The corporate tax law in the UAE officially came into effect in June 2023. According to this law, companies with an annual profit exceeding 375,000 AED are required to pay a 9% tax to the UAE government. We will further examine the details of this scheme and how it impacts entrepreneurs and foreigners. What is Corporate Tax? Corporate tax is a direct tax imposed on the profits of companies and commercial institutions. This tax includes income derived from production, business activities, and any economic activities conducted under legal registration in the UAE. Conditions for Corporate Tax Payment for Foreigners Individuals living outside the UAE who conduct business through a permanent establishment in the country will be subject to corporate tax starting June 2023. It is important to note that this tax does not apply to personal income; in other words, income derived from individual employment (whether public or private) will not be subject to corporate tax. Which Companies Pay Tax? Companies with annual profits exceeding 375,000 AED must pay 9% of their profits as tax to the government. Companies with lower profits are exempt from this tax. Tax Exemption for Small Companies Small companies with revenues below 3 million AED are exempt from paying tax. This exemption is only valid for companies conducting their business activities in the UAE. Additionally, small businesses can benefit from tax exemption until the end of 2026. Start Date of Corporate Tax Corporate tax will be applied from the beginning of the first financial year that starts on or after June 1, 2023. For example, companies whose financial year begins on January 1, 2023, must pay their tax from January 2024 onwards. Difference Between Corporate Tax and Value Added Tax Corporate tax is a direct tax imposed on the profits of companies and businesses, while value-added tax (VAT) is an indirect tax applied to the consumption of goods and services. Therefore, corporate tax pertains to the profits of companies and their income, not to the consumption of goods and services. Registration for Corporate Tax All companies must register for corporate tax on the EmaraTax digital platform. This process began in June 2023, and companies must pay their tax according to their financial year. Companies operating in free zones may benefit from a zero percent tax, provided their business activities are not conducted outside these zones. Tax for Online Businesses Individuals with online businesses generating annual income exceeding 1 million AED will be subject to corporate tax. However, this tax only applies to business activities related to registered businesses, and personal income or non-commercial activities are exempt from tax. Impact of Corporate Tax on the Economy Corporate tax serves as a source of revenue for the UAE government, playing a vital role in economic diversification and reducing dependence on oil resources. This tax not only strengthens the country's tax structure but also positions the UAE better to attract international investors and entrepreneurs. Exemptions and Exceptions According to the new regulations, government entities, entities under government control, and businesses engaged in natural resource extraction are exempt from corporate tax. Additionally, individuals who only earn income from the UAE and do not have a permanent establishment in the country will also be exempt from this tax. How to Utilize Tax Exemptions? To utilize tax exemptions, companies must prove their turnover is below 3 million AED. In this case, they can apply for tax exemption. Furthermore, new companies or startups have the opportunity to register for the tax exemption scheme.