Corporate Tax vs VAT: What’s the Difference?
Running a business in the UAE means understanding the country’s tax landscape especially the difference between Corporate Tax and Value Added Tax (VAT).
Both are mandatory under UAE law, but they apply in very different ways. Here’s what every business owner should know.
What is Corporate Tax?
Corporate Tax is a tax on business profits (net income).
Key Points:
- The UAE Corporate Tax rate is 9% on profits above AED 375,000
- Small Business Relief may apply to companies with revenue up to AED 3 million in the current and previous tax periods.
- To qualify, the business must be a resident taxable person, and its total revenue must not exceed AED 3 million for the relevant tax period.
- Relief is not available for companies that are part of a multinational group or a qualifying free zone entity (as defined by the FTA).
- For individuals (natural persons) conducting business, the threshold for registration is AED 1,000,000 in turnover in a calendar year.
- It applies once your company (or you as a natural person doing business) crosses the profit/turnover limit, regardless of business activity.
- Registration is mandatory even if your company has no profit or no sales to stay compliant with FTA rules.
- All rules are subject to the terms and conditions set by the FTA.
What is VAT (Value Added Tax)?
VAT, or Value Added Tax, is a tax on the value added to goods and services at each stage of the supply chain.
Key Points:
- The standard VAT rate in the UAE is 5%.
- Businesses must collect VAT from customers and remit it to the Federal Tax Authority (FTA).
Who Should Register:
- Mandatory registration for businesses with annual sales above AED 375,000.
- Voluntary registration for those with sales above AED 187,500.
VAT affects both businesses and consumers it’s charged at the point of sale and helps maintain fairness in the market.
Key Difference Between Corporate Tax and VAT
- Corporate Tax = Tax on profits your business earns.
- VAT = Tax on sales of goods and services, collected from customers and passed to the government.
In simple terms, Corporate Tax impacts your net income, while VAT affects your pricing and sales transactions.
Why It Matters for Business Owners
- Both Corporate Tax and VAT are legal requirements in the UAE.
- Non-registration or late registration can lead to significant penalties and fines.
- Staying compliant builds your business credibility and avoids unnecessary legal complications.
If you’re unsure whether your company should register for Corporate Tax, VAT, or both, FutureZone.ae can guide you through each step from registration to compliance helping you avoid costly mistakes.
Waiver & Update Reminder
Some businesses may qualify for Small Business Relief or other exemptions under specific FTA criteria. Business owners should review their eligibility annually and stay informed through FTA announcements or consult FutureZone.ae for the latest updates
