Dubai is one of the most attractive cities for doing business, attracting numerous entrepreneurs, startups, and even large global corporations. The government of the UAE implemented corporate tax registration and VAT registration to maintain economic growth and ensure that businesses adhere to their tax obligations. Although these two relations speak the language of taxation, they have different functions and seek different financial scopes for businesses.
This article will explore thoroughly the distinction between corporate tax registration in Dubai and VAT registration in Dubai for the purpose of understanding what tax structure applies to who and why it is essential for businesses.
Understanding Corporate Tax in Dubai
For ages, Dubai has been a tax paradise for many companies where there are very low corporate taxes or none at all. In the year 2023, the UAE, to comply with the global tax regime, introduced a corporate tax at the federal level. This was aimed at eradicating the dependence on oil revenues. Corporate Tax Registration in Dubai turned out to be compulsory for corporate entities earning a certain income limit, which showed a turning trend in the tax regime of the UAE.
What is corporate tax?
- Relevance to income: Corporate tax concerns the income generated by the organization rather than the value-added tax that is levied on the sale of goods and services.
- Rate of tax: There is, with effect from June 2023, a 9% tax rate on business profits for those whose business income per annum exceeds AED 375,000. However, companies under this limit and Free Zone entities with eligible activities may be exempt.
- Purpose: The imposition of corporate tax helps to keep the economy growing as every business is expected to play its role; however, the tax rates remain low in order to attract investors to the city of Dubai.
Who Needs Corporate Tax Registration?
Dubai-based organizations with a taxable revenue of more than AED 375,000 must apply for corporate tax registration in Dubai. Local enterprises as well as foreign companies operating within the region are included, but Free Zone companies have their own regulations.
Understanding VAT in Dubai
The Value-Added Tax (VAT) is a form of indirect taxation that was brought into effect in the UAE starting from January 1, 2018. Managed at different levels, VAT does not fall under the category of tax on income to businesses, i.e., corporate tax, but rather applies to the consumption of goods and services.
What is VAT?
- Relevant to products and offerings: There is a value-added tax levied on the increase in value at every step of production or distribution of goods and services.
- Usual VAT rate: The usual VAT rate in the UAE is 5%, which is quite low in developed countries.
- Final user: The value-added tax is paid up to the final consumer, hence the marked dissimilarity with the corporate tax, which is remitted by the business.
Who Needs VAT Registration?
VAT registration in Dubai is compulsory for any business engaged in the making of taxable supplies and imports whose total turnover exceeds AED 375,000 per financial period. There is also an option for voluntary registration for businesses with taxable supplies and imports of more than AED 187,500.
How to Register for Corporate Tax and VAT in Dubai?
In Dubai, applications for Corporate Tax Registration and VAT Registration can be submitted via the FTA website. It is worth noting the main steps of the procedure:
Corporate Tax Registration Process:
- Open an account on FTA’s web page.
- Upload supporting documents: This may include your business license, financial records, and other company profiles.
- Application submission: Complete and submit the e-form together with all annexes as required.
- Get a tax registration number: In case registration is approved, the business will get a Tax Registration Number (TRN), which the business is required to use in the future for tax-related purposes, including tax returns and payments.
VAT Registration Process:
- Sign up for an account on the FTA portal.
- Get the required documents ready: This involves business turnover figures, a copy of the business registration, and financial statements.
- Fill in the VAT registration application: Submit the correct details for the business’s general information, turnover, and business activity.
- Upon approval, an entity will be granted on its application the VAT registration number that must be written in all invoices raised by the business.
Conclusion
Adhering to the requirements of both tax types allows companies to flourish in the fast-growing and competitive market of Dubai. Whether you need to register for corporate tax or VAT, making sure that you register in time and live by the rules saves you from fines and helps the reputation of your business.
If you need more information concerning corporate tax registration in Dubai or VAT registration in Dubai, ask the tax experts who may assist you through the whole process.