Major Differences Between the UAE VAT & Corporate Tax

The United Arab Emirates (UAE) has implemented two significant tax reforms in recent years: Value Added Tax (VAT) and Corporate Tax. Introduced in 2018, VAT is a consumption tax levied on the value added to goods and services, while Corporate Tax is a direct tax on business profits that is effective for financial years starting on or after 1 June 2023. Understanding the differences between these two taxes  especially in areas like Corporate tax filing in uae and compliance is crucial for businesses operating in the UAE, as it can significantly impact their financial planning, compliance, and overall competitiveness. In this article, we will delve into the key differences between UAE VAT and Corporate Tax, providing businesses with a comprehensive guide to navigate these tax reforms effectively.

What is UAE VAT?

Value Added Tax (VAT) is a consumption tax levied on the value added to goods and services in the United Arab Emirates (UAE). It was introduced on January 1, 2018, as part of the UAE's efforts to diversify its revenue streams and reduce its dependence on oil.

 
Definition and Scope of VAT

UAE VAT is a multi-stage tax that applies to most goods and services, including imports. It is levied on the value added at each stage of production and distribution, from raw materials to final consumption. The scope of VAT includes:

• Goods and services supplied within the UAE
• Imports of goods and services into the UAE
• Exports of goods and services from the UAE (zero-rated)

Tax Rate and Registration Requirements

The standard rate of UAE VAT is 5%. However, some goods and services are zero-rated or exempt.

• Zero-rated supplies: exports, international transportation, and certain healthcare and education services
• Exempt supplies: certain financial services, real estate transactions, and local passenger transportation

Businesses with an annual turnover above AED 375,000 must register for VAT, while those with a turnover between AED 187,500 and AED 375,000 have the option to register voluntarily.

Returns and Payment Process

Registered businesses must submit VAT returns and make payments to the Federal Tax Authority (FTA) within 28 days from the end of their assigned tax period; FTA assigns a tax period (monthly or quarterly) and most businesses file quarterly while large businesses are typically required to file monthly. The due date for submitting VAT returns and making payments is the 28th day of the month following the end of the tax period.

• Tax periods: January-March, April-June, July-September, October-December
• VAT returns: must be submitted online through the FTA's portal
• Payments: can be made online or through authorized banks and exchange houses.

What is UAE Corporate Tax?

UAE Corporate Tax is a direct tax levied on the profits of businesses operating in the United Arab Emirates (UAE). It was announced in January 2022 and is expected to come into effect for financial years starting on or after June 1, 2023.
To manage this transition, many companies are turning to professional corporate tax filing services in UAE to ensure accurate reporting and compliance with Federal Tax Authority (FTA) regulations.

Definition and Scope of Corporate Tax

UAE Corporate Tax applies to all businesses and commercial activities conducted in the UAE, including:

• Companies incorporated in the UAE
• Branches of foreign companies operating in the UAE
• Free zone companies (with some exceptions)
• Partnerships and sole proprietorships

The scope of Corporate Tax includes:

• Business profits
• Income from commercial activities
• Capital gains (with some exceptions)

Tax Rate and Registration Requirements

The standard rate of UAE Corporate Tax is 9%. However:

• The standard Corporate Tax structure is 0% on the portion of taxable income up to AED 375,000 and 9% on taxable income above AED 375,000 (subject to conditions such as free-zone rules).
• Large multinationals with global revenues above EUR 750 million may be subject to a different tax rate (to be determined)

All taxable persons are required to register for Corporate Tax with the Federal Tax Authority; natural persons conducting business must register if their business turnover exceeds AED 1,000,000 in a calendar year, and juridical persons (companies, branches and free-zone persons) should register according to the FTA timelines regardless of whether their taxable income falls below the AED 375,000 0% threshold.

Returns and Payment Process

Registered businesses must submit Corporate Tax returns and make payments to the Federal Tax Authority (FTA). The due date for submitting Corporate Tax returns and making payments will be announced by the FTA.

• Tax periods : aligned with the business's financial year
• Corporate Tax returns : must be submitted online through the FTA's portal
• Payments: can be made online or through authorized banks and exchange houses.

How do UAE VAT and Corporate Tax Differ?

Conclusion

UAE has two main taxes: VAT and Corporate Tax. They each have different rules, rates, and ways to register. It's really important for businesses in the UAE to know how these taxes work. This ensures their compliance and prevents penalties. 

At Reyson Badger, we help businesses understand UAE tax laws. We make it easier to handle UAE VAT and Corporate Tax. When you work with us, you can make sure you're meeting your tax duties. Plus, you can find ways to save on taxes. That way, you can focus on growing your business in the UAE.