Mandatory Corporate Tax Registration in the UAE

In 2023, the United Arab Emirates (UAE) introduced a corporate tax to regulate the taxation process for businesses operating in the country. This tax, a landmark shift for the UAE, aims to streamline the corporate tax landscape, promote fair business practices, and align the country with international financial standards. This comprehensive guide will walk you through the corporate tax registration process, who is required to register, penalties for non-compliance, exemptions, and everything businesses need to know to comply with UAE's corporate tax laws.

What is Corporate Tax in the UAE?

Corporate tax is a direct tax levied on the net income or profits of businesses operating in the UAE. Introduced in June 2023, this tax applies to businesses based in the UAE, including both local and foreign companies with a permanent establishment in the country. The corporate tax rate in the UAE is progressive, encouraging growth while ensuring businesses contribute to the nation’s economic development.

Key Highlights of Corporate Tax in UAE:

• Introduction Date: June 2023

• Tax Rate:

  • 0% on taxable income up to AED 375,000.

  • 9% on taxable income exceeding AED 375,000.

• Entities Affected:

  • UAE mainland companies

  • Free zone companies (under certain conditions)

  • Foreign businesses with a permanent establishment in the UAE

  • Individuals earning income from business activities

This structure is designed to benefit small businesses and startups, while larger, more profitable businesses will contribute to the national economy with a moderate tax rate of 9%.

Who Needs to Register for Corporate Tax in the UAE?

As per the UAE’s corporate tax framework, a "taxable person" is any business entity that is required to register for corporate tax. The definition of a taxable person includes:

• UAE Resident Companies: This includes companies registered in mainland UAE and those in free zones (subject to specific conditions).

• Foreign Companies: Companies operating in the UAE with a permanent establishment, such as branches or subsidiaries.

• Individuals: People conducting business activities and earning profits in the UAE (e.g., independent contractors, sole proprietors).

Exemptions from Corporate Tax Registration

Although many businesses are required to register for corporate tax, certain entities may be exempt from paying tax. These include:

• Government Entities: Government-owned businesses and entities are exempt from corporate tax, as their activities are deemed to serve the public good.

• Public Benefit Organizations: Charitable organizations and those providing services deemed to be of public benefit may be exempt.

• Extractive Industries: Businesses involved in the extraction of natural resources (e.g., oil and gas) may be exempt or have different tax conditions.

• Investment Funds: Certain investment funds that meet specific conditions for tax exemption.

Even though these entities are exempt from paying corporate tax, they must still register with the Federal Tax Authority (FTA) for compliance purposes.

The Corporate Tax Registration Process

Registering for corporate tax in the UAE is a straightforward process, but it requires timely action to ensure compliance. Here’s a step-by-step breakdown of the corporate tax registration procedure:

Step 1: Create an Account on the EmaraTax Portal

The first step in the registration process is to create an account on the EmaraTax portal, the official e-service platform provided by the Federal Tax Authority (FTA). This portal is where businesses can manage their tax registrations, filings, and payments.

Step 2: Submit Required Documents

After registering on EmaraTax, businesses must submit the following documents:

• Trade License: Proof of business registration with the relevant authority.

• Memorandum of Association (MOA): Legal documentation outlining the company’s structure and business activities.

• Identification Documents: Passports and Emirates ID cards of the company’s owners or authorized representatives.

• Financial Records: Documents showing financial details like balance sheets, income statements, profit and loss reports, and other relevant financial information.

Step 3: Receive Tax Registration Number (TRN)

Once the FTA processes the application and documents, they will issue a Tax Registration Number (TRN) to the business. This number is unique and will be required for all future tax filings, payments, and official tax-related communications.

Step 4: Tax Filing and Compliance

After obtaining the TRN, businesses must file their tax returns annually and comply with the tax regulations set by the FTA. Tax filings are done through the EmaraTax portal, and businesses are required to report their taxable income and calculate their corporate tax based on the applicable rate.

Penalties for Non‑Compliance

Failure to comply with corporate tax registration requirements can result in severe penalties. Businesses that fail to meet their tax obligations may face the following penalties:

1. Late Registration Penalty:

Businesses that do not register for corporate tax within the required timeframe will face a penalty of AED 10,000 for late registration.

2. Late Filing Penalty:

If a business fails to submit its tax return by the filing deadline, additional fines may be imposed. This can range from AED 1,000 to AED 50,000, depending on the severity of the delay.

3. Other Consequences:

Non-compliance can lead to other serious consequences, including:

• Legal restrictions on the business’s operations.

• Damage to the business's reputation.

• Restrictions on obtaining business licenses or permits in the future.

• Possible audits and investigations by the FTA.

To avoid these penalties, businesses must ensure timely registration and tax filings.

EmaraTax Portal: The Centralized System for Tax Registration

The EmaraTax portal is the UAE's official digital platform for managing corporate tax processes. Businesses use this portal for:

• Tax Registration: Completing the registration process and obtaining a TRN.

• Tax Filings: Submitting corporate tax returns annually.

• Tax Payments: Making tax payments securely and easily.

• Access to Documents: Viewing and downloading tax-related documents such as invoices and statements.

The EmaraTax system simplifies the process of managing corporate tax in the UAE and ensures compliance with government regulations.

What is the Tax Registration Number (TRN)?

The Tax Registration Number (TRN) is a unique identifier issued to businesses after successful corporate tax registration. It is required for:

• Filing Tax Returns: Businesses must use their TRN to submit tax filings annually.

• Tax Payments: Payments made to the Federal Tax Authority are linked to the TRN.

• Official Communications: The TRN is used in all official tax correspondence with the FTA.

  How Young & Right Can Help You

  At Young & Right, we specialize in helping businesses navigate the complexities of corporate tax registration and compliance. Our team of experts provides:

• End-to-End Support: From registration to tax filing and payments, we handle all aspects of corporate tax for your business.

• Compliance Guidance: We ensure your business meets all tax regulations to avoid penalties and legal issues.

• Customized Solutions: Whether you are a small business or a large corporation, we offer tailored solutions to meet your specific needs.

  Conclusion

  The introduction of corporate tax in the UAE marks a significant shift in the country’s economic landscape. It is crucial for all businesses, whether local or foreign, to understand the registration requirements, tax rates, and penalties associated with corporate tax in order to remain compliant. By registering through the EmaraTax portal, submitting the necessary documents, and obtaining your Tax Registration Number (TRN), you can ensure your business meets all legal requirements.