The UAE’s Ministry of Finance announced that corporate tax of 9% would apply to business profits from the financial years starting on or after 1 June 2023. We look at some of the key concerns being raised so far.
The 9% corporate tax that the UAE
has announced is a positive from the point of view of government finances, but
how will it affect the smaller companies in the UAE?
Although this announcement has
been met with hesitation, especially from small businesses, it is worth noting
that the UAE has considered the position of such businesses. As such, profits
up to AED 375,000 will not be taxed – this is sure to support SMEs and
Additionally, on a global scale,
9% corporate tax is significantly business-friendly when considering that the worldwide
average corporate tax is approximately 23-24%. The UAE Ministry of Finance proclaimed
that the tax regime would still be among the most competitive in the world and
it will be aligned with WTO rules.
Further, tax incentives offered to
businesses in free zones that do not conduct business in or with onshore UAE are
unaffected by this announcement.
Is this new tax a setback for
private sector corporations?
This announcement should not be
viewed as a set back for private sector corporates. The 9% tax rate is low, and
the UAE still offers excellent opportunities for businesses and is a growing
market. Additionally, there will be no double taxation as taxes paid in foreign
countries may be credited against those payable in the UAE.
The introduction of corporate tax
is a necessary step to bring the UAE truly on par with the other leading
economies of the world. The UAE’s leadership has a proven track record of doing
right by its citizens, residents, and businesses, as is clear by the rate at
which individuals and businesses have immigrated to the UAE.
Further, this tax is likely to
encourage corporates to spend on various deductible expenditures – these are
often the kinds of expenses that contribute positively to employee and business
growth. At the same time, such expenditures will lower the corporate’s tax bill,
which will in any case be lower than most other developed countries.
How will this affect UAE's plans
to attract and retain global resources as well as encourage industries in new
The UAE has taken significant steps to modernize itself
and attract people and businesses from all over the world. This is evident in
the recent reforms including allowing 100% ownership of businesses and reforms
to personal status laws to accommodate the global nature of its residents,
amongst many other reforms. It is worth noting here, there is no change to the income
tax in the UAE, which remains 0%, meaning that employees and those seeking
employment in the UAE will still find the UAE to be just as attractive as
Corporate tax will encourage and increase transparency in
the UAE, by requiring more stringent and uniform bookkeeping and accounting,
which will also further improve the UAE’s standing as an international hub for
business and investment.
With a thriving population and
world-leading infrastructure and quality of life, there is no doubt that the
UAE’s leadership will utilize the corporate tax to benefit its residents, both
individual and corporate, and further bring the UAE to the top-most level of
the developed economies of the world.
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