

What are the Considerations for Businesses

As the UAE Corporate Tax comes into effect in 2024, businesses must consider several key factors to ensure compliance and minimize tax liabilities. Here are four critical considerations for businesses in 2024:

1. Transfer Pricing and Related-Party Transactions

• Ensure arm's-length pricing for related-party transactions
• Maintain proper documentation for transfer pricing policies and related-party transactions
• Be prepared for potential audits and disputes related to transfer pricing
  
  

2. Tax Grouping and Consolidation

• Assess eligibility for tax grouping and consolidation
• Ensure common ownership and control among group members
• Consider the impact on transfer pricing and related-party transactions
  
  

3. Withholding Tax and Tax Compliance

• Identify payments subject to withholding tax (e.g., dividends, interest, royalties)
• Ensure accurate withholding tax calculations and reporting
• Maintain records of withholding tax payments and receipts
  
  

4. VAT and Corporate Tax Interactions

• Understand the interaction between VAT and Corporate Tax laws
• Determine the treatment of VAT inputs, outputs, and exemptions under the Corporate Tax law
• Ensure accurate reporting and compliance with both VAT and Corporate Tax laws

What is the Action Plan for Businesses?

There are some important steps to follow to make a good action plan for businesses dealing with tax risks. Here’s a simple way to get started:

1. Conduct a Tax Impact Assessment

• Evaluate how current and potential tax regulations affect the business financially.
• Tasks: Gather relevant financial data.
  
  

2. Review and Update Financial Systems and Processes

• Ensure that financial systems are compliant with current tax laws and efficient in managing tax-related data.
• Tasks: Assess existing financial software and processes.
  
  

3. Develop a Tax Risk Management Strategy

•  Create a framework to identify, assess, and mitigate tax risks proactively.
• Tasks: Identify key tax risks associated with business operations.
  
  

4. Engage with Tax Advisors and Consultants

• Leverage expert knowledge to enhance the effectiveness of the tax strategy.
• Tasks: Identify reputable tax advisors or consultants.
  
  
  

Implementation Timeline

Set specific deadlines for each task to ensure timely execution. For example:

• Tax Impact Assessment: Complete by Q1 2025
• Financial Systems Review: Complete by Q2 2025
• Tax Risk Strategy Development: Complete by Q3 2025
• Engagement with Advisors: Ongoing throughout the year
  
  
  

Monitoring and Evaluation

• Establish key performance indicators (KPIs) for each component of the action plan to measure progress and effectiveness.
• Regularly review the action plan to adjust strategies based on changing regulations or business circumstances.
  
  
  

How can we help you?

As we conclude, let's recap these points the UAE Corporate Tax is set to be introduced in 2024, affecting businesses with taxable profits exceeding AED 375,000. To prepare, businesses must conduct a tax impact assessment, review and update financial systems, develop a tax risk management strategy, and engage with tax advisors. At Reyson Badger, we recommend that businesses take proactive steps to ensure compliance and minimize tax liabilities. Don't wait until the last minute - start preparing now. Contact Reyson Badger today to learn more about how our expert team can guide you through the UAE Corporate Tax preparation process and ensure a seamless transition for your business.

Written By

Akshaya Ashok

Akshaya Ashok is a content writer specializing in creating content focused on accounting and auditing. With over two years of experience, she has developed expertise in crafting professional content for the financial sector.