UAE Tax Guide: Four Core Taxes Businesses Must Know

The UAE is a federal state composed of seven emirates. In recent years, the tax system has undergone major changes, forming a unique tax system. It is worth noting that the UAE Federation and most emirates have not levied personal income tax so far, but business operations still need to face the four core taxes of value-added tax, corporate income tax, consumption tax and customs duties. This article will break down the key rules and compliance points of each tax for offshore companies from a practical perspective.

Value Added Tax (VAT)

as an internationally accepted turnover tax, the value-added tax in the UAE is based on the value added in the process of the circulation of goods and services, and the final tax burden is borne by the end consumer. The characteristics of this "neutral tax" make it reduce the distortion of market resource allocation as much as possible while protecting fiscal revenue.

Differentiated tax rate system:

set a two-track system of 5% standard tax rate and 0% preferential tax rate. Most goods and services in the field of daily consumption are subject to a 5% tax rate, while transactions with cross-border attributes such as export goods and international transport services are subject to a 0% tax rate, a design that echoes the internationally accepted principle of export tax rebates.

Collection scope:

covering the domestic sales of goods, the provision of taxable services and imports, forming a complete tax closed loop from production to consumption. Enterprises are required to fulfill their VAT payment obligations when importing goods, which is in line with the tax obligations on domestic sales.

Key points of compliance operation:

graded registration mechanism: enterprises with annual taxable income (including imports) exceeding 375000 dirhams are required to register compulsorily, and enterprises between 187500 and 375000 dirhams can choose to register independently. this stepped design takes into account the efficiency of tax collection and management and the burden of small and medium-sized enterprises.

Periodic declaration: quarterly tax declaration shall be completed before the 28th of the following month after the end of the quarter. Enterprises shall establish a sound financial cycle management mechanism to ensure the timeliness of declaration.

Invoice compliance: Tax invoices must be marked with the words "Tax Invoice" and must completely record the information of both parties to the transaction, details of goods and services, and other elements. Compliance invoice management is the basis for the smooth operation of the VAT chain.

Enterprise Income Tax

the UAE corporate income tax is taxed on the operating income of commercial entities, and its tax rate design reflects the differentiated treatment of enterprises of different sizes, while responding to the international rules of the lowest global tax rate.

Stepped tax rate structure:

the portion of annual taxable profits below 375000 dirhams is exempt from corporate income tax, and the portion above that threshold is subject to a 9% tax rate, a policy that provides a clear support orientation for start-ups and MSMEs. For multinational conglomerates (whose total group income has exceeded 3.15 billion dirhams for at least two of the past four years), their taxable portion in Afghanistan is subject to a global minimum tax rate of 15%, which is the actual landing of the BEPS 2.0 framework.

Collection scope:

resident legal persons and natural persons are subject to tax on global income, while non-resident legal persons are subject to tax obligations on income generated through permanent establishments or immovable property in the UAE, as well as income from other sources in the UAE. All companies registered in the UAE, whether profitable or not, are required to complete their declaration within nine months of the end of the financial year.

Key points of compliance operation:

tax-free income: Dividends received from companies in the UAE and income from eligible overseas permanent establishments are tax-free, and enterprises can optimize tax costs through reasonable equity structure design.

Cost deduction rules: business-related non-capital expenses can be deducted in accordance with the law, but attention should be paid to special provisions such as interest deduction restrictions, enterprises need to establish a clear cost classification accounting system.

Related party transaction specification: Related party transactions should follow the principle of independent transactions, comply with transfer pricing regulations, and avoid the risk of tax adjustment due to unreasonable price setting.

Consumption Tax

as a policy tool to regulate consumption behavior, consumption tax is applied to commodity fields that have a specific impact on health or the environment, reflecting the policy intention of "prohibition in levy.

Collection object:

it is clear that tobacco and products, carbonated drinks/energy drinks/sweet drinks, electronic cigarette equipment and liquid smoke are included in the scope of collection, and most of these commodities are related to public health or environmental issues.

Dynamic management mechanism:

differentiated tax rates: Different tax rates apply to different categories of goods, which are dynamically adjusted by the government according to policy objectives, and enterprises need to keep an eye on information on tax rate changes.

Full chain of collection and management: enterprises engaged in the production, sale or import of taxable goods are required to undertake the obligation of declaration, forming a chain of supervision from the source to the terminal.

Key points of compliance operation:

enterprises need to first accurately define whether the goods they operate are taxable, which can be judged by comparing the list of taxable goods published by the government. For enterprises involved in cross-border trade, it is also necessary to pay attention to the differences in consumption tax treatment in the import and export links to avoid the omission of tax obligations due to errors in the judgment of commodity attributes.

Tariff

as an important means for sovereign countries to regulate import and export trade, the UAE tariff policy seeks a balance between protecting local industries and promoting trade facilitation, forming an institutional framework for classified management.

Basic tax rates and exemptions:

basic tax rate: The import tariff rate of general goods is 5%, but the tax exemption policy is implemented for agricultural products, medicines, food and other necessities for people's livelihood, which reflects the livelihood protection function of tariffs.

Special duty-free scenarios: goods used for government duty-free projects, goods entering the bonded area or transiting within the bonded area can enjoy duty-free, and industrial enterprises can also apply duty-free policies for the import of production equipment and raw materials after applying for industrial import exemption, which reduces cross-border costs for enterprises in specific fields.

Key points of customs clearance and declaration:

import declaration obligations: imported goods are required to complete the declaration procedures with the customs, and goods that meet the conditions for duty-free are required to submit supporting materials to apply for duty-free treatment.

Temporary import management: temporary import goods need to be re-exported within 6 months, otherwise there will be tariff payment obligations, engaged in exhibitions, project contracting and other temporary import and export business enterprises need to pay special attention to this time limit requirements.

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