UAE’s new corporate tax: A boon to business

The UAE will introduce a 9 per cent corporate tax on business profits of more than Dh375,000 ($102,000) from June 1, 2023, the Finance Ministry said, in a major change of course, as the country seeks to diversify its income.

For the UAE, the regional headquarters for a swathe of multinationals, the move marks a critical shift from its long-held status as a tax-free haven for business and commerce.

The new corporate tax regime, long anticipated since the UAE imposed a 5 per cent value-added tax (VAT) on January 1, 2018, has kept a low base to maintain the country’s attractiveness for businesses.

“Corporate tax will be payable on the profits of the UAE businesses as reported in their financial statements prepared in accordance with the internationally acceptable accounting standards, with minimal exceptions and adjustments,” the Finance Ministry announced on January 31, 2022.

“The UAE corporate tax regime will be among the most competitive in the world,” said a statement carried by the official WAM news agency. A 9 per cent is at the lower end of the corporate taxes worldwide.

There are no plans to introduce personal income tax or capital gains tax from real estate or other investments, the ministry said.

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.

“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.

Tax incentives in the UAE’s free trade zones will remain in place, he added.

Businesses and analysts have welcomed the new tax regime as a loud and clear message from the UAE about nurturing a transparent and fair financial ecosystem. A 9 per cent tax is classified as the lower end of the corporate taxes worldwide, they pointed out.

Pankaj Mundra, co-founder of 360tf Nimai, a leading finance platform for global trade financing and export financing, said that the introduction of corporate tax is a much awaited move after the introduction of Pillar 1 and Pillar 2 OECD inclusive framework.

The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (IF) has agreed a two-pillar solution to address the tax challenges arising out from the digitalisation of the economy.

“This will make the UAE more competitive in terms of global taxation best practice. It will make the corporates balance-sheet stronger, as this will have more transparency, more concrete procedure and policies for maintenance of books of accounts and financials. Global banks and private equity funds will have more reliance and confidence on the UAE corporate financials; thereby, injecting more capital into the region, especially the UAE,” he said.

Bal Krishen, chairman and CEO of Century Financial, said that the UAE, which is home to the regional business hub of Dubai, has made several moves during the pandemic aimed at encouraging an overwhelmingly foreign-populated population to stay for the long run.

“To better align with the global economy, the country switched to a Saturday-Sunday weekend this month. In 2020, the government abolished the requirement that companies have Emirati shareholders. This was a major change in foreign ownership laws. Last year, it revealed plans to offer citizenship to a select group of foreigners.”

He said that the UAE’s 9 per cent corporate tax is in line with other developed countries.

“The UAE corporate tax regime has been designed to incorporate best

As a result of the regime, he said, the UAE will be able to address the challenges connected to the digitalisation of the global economy.

“As a result of the new corporate tax, the UAE has reaffirmed its commitment to complying with international standards for tax transparency and preventing harmful tax practices,” he said.

Echoing the sentiments, Anurag Chaturvedi, CEO of Chartered House, said that the corporate tax would bring transparency to avoid harmful practices.

“This initiative will accelerate the UAE’s development by adding global businesses to the gross domestic product by keeping the scope of tax over Dh375,000. The lowest tax rate at nine per cent would the UAE ahead globally to attract unicorns to make UAE their bases.”

He believes that the UAE’s unique offerings not to levy withholding tax on the cross-border transactions while having eased tax planning for dividend and capital gains would keep the real estate and startup ecosystem afloat.

He said that the business activities would witness a rapid acceleration next year.

“The year 2023 will mark a year of global cooperation as the UAE has a double tax avoidance treaty with over 72 countries, and business activities across such reasons will increase.”

He said that businesses eying to start their tax planning considering global minimum tax and having the lowest tax rate in the world in the UAE will bring increased tax revenue to the UAE.

“As per the OECD guidance on minimum tax, global economies will collect over $150 billion in additional tax revenue. The UAE will have over $25 billion revenue from the corporate tax.”