Corporate Income Tax System in the United Arab Emirates
The United Arab Emirates (UAE) has a territorial tax system, meaning that only income earned within the UAE is subject to taxation. Corporate income tax (CIT) is levied on the net profits of companies operating in the UAE. The CIT system is governed by Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT) and Federal Decree-Law No. 9 of 2017 on Excise Tax, as amended.
Methodology for Calculating Corporate Income Tax
The CIT liability of a company is calculated by applying the applicable tax rate to its taxable income. Taxable income is determined by deducting allowable expenses from the company's total revenue. Allowable expenses include costs incurred in generating revenue, such as salaries, rent, and depreciation.
Applicable Corporate Tax Rates
The standard CIT rate in the UAE is 9%. However, certain companies are subject to a reduced tax rate of 0%. These include:
- Companies operating in free zones
- Companies engaged in specific activities, such as manufacturing, education, and healthcare
- Companies with annual net profits below a certain threshold
Definition of Taxable Income
Taxable income for CIT purposes includes all income derived from business activities carried out in the UAE. This includes income from:
- Trading activities
- Investment activities
- Rental income
- Royalties
- Dividends
- Capital gains
Exemptions from Corporate Income Tax
Certain types of income are exempt from CIT in the UAE. These include:
- Dividends received from other UAE companies
- Capital gains on the sale of shares in UAE companies
- Income earned by non-resident companies that do not have a permanent establishment in the UAE
Legal Framework
The legal framework governing the CIT system in the UAE is set out in the following laws:
- Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT)
- Federal Decree-Law No. 9 of 2017 on Excise Tax
- Cabinet Resolution No. 52 of 2017 on the Executive Regulations of Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT)
- Cabinet Resolution No. 53 of 2017 on the Executive Regulations of Federal Decree-Law No. 9 of 2017 on Excise Tax
These laws provide the legal basis for the calculation of CIT, the applicable tax rates, the definition of taxable income, and the exemptions from CIT.
Call to Action
If delving into the depths of Cyprian tax rules and regulations isn't your style, and you'd rather have experts take the reins, then Heavnn is here to help.
Let us simplify your tax planning journey in Cyprus.
Access Heavnn's blend of professional expertise and cutting-edge technology by clicking the button below.
