Corporate Tax of UAE—Businesses in the UAE will be subject to a new 9% corporation tax beginning on June 1, 2023.
Businesses will be liable for the tax at the start of their first fiscal year, which may be in June 2023 or later.
Profits of more than 375,000 dirhams ($102,096) will be subject to a 9% tax rate.
Suppose the United Arab Emirates is a leading jurisdiction for innovation and investment. In that case, it has a vital role to play in helping firms thrive both domestically and internationally,” Younis Haji Al Khoori, an undersecretary of the Ministry of Finance, said.
A “competitive and best in class corporate tax structure, coupled with the UAE’s broad double tax treaty network, would strengthen the UAE’s position as a world-leading destination for business and investment,” he said.
The United Arab Emirates follows in the footsteps of other Gulf Cooperation Council countries, with five of the six GCC countries currently levying a business tax.
Corporate taxes in Qatar are 10%, Oman is 15%, and Kuwait is 20% lower than those in the United Arab Emirates. With a corporate tax rate of 20%, Saudi Arabia has the highest rate globally.
Oil and gas exploration and production businesses are subject to a 40.55 percent corporate tax rate in Egypt, as throughout the Middle Eastern area. Libya imposes a 24% tax, and Lebanon imposes a 17% tax.
The UAE’s low tax status will not be jeopardized by this new tax, according to Khatija Haque, the chief economist at Emirates NBD. “An increase in the UAE’s corporation tax would be in line with the country’s efforts to move away from reliance on oil as a source of budgetary revenue. Compared to other countries, our tax rate is still meager.”
In 2018, the UAE implemented a standard 5% value-added tax on most products and services. The United Arab Emirates charges a 20% tax on international bank branches operating in the country and a 55% emirate-level tax on oil and gas businesses with concession agreements.
The UAE’s Ministry of Finance stated that businesses are exempt from paying taxes on capital gains and dividends from shareholdings.
Income from real estate and other investments and other non-business sources of income were not subject to the new tax plan’s new progressive marginal tax rate of ten percent.
How Will the New Corporate Tax of UAE Affect FDI?
It was announced by the United Arab Emirates’ Ministry of Finance on January 31, 2022, that the country would be instituting the first-ever company tax in its history. Taxes on taxable income above Dh375,000 ($102,000) will be implemented on June 1, 2023, at a rate of 9 percent.
There was a dramatic shift in business practices in the United Arab Emirates when the country announced that it would impose a tax of up to 5%.
However, the Ministry of Finance had previously stated that some form of corporate tax structure would be implemented in 2023, but no details had been revealed until recently.
When the UAE was riding high on a surge of foreign investment, having weathered the economic repercussions of the Covid epidemic better than most countries, the new tax was announced.
So, how big of an impact will this tax hike have on UAE investment, and how will it alter the country’s international image? A global minimum corporate tax rate of 15% was agreed upon by G7 members in June 2021, which was ratified by 132 nations following a meeting of the G20 and the OECD in September.
The adoption of this worldwide corporate tax rate is now scheduled for 2023, but there is still considerable work to determine precisely how it will work so that the date may be adjusted.
As a result, countries with low or no corporate tax rates have been warned that they may fall outside of accepted global norms and impact their credit ratings.
A tax rate of 9 percent in the United Arab Emirates is lower than the suggested worldwide minimum. Still, it would allow the country to achieve 15 percent in stages rather than in a single move, which would soften the shock to local industry.
Due to the UAE’s open investment policy, which was implemented during the epidemic when other Gulf states reduced their investment, FDI has increased significantly.
The Dubai Expo, which began in October 2021 and will go through March 2022, has further boosted corporate travel to the United Arab Emirates. Despite this, the cost of living and doing business in the country has risen due to increased investment.
When it comes to the costs of starting a business, “it’s not just prices that are going up,” says Dr. Mazdak Rafaty, general partner of UAE-based Ludwar International Consultancy and advisor to the joint Emirati-German Chamber of Commerce. “These are all signs that the destination’s appeal is increasing.”
The New Corporate Tax of UAE is Revamping Business Culture
It’s just one of the many changes in the United Arab Emirates. There are long-term plans to modernize the economy by shifting away from oil and gas dependency, and the country is establishing itself as a hub for technology and innovation.
There are many signs that the UAE is willing to change its business culture and adhere to international norms. These include opening political and economic relations with Israel through the Abraham Accords, overhauling labor law for the first time in over 40 years, removing the requirement that a UAE national own at least 51% of a UAE company, and switching to a Monday through Friday work week instead of a Sunday through Thursday one.
Despite these rapid developments, the cost of living and conducting business has gone up.
It appears that Qatar is the only Gulf region country to have a higher cost of living than the UAE, according to data compiled by Numbeo. All three countries in 2012 had higher costs of living compared to the United Arab Emirates. Additionally, the cost of doing business has increased over the past several years because of the 5 percent value-added tax that was implemented at the beginning of 2018.
With Project HQ, Saudi Arabia hoped to encourage multinational corporations to establish permanent in-country bases in Saudi Arabia by following the UAE’s lead. Corporate taxation in the United Arab Emirates (UAE) will lessen Saudi Arabia’s long-term advantage over its neighbor.
However, there is no evidence to support Rafaty’s claim that this new tax increase will result in Saudi Arabian investment being redirected. No foreign direct investment [in the UAE] will look at the 9 percent corporate tax and say, “Let’s move to Saudi Arabia,” says Al-Ansari. That isn’t going to happen.
Economic structure, domestic market maturity, openness and attractiveness, and strategic planning and implementation are so vastly different between the two countries.”
However, the UAE tax increase specifics are still hazy, which may worry investors. According to the UAE’s Ministry of Finance, firms operating out of several free ports would be excluded from the new tax. However, it is unclear whether or not this exemption will last or apply to all businesses.
Minister of Finance: “The UAE corporate tax regime will continue to honor the corporate tax incentives currently being granted to free zone enterprises who comply with all legal requirements and that do not conduct business with mainland UAE.”
“Foreign investors are less frightened,” says Rafaty, about increases in taxation, no matter how extraordinary they may be. According to this group, laws that have been in existence but could be altered at any time are of more significant concern.
Given the country’s reliance on foreign companies and employees, it is impossible to stress the importance of giving investors certainty on how the tax would be applied.
