Direct and Indirect Tax
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On December 9, 2022, the UAE Ministry of Finance announced the introduction of Corporate Tax, marking a significant development in the country’s economic landscape. This direct tax, applicable to the net income of corporations and other businesses, was implemented on June 1, 2023. In various jurisdictions, this tax is commonly referred to as “Business Profits Tax” or “Corporate Income Tax.”
Despite the introduction of this tax, the UAE will continue to offer one of the lowest corporate tax rates globally. This approach is designed to maintain the UAE’s competitive position in the global business and investment environment while ensuring that the tax system is manageable for businesses. The new tax framework aims to simplify compliance, reducing the administrative burden on companies and fostering a more streamlined tax process.
What are the objectives of the UAE in implementing Corporate Tax on corporate income?-1st
RATE FOR CORPORATE TAX- 1st
INCOME RANGE | CORPORATE TAX RATE | DETAILS |
Up to AED 375000 | 0% | No tax applied to income within this threshold |
Over AED 375,00 | 9% | Standard tax rate applied to income exceeding AED 375,000. |
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VALUE ADDED TAX IN UAE (VAT)
Value Added Tax (VAT) in the UAE is a consumption tax introduced on January 1, 2018, under Federal Decree-Law No. 8 of 2017. VAT is levied on most goods and services at a standard rate of 5%, with the aim of diversifying the country’s revenue sources and aligning with international tax practices. It applies at each stage of the supply chain, from production to final sale, ensuring that value is taxed as it is added at each step.
What is Input tax and Output tax ?
In the UAE VAT system, input tax and output tax are key concepts that help businesses manage their VAT obligations effectively:
- Input Tax:This refers to the VAT that a business pays on purchases of goods and services used to produce its own taxable supplies. Input tax can be reclaimed or deducted from the VAT a business owes, provided the purchases are related to taxable business activities. For example, if a company buys raw materials or services that are used to manufacture products for sale, the VAT paid on these inputs can be recovered, reducing the overall tax burden.
- Output Tax:This is the VAT that a business collects from its customers when selling goods or services. The output tax is added to the sale price of taxable supplies and must be reported to the Federal Tax Authority (FTA). Businesses are required to charge VAT on their sales and remit this collected tax to the FTA, less any input tax they have reclaimed.
