Dubai Taxation in 2024
Most details of Dubai taxation will be covered in this post. A few years ago this would have been a relatively short article, as the concept of tax did not exist in the UAE. This first changed in 2018, when the government introduced the General Sales Tax (GST), and in 2023, the corporate tax was introduced, made possible by a law passed in 2022. When planning international tax planning, we look for business opportunities where the conditions for setting up a company are favourable, the tax system is politically and socially stable and there are double tax treaties with countries that are important to us. With a treaty with Hungary in this article we deal with. One of the important benefits of the convention is the possibility for a person resident in Hungary to enjoy certain income earned abroad without paying Hungarian tax.
Personal income tax in Dubai:
Personal income tax does not exist in the UAE, so 0%. I would definitely like to add other personal income to this. For example, wages, dividends, capital gains and rental income or capital gains from real estate are also exempt from taxation. In short, the tax on individuals is 0%. Compared to the Hungarian tax system, the United Arab Emirates is a home of favourable tax opportunities. To a European eye, it is perhaps unthinkable that an employee, investor or business owner should not have to pay tax.
Dubai corporate tax - Corporate tax 2024
The introduction of the corporate tax in the United Arab Emirates was introduced by the new Federal Law No. 47/2022, published on 3 October 2022, which was unprecedented in the country.It was introduced in June 2023, so all entities registered in the United Arab Emirates must comply with the newly enacted regulations from the next financial year, usually 1 January 2024.
The aim of taxation is to maintain the country's development and transformation, to remain the world's leading financial centre and to comply with the regulations dictated by the OECD.
It is important to note that this regulation does not affect the value added tax (VAT), which was introduced on 1 January 2018 and is set at 5%. This VAT of 5% applies only to services and goods sold in domestic and non-free trade zones.
United Arab Emirates corporate tax rate:
In the United Arab Emirates, the corporate tax rate is progressive, with the rate of profit determining the rate of tax on profits. There are 3 categories:
- 0 - AED 375,000 profit corporate tax rate: 0%
- Above AED 375,000 the corporate tax rate is 9%
- Under the Organisation for Economic Co-operation and Development (OECD) BEPS project, multinational companies worldwide with a turnover of more than €750M will receive a higher individual tax rate.
Companies with a turnover of less than AED 3,000,000 will be exempt from paying the tax until the end of 2026. This is more than 763,000 Eur or 292 million HUF at the current exchange rate. Under the current rules, since these companies will be exempt from paying tax until the end of 2026, any part of this amount can be profit.
What should business owners do now?
- From June 2023 onwards, corporate taxpayers must register
- keep the company or business accounts up to date
- submit a tax return to the FTA (Federal Tax Authority) after the close of the financial year.
- The end of the first financial year after 1 June 2023 is 31 December 2024, so the first financial report must be submitted by September 2025.
- regardless of the fact that taxpayers with a turnover below AED 3,000,000 are exempt until 2026, financial records must be kept up to date and submitted on time.
A company registered in the United Arab Emirates has a turnover of AED 5M (€1.28M) and a profit of AED 750,000 (€190,000) in 2024. In this case, as the company exceeded the AED 3,000,000 limit, it is liable to pay corporate tax. The tax rate is AED 0% up to a profit of AED 375,000 and AED 9% for the part above that. Thus, half of the company's profit is exempt from tax and the other half is subject to corporate tax at AED 9%, so that it will be liable to pay corporate tax of AED 33,750 (€8,600). The total profit is 4.5%.
Annual revenue of the company: 2.800.000 AED (715.000€)
Company profit: AED 2.600.000 (€663.000)
Tax payable: 0%, AED 0
As the company will be exempt from tax until the end of the financial year 2026 for revenues below AED 3,000,000.
From a tax perspective, it is currently the same for an offshore company registered in Dubai, a free zone company or even a mainland local company, but low corporate tax is mandatory.
Cost accounting for corporation tax purposes:
Basically, a company can account for its operating expenses and purchases. However, there are some areas where special rules are imposed, in my personal opinion quite understandably:
- Wages for owners: The wages paid should be rational in relation to the wages for which the job is available on the labour market.
- Interest and financial charges profits before interest, taxes, depreciation and amortisation are maximised in 30% (EBIDTA 30%-a)
- accounting for costs that are intended to benefit customers, shareholders, employees or suppliers "entertainment", the maximum amount that can be charged is 50% of the account, including meals and accommodation.
- the foreign branches by may be exempt from tax up to the amount of tax paid abroad.
The following entities are exempt from corporate tax:
The Ministry of Finance has identified additional sectors that are exempt from corporate tax in the United Arab Emirates:
- government and other public institutions
- companies engaged in the extraction of natural resources in the UAE have already been paying Emirati tax, so the new rules do not apply to them, and they do not have to file a tax return and pay the new corporate tax.
- public or regulated private entities, such as pension funds
- real estate investment funds or regulated investment funds (you must apply to the MoF and FTA)
- companies owned by the Government of the United Arab Emirates. The companies that are exempt are decided at ministerial level.
- Charitable organisations
- Foreign banks, as they have also had to pay tax so far
Dubai offshore company
The UAE has a number of free trade zones. In some of them, not only is it possible to set up a company in a free zone, but an owner can also set up an offshore company. Offshore companies are not allowed to carry out their activities in the UAE, in the same way as offshore companies registered in other countries are subject to the main condition that they cannot carry out their activities in the country of registration. In business, it is quite common for a company to outsource its activities to another low-tax country. But in this case, the company must register for corporate tax with the Federal Tax Authority in the same way as any other company, with proper financial records and annual tax returns. The owner and its employees are not eligible for residence permits and other business visas. It is also very difficult to open a local bank account.
Free Trade Zone and Mainland (local) company formation
For information on setting up a company in Dubai and related information, see our previous article on this topic. However, as a Freezone company and a Mainland company are lumped together for corporate tax purposes, there are still important differences between companies set up in the Free Trade Zone and local companies. Freezone companies can only carry out certain activities, usually b2b, while local companies can obtain a licence to operate on a wider scale. A freezone firm may provide a limited number of visa opportunities for the owner or employee, while for a local firm these opportunities increase in proportion to the growth of the business. A free zone company can invoice VAT-free in a free trade zone and abroad. The ins and outs of setting up a company in Dubai here read more.
Many people were scared by the expected introduction of corporation tax. They were worried that their companies, which had been set up in the past, had lost their main advantage, in addition to promises to preserve the tax exemption. In my view, this is a viable tax policy and Dubai will continue to be a great place for tax optimisation. Tax optimisation today will not necessarily be about 0 tax, but really about optimisation. However, setting up a company in Dubai is the easiest way to obtain a residence permit in the United Arab Emirates, until 2026, the corporate tax 0% for our customers 98%. Dubai taxation will hopefully be synonymous with non-taxation for a long time to come.
I am at your disposal for Dubai taxation issues, feel free to contact me. If you have set up your company elsewhere but need help, you are also welcome to contact me.
Source: https://mof.gov.ae/corporate-tax-faq/, https://tax.gov.ae/en/taxes/corporate.tax/corporate.tax.topics/what.is.corporate.tax.aspx