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Corporate Tax and VAT Companies need to know

What is a Corporate Tax?

Well, a Corporate Tax would mean the levy that the government imposes on a company functioning under their territory or rule. The money collected as Corporate Tax is used as an important source of revenue in the respective countries. Therefore the Corporate Taxes play a pivotal role in contributing to the revenue of a country. The earnings of a company is being determined and this is operated by deducting cost of the product sold. And from the income they generated a particular percentage as per the norms will be taken as tax.

What is  Value Added Tax (VAT)?

The standard Value Added Tax in UAE is 5%.

It applies to most of the goods and services with a few exemptions. If you are exporting goods and services outside the VAT implementing Gulf Cooperation Council member States, zero rated supplies or zero percentage of VAT rate applies.

So the above given details must have given you an idea of what Corporate Tax and VAT are. And now let us together have a journey into some more details and comparisons of the same.


Let us now know what are the real differences between Corporate Tax and Value Added Tax in UAE. We might already know that the UAE is the central hub and a popular location for companies to establish their operations. Another important factor regarding this is that the UAE has its own set of rules and regulations to be followed. If you really want to do business in UAE, you must exactly understand the law of the land. And the most important factor in this is the tax rates that your company will be liable to pay while functioning in the UAE. Corporate Tax and Value added tax are of uppermost importance as far as a business man is concerned in UAE.

What is the goal behind the introduction of Corporate Tax?

The goal behind the introduction of Corporate Tax is to reform the economy of United Arab Emirates from a fuel based nation to one with diversified revenue sources. By investing huge amounts of money in technology and innovation and levying a Corporate Tax in Dubai, the government is already in construction of the highway to reach this goal.

What is the proposed tax rate under the new new Corporate Tax regime in UAE?

A 0% tax rate is chargeable to income that is taxable up to AED 3,75,000.

A 9% tax rate is chargeable to taxable income above 3,75,000

MNEs that come under pillar 2 of the BEPS 2.0 framework will be subjected to the OECD base erosion and profit sharing rules as laid by the concerned authorities.

VAT: A Detailed Explanation:

Value Added Tax or VAT is referring to the tax that is completely based on the consumption of customers or the use of goods and services. VAT can also be described as one of the most common types of consumption taxes found in and around the world. It is important to note that more than 150 countries have implemented Value Added Tax.

When was Value Added Tax introduced in the UAE?

The Value Added Tax system was introduced in UAE on 1st of January 2018. Ever since it became one of the important revenues in UAE.

At what rate is the VAT applicable?

If you are truly interested in doing your business in UAE, be noted that the VAT is applicable at a rate of 5% in UAE. A business is required to get itself registered for VAT if its taxable supplies and imports exceed the notified threshold of AED 3,75,000.

Does trade in the free zones come under VAT?

Absolutely no. Trade in the free zones does not come under the radar of value added tax. Thus it is tax free.


It is time for us to conclude at least for time being the discussions about Value Added Tax and also the Corporate Tax in UAE. Both are very much important as far as the kind of business you are doing or planning to do in the future. If you are really intended to do a business in the territory of UAE, it is very much important that you have a clear-cut idea about the tax system imposed over here. And if you have any further clarifications or doubts related to this please feel free to reach out to us in FIMKIN. We are at your service.

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