UAE Taxation Landscape: In a Nutshell

1.Value Added Tax (VAT)

Introduced on January 1, 2018, VAT in the UAE is levied at a standard rate of 5%. Businesses must:

• Register for VAT if taxable supplies and imports exceed AED 375,000 annually. Voluntary registration is allowed for those exceeding AED 187,500.
• File VAT Returns quarterly (or monthly for certain businesses) through the Federal Tax Authority (FTA) portal.
• Issue VAT-Compliant Invoices for all goods and services provided.
• Maintain Records of all transactions for at least five years.

2.Corporate Tax

Effective from June 1, 2023, the UAE implemented a federal corporate tax regime to align with global standards:

• Tax Rate: 9% on taxable income exceeding AED 375,000; profits below this threshold are exempt.
• Registration: All businesses, including free zone entities, must register for corporate tax.
• Annual Filing: Companies are required to file corporate tax returns and comply with transfer pricing regulations.
• Global Minimum Tax: Beginning January 2025, the UAE will impose a 15% minimum tax on large multinational corporations with global revenues exceeding EUR 750 million, in line with the OECD’s global minimum corporate tax framework.

3.Excise Tax

Introduced in October 2017, excise tax applies to specific goods deemed harmful to health or the environment:

• Tax Rates:
  • 100% on tobacco products and energy drinks.
  • 50% on carbonated drinks and sweetened beverages.
• Compliance Requirements:
  • Register with the FTA if involved in importing, producing, or storing excise goods.
  • File monthly excise tax returns and pay the tax within 15 days of each tax period.
  • Maintain detailed records of excise goods produced, imported, or stored.

4.Economic Substance Regulations (ESR)

Introduced in 2019, ESR ensured that businesses undertaking relevant activities maintained substantial operations within the UAE. As of January 1, 2023, ESR has been repealed for financial years starting on or after this date.

Key Points to Note:

• ESR applied only for financial years between 2019 and 2022.
• Businesses must ensure all ESR obligations (notifications, reports) for the relevant periods have been fulfilled, as the FTA retains the authority to audit these years.
• Penalties for non-compliance after December 31, 2022, have been canceled, and refunds will be issued where applicable.
• Substance Requirements: Although ESR is repealed, businesses in free zones seeking the 0% corporate tax rate must still maintain adequate substance, including conducting core income-generating activities, sufficient assets, staff, and operational expenses in the UAE.

The ESR repeal simplifies compliance but reinforces the importance of maintaining substantial operations for tax incentives.

5.Customs Duties

Customs duties apply to goods imported into the UAE:

• Standard Duty Rate: 5%, with variations depending on the type of goods.
• Compliance:
  • File import declarations and pay applicable customs duties.
  • Maintain accurate records and documentation related to imports.
    

    Other Considerations

    • Free Zone Compliance: Businesses in free zones must adhere to specific requirements, including audited financial statements and substance regulations for tax incentives.
    • Audit and Financial Reporting: Businesses, particularly those engaged in regulated activities, are often required to submit audited financial statements.

Final Thoughts

The UAE’s tax environment continues to evolve as part of its alignment with global best practices. Whether it’s VAT, corporate tax, or compliance with customs duties, businesses must remain proactive to ensure compliance and leverage available tax incentives. While the Economic Substance Regulations (ESR) have been repealed, maintaining substantial activities remains critical for tax benefits, especially for free zone entities.

At KPSN, we help businesses navigate these changes with confidence. From tax compliance to strategic advisory, our expertise ensures that your business stays compliant and thrives in the UAE’s competitive market.

Contact us today to learn more about our tax advisory and compliance services.