The United Arab Emirates will Tax Corporate Profits for the First Time at 9%
UAE Corporate taxes won’t come as much of a surprise to most observers. The UAE is a top quality tax haven for individuals but it has gently eroded its completely tax free status in recent years. The UA introduced a sales tax in 2018. It’s also part of the Common Reporting Standard which undermines financial privacy.
Corporate Profits Over $102,000 will be Subject to UAE Corporate Taxes
It was recently announced that the United Arab Emirates will impose a corporate tax on business profits for the first time. This is a major change for a country that has been a tax-free hub for global businesses for a long time. The tax will take effect from June 1, 2023.
The statutory tax rate will be 9% for taxable income above 375,000 UAE dirhams ($102,000), and zero for taxable income below that amount, to support startups and small businesses. The finance ministry said that the UAE corporate tax system will be one of the most competitive in the world.
UAE is Still Tax Free for Individuals
Individuals will not have to pay tax on their income from employment, property, stocks or other personal sources that are not related to a UAE trade or business. The tax will also not apply to foreign investors who do not do business in the country.
The corporate tax will be based on “the adjusted accounting net profit” of the business.
Businesses in free zones, which are thousands in the country, can still enjoy corporate tax benefits if they meet all the necessary criteria. The UAE’s free zones have offered zero taxes and full foreign ownership, among other advantages, for a long time.
The state news agency WAM reported that “the UAE corporate tax system has been designed to follow global best practices and reduce the compliance burden on businesses.”
“The corporate tax will be paid on the profits of UAE businesses as shown in their financial statements prepared according to internationally accepted accounting standards, with few exceptions and adjustments. The corporate tax will apply to all businesses and commercial activities equally, except for natural resource extraction which will remain subject to Emirate level corporate taxation.”
The news of the corporate tax introduction in the UAE on Monday did not surprise many in the country’s business sector.
Chris Payne, chief economist at Peninsula Real Estate in Dubai, told CNBC that the UAE had been discussing corporation tax for several years. He also pointed out that other GCC countries like Saudi Arabia and Qatar already had corporation tax.
UAE Corporate Taxes Still Lower than Most Countries
The UAE’s corporate tax rate is still competitive compared to other low-tax countries around the world.
Some of these countries are Montenegro and Gibraltar with 9% and 10% tax rates, Ireland and Lichtenstein with 12.5%, Hong Kong with 16.5%, and Singapore and San Marino with 17%. But the impact of the new taxes on the quality of public goods and services is unclear.
Taufiq Rahim, a research fellow at the Mohammed bin Rashid School of Government in Dubai, said that the UAE was following other successful economies with its tax move.
He also said that the UAE’s tax rate was lower than some other places like Singapore and Hong Kong.
Many Loopholes in UAE Corporate Taxes
UAE Corporate taxes will only apply to profits generated in the UAE. Profits generated from trading outside the UAE will still be tax free. The fact that deductible payments can be made to individuals resident in the UAE and those payments are tax free means that the introduction of UAE corporate taxes will have limited impact on most entrepreneurs.