Recently, the UAE Ministry of Finance issued a Cabinet resolution to clarify the Corporate Tax obligations for individuals and businesses with yearly revenues over 1 million AED. To provide transparency and clarity on the Corporate Tax regime for both residents and non-residents in the UAE, businesses are only subject to CT if their annual revenue surpasses 1 million AED according to Cabinet Decision No. (49) of 2023.
What will not be taxed?
Only income derived from business activities will be subject to Corporate Tax. Personal investments, income from employment and rental incomes are not subject to Corporate Tax, ensuring that personal finances remain untaxed.
A sole proprietorship operating a retail business in mainland UAE with annual revenues over 1 million AED will now be subject to the 9% Corporate Tax. However, smaller businesses that do not surpass the 1 million AED threshold will not be taxed.
The Small Business Relief Program
There are many rules in place to help small businesses to grow. For example, although the UAE has recently introduced a federal Corporate Tax law that imposes a 9% tax on annual profits exceeding 375,000 AED, small businesses with revenues below this threshold are exempt from tax obligations.
Additionally, the Small Business Relief program helps businesses with annual revenues under 3 million AED, by offering them tax exemptions to firms until the end of 2026.
The Cabinet decision
The recent Cabinet Decision has provided essential clarity within the UAE’s tax framework. It specifies that surpassing the annual revenue threshold does not automatically subject individuals to Corporate Tax liabilities. Tax obligations depend on income sources explicitly covered by the tax law, focusing primarily on business-generated profits. This approach ensures a fair and transparent Corporate Taxation system in the UAE.
These recent regulations clarify Corporate Tax, whilst also offering reassurance to business owners that exceeding 1 million AED in annual revenue does not automatically incur tax liabilities.
If you need any help traversing the ever-changing rules and regulations of tax, please message us with any questions you might have.
