In a groundbreaking announcement made on the 31st January 2022, the UAE federal government will introduce a corporation tax on the profit of businesses. The new tax will be a standard rate of 9% beginning on the 1st June 2023, the final legislation has yet to be issued and the details are subject to finalisation. To support small businesses and startups there will be zero taxation of profits up to AED 375,000 and corporate tax incentives offered to free zone businesses that do not conduct business onshore are unaffected. No corporate tax will apply on personal income from employment, real estate and other investments, or on any other income earned by individuals that do not arise from a business or other form of commercial activity licensed or otherwise permitted to be undertaken in the UAE.
Why is it happening now?
For many years, UAE and other GCC countries have maintained low or zero taxes in order to attract foreign business owners and their investments. However, a number of reforms have been underway to create new revenue streams while reducing dependence on mainstream sources of revenues in the region such as oil and gas. The new corporate tax implementation also strengthens UAE’s position in terms of transparency and works in accordance with the OECD’s landmark global minimum tax accord to curtail tax avoidance by multinational companies, approximately 140 countries, including the U.A.E., agreed in October 2021 to overhaul the global tax system, signing up to eventually implement a minimum corporate rate of 15% in a bid to prevent companies from exploiting low-tax jurisdictions.
Preparing your business for corporate tax
Corporate tax in the UAE will be charged on business profits in financial years starting on or after June 1, 2023. Younis Haji Al Khoori, undersecretary of the UAE Ministry of Finance stated that “the new tax regime will ensure the compliance burden is kept to a minimum for businesses that prepare and maintain adequate financial statements. Businesses will only need to file one corporate tax return each financial year, and will not be required to make advance tax payments or prepare provisional tax returns. Transfer pricing and documentation requirements will apply to UAE businesses with reference to the OECD Transfer Pricing Guidelines.”
The ministry added that UAE businesses will be given time to prepare for the introduction of this new corporate tax, with the ministry expected to provide further information on the new corporate tax in the middle of this year.
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