The new Corporate Tax regime: Key considerations for SMEs and start-ups in the UAE

• The introduction of the new Corporate Tax regime is designed to achieve the UAE’s strategic objectives.
• The Ministry of Finance outlines the definition, exemptions, and provisions of the CT law.
• SMEs and start-ups are set to benefit from the UAE’s strong regulatory framework.

The UAE’s start-up ecosystem has flourished remarkably in the past few years. The nation has attracted a diverse array of entrepreneurs and investors, which may be attributed to its progressive regulations, strategic location, and robust infrastructure.

A testament to this growth can be seen in figures at acclaimed business centres such as the Dubai Multi-Commodities Centre (DMCC). During the first half of 2023, the DMCC welcomed 1,456 new companies, bringing the total number of members to over 23,000. This expansion comes from an increasing interest in investment in international markets and the rising number of global small and medium-sized enterprises (SMEs) and start-ups choosing the country as their base. As such, understanding the new tax landscape is vital for companies looking to establish or expand their presence in the country.

However, comprehending the legal aspects of corporate tax can be overwhelming. Therefore, this comprehensive guide, with text sourced from the official portal of the Ministry of Finance, seeks to help SMEs and start-ups navigate the new CT regime. It aims to assist them in ensuring compliance and strategic financial planning.

It is necessary to point out that this article should not be interpreted as legal advice. Business owners should consult with a qualified tax professional to address specific concerns and tailor strategies to their unique circumstances. This guide is intended to provide a general understanding and should be used in conjunction with professional counsel.

New Corporate Tax regime

The introduction of a federal Corporate Tax (CT) was announced by the UAE Ministry of Finance in January 2022. The new corporate tax is a direct tax levied on the net income or profit of corporations and other entities. The UAE’s CT is governed by Federal Decree-Law No. 47 of 2022, as amended by Federal Decree-Law No. 60 of 2023. The tax applies to businesses from the beginning of their first financial year, starting on or after June 1, 2023. This initiative aims to align with international tax standards, promote transparency, and prevent harmful tax practices.

The introduction of CT in the UAE serves several strategic purposes, including but not limited to (1) reinforcing the status of the nation as a premier destination for business and investment, (2) supporting the country’s ongoing development and transformation goals, and (3) ensuring the UAE meets international tax transparency standards.

In addition, the CT is levied on the following:

• Businesses and individuals conducting business activities under a commercial license in the UAE;
• Free zone businesses, provided they meet specific conditions and do not conduct business in the mainland UAE;
• Foreign entities and individuals operating in the UAE regularly;
• Banking operations; and,
• Real estate-related businesses, including management, construction, development, agency, and brokerage activities.

Decoding tax rates and compliance

The CT rates are structured to accommodate different levels of taxable income, which go as follows:

• 0% for taxable income up to AED 375,000
• 9% for taxable income above AED 375,000

However, there is a provision for Small Business Relief under which SMEs with revenues of AED 3 million or below can benefit until the end of 2026. This provision allows eligible businesses to be treated as having no taxable income, simplifying compliance obligations.

Tips to easily navigate the new CT

The official website of the Ministry of Finance details the preparation for corporate tax in detail as below. For SMEs and start-ups looking to navigate the new CT regime, below are some stepwise approaches to follow.

• Read the Corporate Tax Law and the supporting information available on the websites of the Ministry of Finance and the Federal Tax Authority.
• Use the available information to determine whether your business will be subject to Corporate Tax and, if so, on what date.
• Understand the requirements for your business under the Corporate Tax Law, including, whether and by when your business needs to register for CT, what is the accounting period for your business; when your business would need to file a CT return, etc.
• Regularly check the websites of the Ministry of Finance and the Federal Tax Authority for further information and guidance on the Corporate Tax regime.