Corporate Tax in the UAE: How It Affects UK, Canadian, and US Businesses

The UAE has long been recognized as a tax-friendly destination for international businesses, offering zero corporate tax policies for decades. However, in June 2023, the UAE introduced a corporate tax system, impacting businesses—including those owned by UK, Canadian, and US entities—operating in the region. Understanding how the corporate tax system works, who is affected, and how foreign businesses can stay compliant is crucial for effective financial planning. This blog explores the impact of corporate tax on international businesses in the UAE and strategies to minimize tax liabilities while ensuring compliance.

Overview of UAE corporate tax

The UAE corporate tax system was implemented to align with global tax standards and reduce reliance on oil revenues. Key aspects of the tax include:

• 0% corporate tax on taxable profits up to AED 375,000 (approx. $100,000 USD).

• 9% corporate tax on taxable profits above AED 375,000.

• 15% or higher tax for multinational corporations falling under the OECD’s global minimum tax framework.

The new tax system applies to mainland businesses, foreign companies with a permanent establishment (PE) in the UAE, and some Free Zone businesses engaged in mainland transactions. For UK, Canadian, and US companies, understanding how corporate tax affects their UAE operations is essential to avoid penalties and ensure tax efficiency.

Who Is Subject to UAE corporate tax?

Not all businesses are subject to UAE corporate tax. The following categories outline who is taxed and who is exempt:

Businesses Subject to corporate tax

• UAE mainland businesses.

• Foreign companies with a permanent establishment (PE) in the UAE.

• Free Zone companies that conduct transactions with the UAE mainland.

• UAE-based branches of foreign companies.

Exempt Entities

Certain businesses and entities are not required to pay corporate tax, including:

• Government entities and subsidiaries conducting non-commercial activities.

• Public benefit organizations, such as charities and non-profits.

• Investment funds, pension funds, and sovereign wealth funds.

• Businesses engaged in natural resource extraction (taxed at the Emirate level instead).

Foreign businesses operating in the UAE mainland or those conducting regular business activities in the country must assess their corporate tax obligations carefully.

Impact of UAE corporate tax on UK, Canadian, and US Businesses

The introduction of corporate tax has several implications for foreign businesses operating in the UAE.

1. Changes in Business Costs

• Previously, the UAE offered a zero-tax environment, attracting businesses looking to optimize costs.

• With the new 9% corporate tax, companies must reassess profit margins, pricing structures, and operational expenses.

2. Compliance Requirements for Foreign-Owned Businesses

• Companies must maintain proper financial records and submit tax returns to the Federal Tax Authority (FTA).

• Financial statements should comply with International Financial Reporting Standards (IFRS).

• Non-compliance can result in penalties and legal action.

3. Impact on Free Zone Companies

• Many businesses established in UAE Free Zones enjoyed 100% tax exemptions.

• Under the new rules, Free Zone entities may still benefit from tax incentives if they do not engage in UAE mainland transactions.

• Free Zone businesses must assess whether their activities are subject to corporate tax.

4. International Tax Implications

• UK, Canadian, and US businesses must evaluate double taxation agreements (DTAs) between the UAE and their home countries.

• Some businesses may need to adjust their corporate structures to optimize tax exposure.

By understanding these impacts, foreign companies can make strategic decisions to remain compliant while minimizing tax burdens.

Key Compliance Requirements for UAE corporate tax

1. corporate tax Registration

• All taxable businesses must register with the Federal Tax Authority (FTA).

• Businesses exempt from corporate tax may also be required to apply for an exemption certificate.

2. Financial Record-Keeping

• Companies must maintain accurate financial statements in accordance with IFRS.

• Proper records must be kept for at least 7 years to comply with FTA audits.

3. Tax Filing and Deadlines

• Businesses must file corporate tax returns annually.

• Tax payments must be made within the FTA’s prescribed deadlines to avoid penalties.

4. Transfer Pricing Compliance

• Multinational companies with UAE operations must comply with OECD transfer pricing guidelines.

• Documentation is required to justify intercompany transactions.

Foreign businesses must ensure full tax compliance to avoid penalties and operational risks.

Tax Strategies for UK, Canadian, and US Businesses in the UAE

To minimize tax liabilities and ensure compliance, businesses can adopt the following strategies:

1. Choose the Right Business Structure

• Establish Free Zone companies where possible to take advantage of tax incentives.

• Consider forming a branch office or representative office to reduce tax exposure.

2. Leverage Double Taxation Agreements (DTAs)

• The UAE has DTAs with over 100 countries, including the UK, Canada, and the USA.

• Businesses should review treaty benefits to avoid double taxation.

3. Optimize Tax Deductions

• Ensure accurate expense tracking to maximize deductible costs.

• Maintain proper financial documentation to support tax claims.

4. Work with Professional Tax Advisors

• Corporate tax specialists help businesses navigate complex tax regulations.

• Professional tax consultants ensure compliance with UAE and international tax laws.

Implementing these strategies can help foreign businesses maximize profits while remaining fully compliant with UAE tax regulations.

How Young and Right Can Help

At Young and Right, we specialize in corporate tax advisory and compliance services tailored to UK, Canadian, and US businesses operating in the UAE. Our expertise ensures that companies meet tax obligations while optimizing financial efficiency.

1. corporate tax Compliance and Advisory Services

• Corporate Tax Registration – We assist businesses in registering for corporate tax and fulfilling FTA requirements.

• Tax Compliance Audits – Our team ensures accurate tax filings and helps businesses avoid penalties.

• Tax Planning Strategies – We develop tax-efficient structures to minimize liabilities and maximize profitability.

2. Free Zone and Mainland Business Tax Solutions

• Assessing Free Zone Tax Benefits – We evaluate whether Free Zone businesses qualify for tax exemptions.

• Structuring Tax-Efficient Business Models – We provide guidance on choosing the right tax-friendly corporate setup.

3. International Taxation and DTA Optimization

• Double Taxation Avoidance – We help businesses leverage DTAs to prevent unnecessary tax burdens.

• Cross-Border Tax Advisory – Our expertise ensures businesses comply with UAE and international tax obligations.

4. Ongoing Tax Support and Long-Term Planning

• Tax Return Filing Assistance – We manage corporate tax filings and audits on behalf of clients.

• Strategic Tax Reviews – Our experts provide regular tax assessments to keep businesses compliant.

By partnering with Young and Right, foreign businesses can stay compliant, minimize risks, and optimize tax efficiency in the UAE.

Conclusion

The UAE’s new corporate tax system has introduced significant changes for UK, Canadian, and US businesses operating in the region. Understanding who is subject to tax, how Free Zones are affected, and what compliance steps are required is essential for ensuring financial success and regulatory compliance. With proper tax planning and expert advisory services, businesses can navigate corporate tax obligations effectively and take full advantage of the UAE’s tax incentives. Partner with Young and Right today to ensure seamless corporate tax compliance and long-term financial success in the UAE.