On January 31, 2022, the tax landscape in the UAE underwent a significant change when the Ministry of Finance announced that a new federal corporate tax system would be put into effect for financial years starting on or after June 1, 2023. The UAE has instituted the second lowest corporate income tax rate in the GCC region, only surpassed by Bahrain, at a standard rate of 9%.
At the moment, the United Arab Emirates lacks a federal corporate tax system. Currently, in the UAE, only oil and gas companies and branches of foreign banks are taxed at the corporate level.
According to the UAE Ministry of Finance, all taxable income up to AED 375, 000 will have 0 percent tax implications. However, all taxable income above the AED 375,000 benchmark will have a 9 percent tax implication. Also, a higher tax rate is yet to be announced for large multinationals that meet the qualifications set in regard to ‘Pillar two’ of the OECD Base Erosion and Profit Shifting Project.
What objectives will the introduction of the corporate tax in UAE achieve?
The introduction of the corporate tax will allow the UAE to:
- Reinstate its dedication to achieving international tax transparency standards
- Enhance its transformation and development initiatives
- Strengthen itself further as a premier global destination for investment and business
Who will the corporate tax in Dubai and other Emirates apply to?
Corporate taxes, as announced, will be applicable on the following:
- Any businesses or individuals operating under a commercial license in the UAE
- Banking operations
- Foreign individuals and entities that engage in business activities regularly in the UAE
- Businesses that deal in real estate development, construction, management, and brokerage. Tax will be applicable on real estate agencies as well.
Who will be exempt from the corporate tax in UAE?
The following are the conditions that allow businesses to bypass the corporate tax:
- Companies in the UAE will not have to pay taxes on dividends or capital gains earned from qualifying shareholdings.
- Businesses that extract natural resources are not subject to change under the new taxation system.
- Reorganizations and transactions between members of the same group will not be subject to corporate tax if all necessary conditions are met.
- Individuals earning a salary and other forms of employment income, regardless of whether they are received from the public or private sector
- Interest and other forms of income that an individual earns from bank deposits or saving schemes
- Any income earned by a foreign investor through capital gains, dividends, royalties, interest rates, and other investment returns.
- Personal investments in real estate.
- Dividends, capital gains, and other types of income generated from owning shares or other securities as an individual.
At Smart Zone, we understand the complexities involved in setting up a business in the UAE. We are here to help you navigate through any tax changes that may arise and ensure compliance with local regulations. Contact us today for more information on how we can help your business maximize profits by taking advantage of the new system.
