CORPORATE TAX VS INCOME TAX: KEY DIFFERENCES & WHAT BUSINESSES SHOULD KNOW

Corporate Tax vs Income Tax: Key Differences & What Businesses Should Know

Corporate Tax vs Income Tax: Key Differences & What Businesses Should Know

Blog Article

A key component of business management is effective financial planning and compliance, which requires understanding the distinctions between corporate tax and income tax in the UAE.

In addition to discussing how businesses must handle their tax responsibilities, the article assesses the main distinctions between corporate tax vs income tax.

What is Corporate Tax?


Corporate tax, directly levied on a business's profits, is important in the financial and operational landscape. A strategic component that affects business competitiveness and decision-making.

Key Features of Corporate Tax:



  • Taxable Corporation: Corporate tax in UAE applies to limited liability companies and other registered businesses.

  • Applied on Net Profits: Registered entities can save Net Profits only after corporation taxes have been fully paid.

  • Compliance and Reporting: The organization must keep annual tax returns and financial records based on income and liabilities.


Corporate Tax in UAE:


Corporate tax UAE continues to provide a business-friendly environment with a low % tax rate of 9%, exempting small businesses and free zones, representing a significant shift in the country's tax policy.

What is Income Tax?


The government directly taxes income generated by individuals and businesses within their authority as a percentage of taxable income.

Key Features of Income Tax:



  • Taxable Income: Imposed on earnings, such as Salaries and Investments.

  • Tax Rates: Consisting of 2 types, the "Progressive Tax System" where tax rate increases as income rises. The "Flat tax rate" is where all taxpayers pay the same amount regardless of their earnings.

  • Tax Credits: Immediately lessens the tax-owed amount usually implied on necessity items.

  • Tax Administration: Income tax is regulated by the government agencies responsible for imposing tax laws that promote fairness.


Income Tax in the UAE:


The UAE doesn’t impose income-tax upon residents, as the government facilitates global enterprise and investment strategies.

Corporate Tax UAE and Income Tax Differences:



































Feature Corporate Tax Income Tax
Type of TAX Direct Tax on Business Direct tax on Individuals
Who Pays? Business Entities Employees & Investors
Tax Calculation Based on Net Profits Based on Personal Income
Collection Method Paid directly by Businesses Collected from employees directly
Effects on Pricing No impact on pricing Impact on employee earnings

Which Tax Affects You More?


The impact of Corporate Tax UAE Vs. Income Tax on the following:

For Businesses:

As businesses set aside a portion of their earnings for taxes, corporate tax UAE impacts profitability and expansion decisions, limiting their capacity to reinvest within their resources.

For Consumer:

Businesses often pass corporate tax UAE to consumers by raising product prices and reducing disposable income for consumers.

Who Pays Corporate Income Tax?


As a major source of funding for governments, corporate income tax is an essential part of any nation's structure. The "Who pays Corporate Income Tax?" issue is more complicated than it initially seems, as businesses, employees, and consumers frequently bear the burden.

1: Corporations: Obliged to pay corporate tax in UAE on their profits exceeding AED 375,000.

2: Shareholders: Shoulder a part of their expenses through less dividends.

3: Consumers: Business Passing the tax burden through increased prices.

How To Manage Corporate TAX & Income Tax Effectively?


For Business

  • Appropriate Financial Planning: Corporations should maintain accurate bookkeeping and tax-compliance to avert fines.

  • Maximize Corporate Tax Liabilities: Where appropriate, companies should utilize tax breaks and exemptions.

  • Speak with Tax Professionals: Employing specialists aids companies in navigating complex tax laws.


For Consumers:

  • Reduced disposable income: Income tax reduces the amount of money consumers are left after heavy purchases.

  • Changing Spending Patterns: Consumers will likely eliminate unnecessary expenditure, impacting profit margins.


Final Thoughts:


The implication of corporate tax UAE is that it has complementary functions in the country's tax structure. Aimed at distinct organizations but working together to provide economic stability and government revenue.

Income tax ensures that people pay according to their incomes, whereas corporate tax concentrates on business profits through a deep understanding of strategic planning.

How SimplySolved Can Help


Although handling Income and corporate tax in the UAE can be challenging, your company can maintain maximum efficiency with correct knowledge and business strategies/

Contact us today to expedite your tax procedures and maintain your lead within the changing corporate tax UAE environment!

Listed are FAQs based on corporate tax vs. Income tax


1: Who is responsible for corporation and Income tax in the UAE?

Corporate Tax: Corporate tax UAE will be applied to businesses with profits above AED 375,000.

Income Tax: The UAE is tax-free for personal income as it doesn’t tax individuals.

2: What are UAE’s income and corporation tax rates?

Corporate tax: For income over AED 375,000, the corporate tax rate is approximately 9% by 2023. Income Tax: Personal income tax is not levied in the UAE.

3: What are the tax rates for both in comparison with UAE?

Corporate Tax: UAE's 9% corporate tax rate is low compared to other nations, ranging from 15%-30%.

Income Tax: The UAE does not impose income tax on people.

4: Can multinational corporations’ benefit from the UAE’s tax exemptions?

Corporate Tax: Multinational corporations operating in UAE freezones may benefit from exemptions.

Income Tax: Multinational corporations do not pay income tax, making it a

favorable destination for expats.

5: Are freezone businesses exempted from UAE corporate tax and income tax?

Corporate Tax: This comes with conditions as businesses may benefit from a 0% corporate tax rate, providing they don’t conduct operations on the mainland.

Income Tax: UAE does not impose personal income tax on individuals, irrespective of whether they operate in the freezone or mainland.

Report this page