Since June 2023, companies in the United Arab Emirates are subject to a Corporate Income Tax (CIT) of 9% or 0%for Qualifying Free Zone Persons (QFZP) under certain conditions. Additionally, large multinational corporationsmay be subject to an extra tax under the OECD Pillar 2 Solution.
1. Exemption for individuals
Personal income from employment, personal investments, and real estate investments is not subject to corporate tax in the UAE. However, individuals engaged in commercial activities are taxable if their annual revenue exceeds AED 1 million.
2. Corporate tax optimization strategies
- Salary and bonuses
Shareholder-directors can sign an employment contract with their company to receive a salary and benefits (car, health insurance, flight tickets, etc.), which are CIT-exempt while remaining tax-deductible for the company.
- End-of-service benefits (EOSB)
Companies can provision end-of-service gratuity, which is tax-deductible. These funds can be transferred to a private pension fund, with a possible deduction of up to 15% of the total income.
- Director fees
Board member attendance fees are not considered commercial income and are therefore tax-exempt. However, they must comply with related-party remuneration rules.
- Interest on shareholder loans
A shareholder can finance their company through a shareholder loan instead of capital injection. Interest earnings are non-taxable if classified as a personal investment, while the company can still deduct interest expenses from its taxable income.
- Real estate rental to the company
Shareholders owning offices, warehouses, or other commercial properties can lease them to their company. The rental income remains non-taxable as real estate investment, while the company benefits from tax-deductible rental expenses.
- Equipment and asset leasing
Shareholders can lease equipment, vehicles, or other assets to their company, generating tax-free rental income, provided total rental earnings remain below AED 1 million.
Conclusion
Tax planning in the UAE provides multiple opportunities for business owners and shareholders, provided they adhere to local tax regulations. A well-structured approach allows businesses to optimize tax liabilities while staying compliant with the UAE tax authority.
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