UAE: Corporate Taxation
The UAE, being a tax-free county, levies almost no taxes on the local businesses, and the corporate income tax is not an exception. The UAE Government strives for creating comfortable conditions on the territory of the country. Therefore, numerous specialized free trade zones were established to promote investment activities and overall commercial growth of the UAE. They offer highly attractive conditions for carrying on business under the tax-free regime. However, the companies, which operate on the territory of the FTZs, are liable to indirect taxation, as various license fees and other charges and duties are collected.
The UAE is known to be one of the very few countries with almost no corporate taxation. Only major petrochemical companies and foreign banking institutions are liable to corporate taxation in UAE.
Those companies, which carry on oil exploration activities in the UAE, are liable to the corporate taxation at the average rate of 55%. The exact rate and the size of royalties may vary depending on the overall volume of oil production. The tax rate and the taxable income of oil companies are computed according to the terms specified in the concession agreements between the company and local authorities. Therefore, this amount is not constant and varies in different Emirates.
International banks that operate in the UAE have to pay a 20% fixed tax on their annual taxable income. Every year, foreign banks submit their financial statements. This set of data is accounted for when calculating the total amount of the taxable income.
The UAE hospitality and entertainment industries are subject to special charges collected by the municipal governments of every Emirate. A service tax is levied on hotel services and entertainment activities.
The UAE Government offers effective and transparent customs regime that eliminates the possible red tape. Numerous exemptions and customs facilities are available along with very low customs duties. Producers of the raw materials, various spare parts and industrial machinery can take the advantage of duty-free customs procedures. The duty free regime applies to both import and export of goods that are used for various industrial purposes.
The Dubai Tax Decree provides for the possibility of bringing forward all the balance losses for any period of time. However, the size of the deductible losses can be limited in some cases.
According to the Dubai tax law, the taxation rate of the local companies, which carry out their activities outside of the free trade zones, depends on the level of their total income. The following table shows the way the legal entities are supposed to be taxed:
However, in real life, only the companies in oil sector, banks and tourism are taxed. All other main land companies are free from any taxes. And, if a company is registered in free trade zone, it is guaranteed for such company to have absolutely tax free regime means to corporate tax, no withholding tax, no import and export duties.