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Understanding UAE Corporate Tax: Taxable and Exempt Businesses

Home Understanding UAE Corporate Tax: Taxable and Exempt Businesses
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UAE corporate tax, taxable businesses, exempt businesses, onshore companies, free zone companies, offshore companies, tax obligations, free zone exemptions, limited partnerships, government-owned companies, tax compliance Bookkeeping 0 Comments

Welcome to the blog of Bookkeeping Expert LLC, your go-to source for comprehensive bookkeeping services in the UAE. In this article, we aim to shed light on the intricacies of corporate taxation in the United Arab Emirates. As a business owner, it is essential to understand which businesses are subject to taxation and which are exempt. Let's delve into the world of UAE corporate tax to help you navigate the landscape more effectively.

Taxable Businesses in the UAE: The UAE follows a territorial tax system, meaning that businesses are taxed on income generated within the country's borders. However, not all businesses are subject to corporate tax. Here are the types of companies that fall under the taxable category:

  1. Onshore Companies: Onshore companies, also known as mainland companies, are entities that operate within the mainland areas of the UAE. These companies are subject to corporate tax at the federal level, based on their annual profits. The current corporate tax rate for onshore companies is 10%.

  2. Free Zone Companies: Free zones are designated areas within the UAE that offer various incentives and benefits to businesses, such as 100% foreign ownership and exemption from customs duties. While most free zones provide exemptions from corporate tax for a certain period (typically 15-50 years), specific free zones may have specific regulations. It's crucial to consult with professionals to ensure compliance with tax obligations in your specific free zone.

  3. Offshore Companies: Offshore companies, also referred to as international business companies (IBCs), are not subject to corporate tax in the UAE. However, they are not allowed to engage in business activities within the UAE and are primarily used for international trade and investment purposes.

Exempt Businesses in the UAE: The UAE government aims to foster a favorable business environment and attract investments. To support this objective, certain business entities are exempt from corporate tax. Here are the main types of exempt businesses:

  1. Free Zone Entities with Tax Exemption: While free zones generally offer tax exemptions, specific activities within these zones may still be subject to taxation. It's crucial to research and understand the specific regulations of your chosen free zone to ensure tax compliance.

  2. Limited Partnerships: Limited partnerships established in the UAE, where the partners are all natural persons and not legal entities, are exempt from corporate tax. However, general partnerships and other legal entities do not fall under this exemption.

  3. Government-Owned Companies: Companies that are wholly owned by the federal or local government in the UAE are exempt from corporate tax.

Conclusion: Understanding the landscape of UAE corporate tax is essential for businesses operating in the region. While onshore companies are subject to a 10% tax rate, free zone and offshore companies

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