The UAE is regarded as an appealing location for business setup because it is largely tax-free, though there are some exceptions: Excise, VAT, Municipal, and Council Taxes.
The tax laws in the UAE take some time to understand, but they are very straightforward once the main points are grasped.
What Is the Difference Between Tax and Taxation?
The term “tax” refers to a fee collected/levied by a country’s or state’s government.
Taxation, on the other hand, refers to the act of levying taxes. It covers everything from the creation of rules by the government to the passage of legislation by the parliament, as well as the act of tax assessment, the role of tax commissioners, appellate authorities, and more.
Do Businesses Pay Taxes in the UAE?
The laws governing corporate taxes vary slightly from emirate to emirate, but in general, taxes are only levied at federal level on foreign bank branches and foreign oil or gas producing companies.
An Excise Tax is also levied on certain goods that are deemed harmful to human health or the environment. And, most recently, there has been an imposition of Value Added Tax (VAT) on the majority of goods and services.
Furthermore, companies that remit income in the form of interest, royalties, or dividends are exempt from withholding tax by the Federal Tax Authority UAE (FTA UAE).
What Is the Corporate Tax Rate according to FTA UAE?
With the exception of branches of foreign banks, which are subject to a corporate tax rate of 20%, tax rates in the UAE are generally payable up to 55 percent of a company’s operating profits. However, these rates may vary depending on tax decrees issued by the government of the emirate in which the business is located.
That said, registered businesses in various Emirates’ free zones receive “tax exemptions” or “tax holidays” (from corporate tax) for a specific time frame (which is renewable). Of course, this is subject to each free zone’s rules and regulations.
How Frequently Do Corporations in the UAE Need to File Tax Returns?
Businesses in the UAE subject to corporate, VAT, and Excise Taxes must file their tax returns at least once every quarter (four times) during the fiscal year (from the 1st of January to the 31st of December).
Tax return statements should be prepared in accordance with IAS/IFRS accounting standards. These statements, along with an annual activity report, must be prepared by an auditor who is a member of the UAE AAA (UAE National Accountants and Auditors Association) and submitted to the Federal Tax Authority UAE, the Ministry of Industry, or the Ministry of Finance, depending on whether the company is industrial or trading.
What Goods and Businesses Are Subject to Excise Tax by FTA UAE?
Excise Tax is levied on the following items:
- Tobacco and related products that are governed by the GCC Common Customs Law. The tax is levied at a rate of 100%.
- Carbonated beverages, including concentrates, powders, gel, extracts, and any other substances capable of being converted into carbonated beverages.
- Energy drinks that contain stimulants and are sold or marketed as drinks that increase physical or mental energy, such as taurine, caffeine, guarana, and ginseng. This also includes extracts, concentrates, powders, and gels that can be converted into energy drinks. The tax is levied at a rate of 100%.
- Non-flavored carbonated water, but only at a 50% rate.
Businesses required to register for Excise Tax with the FTA include all importers, producers, warehouse keepers and stockpilers of excise goods.
What Products and Services are Subject to VAT by the FTA UAE?
The FTA charges VAT as follows:
- 5% on oil and gas products like fuel
- 5% on private higher education and related goods and services
- 5% on healthcare services that are not for preventative measures or treatment (such as cosmetic surgery), medical supplies, and related goods and services not on the Cabinet list
- 5% on all wireless and wired electronic and telecommunications services such as broadband
- 5% on all beverages and food products
- 5% on the rent/sale of property or land that is not bare, as well as the cost of new construction by UAE citizens
- 5% on property, health, automobile, reinsurance, and insurance
- 5% on jewelry made of 99 percent pure silver, gold, or platinum
- 5% on products that include a discount, rebate, commission, or a fee
Goods or services that don’t fall under the above categories are either zero-rated, partially exempt, or exempt from VAT.
How Is Excise Tax and VAT Paid in the UAE?
Registered VAT and Excise Tax businesses in the UAE must make related payments online via the Federal Tax Authority’s website within 28 days of the end of their tax period.
Payment options include bank transfers (International and local) and credit card or eDirham payments.
It should be noted that Excise Tax is automatically calculated based on the information provided on the applicable excise declaration forms.
What are the Penalties/Fines for Corporate, VAT & Excise Tax Non-Compliance Imposed by FTA UAE?
The penalties and fines imposed differ depending on whether the disclosure is voluntary or involuntary.
In the case of voluntary disclosure:
- Late payments are penalized at 4% per month.
- Errors on tax returns are subject to a fine of 5% of the difference if discovered within a year of filing. For error disclosures made after four years, incremental increases of up to 40% will be applied.
Involuntary disclosures are subject to a fine of:
- 4% for each month that there is unpaid tax owed to the FTA, calculated from the due date for the relevant tax period to the date of receipt by the FTA.
- 50% of the difference in tax submission errors, including on VAT refunds.
MBG Corporate Services is a trusted group of tax experts who can assist your company with its FTA audit requirements. Get in touch with us today.