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The UAE (United Arab Emirates) is introducing for the first time a federal corporate tax on business earnings. In a major change of course as the country seeks to diversify its income. This is first time, UAE has lifted Tax-Free Status.
The United Arab Emirates, long known as a tax haven, will tax business profits over 375,000 AED ($102,000) at 9% from 1st June 2023. The UAE has regional headquarters of many multinationals.
Various emirates in the UAE have been steadily introducing fees and taxes in past years. After oil prices dipped dramatically in mid-2015, the government reduced some subsidies and imposed a 5% value added tax on most goods and services, the tax that is still lower than in many countries worldwide.
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Recently, the UAE, switched from Friday-Saturday weekends to Saturdays and Sundays this year to align closer with global markets. This is another significant move by UAE to bring the country in line with many governments around the world.
Key things to know related to the UAE Corporate Tax
What is Corporate Tax in UAE? From when it will be applicable?
Corporate tax is a form of direct tax levied on the net income or profit of corporations and other entities from their business. Corporate tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.
The federal corporate tax on business profits will be effective for financial years starting on or after 1 June 2023.
What will be the Corporate Tax rate in UAE?
The United Arab Emirates, long known as a tax haven, will tax business profits over 375,000 AED ($102,000) at 9% from 1st June 2023.
Who will be subject to Corporate Tax in UAE?
UAE Corporate Tax will apply equally to all categories of profits and other (net) income reported in the financial statements prepared in accordance with internationally acceptable accounting standards. Business profits over 375,000 AED ($102,000) will be taxed at 9%.
Who will be exempted from the Corporate Tax in the UAE?
UAE Corporate Tax will apply to all UAE businesses, except for:
- Business profits of up to roughly $102,000 will not be taxed.
- The extraction of natural resources, which will remain subject to Emirate level corporate taxation.
- Foreign entities and individuals will be subject to Corporate Tax only if they conduct a trade or business in the UAE in an ongoing or regular manner.
- There are no plans to introduce personal income tax or capital gains tax from real estate or other investments, the ministry said.
- Tax incentives in the UAE’s free-trade zones will remain in place.
- Companies in Emirati free zones unless they conduct their business onshore.
- The oil and gas companies, which are subject to their own tax schemes.
- Foreign taxes can be credited against the UAE’s corporate tax to avoid double taxation.
Low taxes and a good business environment has helped the UAE to transform the 50-year-old nation over the years. It has been a place where foreign investors are welcome and where incomes are tax free.
The UAE, a major oil exporter but also a big player in business, trade, transport and tourism, is diversifying to reduce its reliance on crude. The United Arab Emirates is also facing rising competition from neighboring Saudi Arabia, the world’s biggest oil exporter, which is pursuing its own drive to diversify its economy and attract foreign businesses.
“With the introduction of corporate tax, the UAE reaffirms its commitment to meeting international standards for tax transparency and preventing harmful tax practices,” Younis Haji Al Khoori, Undersecretary of the Ministry of Finance, said in the statement.
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