The UAE’s new 9 percent corporate tax positions the country as a highly competitive tax regime globally and regionally, according to experts.
The country’s new tax includes some important caveats: Businesses with taxable income of less than AED375,000 will be exempt – a boon for the UAE’s burgeoning startup sector – and companies that operate in free zones will also benefit from zero taxes if they do not deal with the mainland.
“The corporate tax announcement by the UAE Ministry of Finance (MoF) will undoubtedly set in motion some positive changes for the business landscape, which will align the UAE with international standards for tax transparency and aim to prevent harmful tax practices,” Shabana Begum, Partner, Head of Transfer Pricing, KPMG Lower Gulf said.
“The corporate tax (CT) rate of 9 percent announced is highly competitive both within the GCC and globally and will consolidate the UAE’s position as a leading global hub for business and investment, accelerating the nation’s development and transformation,” Begum added.
The taxation announced comes as international pressure for global tax standards builds. Last year, the OECD announced plans to implement a 15 percent minimum tax on multinational companies.
“Multinational corporations will, inevitably, not be pleased with an increase in incurred costs. However, it is unlikely to be a significant deterrent. Worldwide average statutory corporate income tax in 2021 stood at 23.54 percent, and other ‘low tax’ hubs, such as Singapore and Hong Kong, impose taxes at nearly double the UAE’s proposed rate. Additionally, the absence of personal income tax and lifestyle offered in the Emirates will continue to be desirable for the top talent driving these organisations,” Sami Fadlallah, Economic Researcher, Healy Consultants Group PLC said.
The UAE’s tax transparency and governance agenda
Importantly, because the new tax brings the UAE in line with global standards, it could be advantageous for the UAE’s long-term stability and ease of doing business, a factor which experts have previously noted will help solidify the country’s status as a global business hub.
“With the new tax regime, UAE businesses will be operating in alignment with its international tax transparency and governance agenda, resulting in stability and ease of doing business. This will also support companies with attracting global talent and expanding into new sectors,” Stuart Cioccarelli, Partner and Head of Tax, KPMG Lower Gulf explained.
The new corporate tax will be effective from June 1, 2023, giving companies ample time to prepare for the change. No corporate tax will apply on personal income, real estate and other investments, or on any other income earned by individuals that does not arise from a business or other form of commercial activity licensed or otherwise permitted to be undertaken in the UAE.
A UAE business will also be exempt from paying tax on capital gains and dividends received from its qualifying shareholdings while foreign taxes will be allowed to be credited against UAE corporate tax payable.
The UAE Ministry of Finance plans to issue further information on the UAE corporate tax regime toward the middle of the year to help businesses get ready and be fully compliant.
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