This article provides a clear and practical explanation of Corporate Tax and VAT in the UAE, highlighting their distinct purposes, compliance requirements, and implications for businesses, so you can seamlessly meet your tax obligations and ensure compliance.
Overview of VAT and Corporate Tax in the UAE
Below is a summary of key differences between VAT and Corporate Tax:
Value Added Tax (VAT) is a consumption-based tax, representing a small percentage added to the price of goods and services.
Corporate Tax is a tax on profits, calculated based on the company’s net income after expenses.
VAT impacts the final cost to customers, whereas Corporate Tax affects the company’s net profitability.
What is UAE Corporate Tax?
Corporate tax is a form of direct tax levied on a company’s net profit. The UAE Corporate Tax Law came into effect in June 2023, marking a significant shift in the country’s business landscape.
Tax Structure:
- A company’s annual taxable profit is first calculated.
- The first AED 375,000 of taxable profit is subject to a 0% tax rate.
- Any taxable profit above AED 375,000 is taxed at 9%.
Corporate tax applies to most mainland companies, certain free zone entities, and foreign companies with a permanent establishment in the UAE. However, specific exemptions exist, including government entities, qualifying free zone income, and businesses engaged in the extraction of natural resources.
Example:
If a company earns AED 500,000 in taxable profit, the first AED 375,000 is exempt, while the remaining AED 125,000 is taxed at 9%.
What is UAE VAT?
Value Added Tax (VAT) is an indirect tax applied to the sale of most goods and services. Unlike corporate tax, which is based on profits, VAT is charged at the point of sale. The UAE introduced VAT in January 2018 at a standard rate of 5%.
The ultimate burden of VAT falls on the end consumer; however, businesses are responsible for collecting VAT and remitting it to the Federal Tax Authority (FTA).
Businesses must register for VAT if their annual taxable supplies exceed AED 375,000. VAT returns are generally filed quarterly, although larger entities may be required to file monthly. Certain goods and services, such as basic healthcare, education, and exports, are either zero-rated or exempt from VAT.
Example: If you are selling something for AED 1,000, you charge an extra AED 50 for VAT. You keep the AED 1,000, and you remit that AED 50 to the FTA.
Aspect | UAE VAT | UAE Corporate Tax |
| Type of Tax | Indirect tax on consumption | Direct tax on business profits |
| Introduced | January 2018 | June 2023 |
| Standard Rate | 5% | 0% up to AED 375,000; 9% above |
| Who Pays | End consumers (collected by businesses) | Businesses from their net profits |
| Registration Threshold | AED 375,000 in taxable supplies | Mandatory for taxable persons |
| Filing Frequency | Quarterly/Monthly | Annually |
| Exemptions | Education, healthcare, exports | Qualifying free zone income, government entities |
| Impact on Price | Increases customer prices | No direct effect on selling prices |
| Administered by | Federal Tax Authority | Federal Tax Authority |
Difference Between VAT and Corporate Tax UAE
The difference between VAT and corporate tax UAE comes down to three general factors:
- What’s Being Taxed – VAT is imposed on sales and services; corporate tax is imposed on profit after costs.
- Who Pays – customers fund VAT, the corporate tax comes out of the company’s earnings.
- Cash Flow Timing – VAT affects cash flow every time, corporate tax is paid only once a year, once profit is calculated.
Seek the Expert Services of Top Tax Consultants in the UAE
Top Tax Consultants in the UAE, such as Farahat & Co., provide tailored support to ensure businesses remain compliant. Their services include:
- VAT and Corporate Tax Registration – Guiding businesses through the proper registration processes as per the FTA’s requirements and regulations.
- Tax Return Preparation and Filing – Ensuring accurate and timely submissions to avoid penalties.
- Tax Advisory and Compliance Reviews – Offering customized advice to optimize tax positions while ensuring compliance with legal obligations.
- Tax Audits and Dispute Resolution – Assisting with FTA audits and representing clients in resolving tax disputes effectively.
With expert guidance from experienced tax consultants, UAE businesses can focus on growth and operations while remaining fully compliant with VAT and corporate tax regulations.
Contact us today, and we shall be glad to assist you.
FAQs
Is the corporate tax the same as VAT in the UAE?
No. VAT is an indirect tax on the sale of goods and services, while corporate tax is a direct tax on the net profit of a business.
Do all businesses in the UAE pay VAT and corporate tax?
No. You must register for VAT if your taxable supplies are AED 375,000 or more per year, and corporate tax if you are a taxable person in the UAE Corporate Tax Law.
Which is higher — VAT or corporate tax in the UAE?
VAT is an absolute 5% on most goods and services. Corporate tax is 0% on profits of AED 375,000 or less and 9% on profits above AED 375,000.
How often do I file VAT and corporate tax returns in the UAE?
VAT returns are usually filed quarterly (or monthly for large companies), while corporate tax returns are filed annually.
Can I do VAT and corporate tax compliance myself?
You can, but mistakes incur penalties. Most companies outsource to expert consultants in order to avoid mistakes and compliance issues.
