Corporate Tax in the UAE: What does it Mean?

With the UAE government’s commitment to modern and consistent evolution in economic strategy, recent events and the successful roll out of VAT in 2018, many considered more tax updates fairly inevitable. Since the global perception of the UAE is on a rising trajectory, the influx of incoming investments and individuals has underlined the nation’s opportunity to reflect particular international economic frameworks whilst retaining a uniqueness that sets it apart as an inviting destination. To that end, the introduction of a 9% corporate tax in the UAE was announced with a launch date of June 1st 2023.

The announcement

This week the UAE Ministry of Finance announced plans to introduce a corporate tax on business profits on financial years starting on or after June 1st, 2023. Traditionally seen as a zero-tax haven, the introduction of a corporate tax in the UAE follows the implementation of VAT in 2018 and is intended to have multiple positive effects including income generation, transparency and jurisdiction regularity. As well as the obvious economic and investment benefits of the new rules, which are specifically designed to avoid stifling start-ups and innovation, they are also likely to enhance diplomatic relations. By adding corporate tax in the UAE, the country can “stop the practice of corporate titans – especially US technology ones – having skeletal operations in low tax regime and then paying little on their profits in their home country”. This is likely to appeal to major players on the international stage looking to avoid any economically damaging exoduses, especially for countries unable to match the UAE’s offering. It is also a reaffirmation of the nation’s support for the global minimum tax, proposed under ‘Pillar Two’ of Base Erosion and Profit Shifting (BEPS). Any pundits worried about potential backlash would do well to remember that the statutory tax rate of 9%, as well as the current exemptions, makes its one of the most competitive environments in the world.

Top Points: Corporate Tax in the UAE

Here are some of the key takeaways to absorb following the announcement:
• The 9% rate is only applicable on companies with a taxable income above AED 375,000
• There will be no tax on profits of up to AED 375,000 (in order to help small businesses)
• This applies to all commercial, industrial and professional activities and all entities, including freelancing individuals
• The tax will NOT apply on personal income from employment, real estate or investments
• Free Zone companies will be exempt (unless they have mainland business)
• There will be a different tax rate for large multinationals whose global turnover exceeds Euro 750 million
• Annual filing will be required
• The UAE is still a no income tax country

So, what does this all mean?

The truth is, we don’t know everything yet. Other than the exemptions and details listed above, more information is expected during 2022 in the run up to launch time. As with the VAT roll out, we can expect several updates and changes as we get closer and the government finalizes the details of its proposal. So far the tiered approach with relevant exemptions, particularly for free zone companies, is likely to remain the basic structure as this will help to remain competitive and ensure that economy-boosting start-ups have the best chance of success. Overall, it is likely that this will be financially beneficial to the country as a whole, which should alleviate much of the short term pinch that companies might feel. The key is to remain as up to date as possible with news as it comes out so that businesses can be as prepared as possible for any requirements they may have to meet.

How EER can help

When it comes to running a business that operates at its most efficient and successful level, it is vital to ensure you can rely on expert advice and support in the areas that you need it the most. In the changing landscape of the workplace, outsourcing elements of your business to those with the right experience can save you time and money. Corporate entities who want to understand how this new rule will impact them or wish to discuss their options moving forward, including how to prepare and how to enquire about exemption status, can reach out to the expert team at EER who can guide them on what elements are applicable to their business and what action is needed to avoid penalties.

If you would like to enquire about how EER can help you with understanding how a corporate tax introduction affects your business, get in touch today on 00971 4 421 1819 or info@eerme.com