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The impact of corporate tax in the UAE

Introduction

Exemption from the tax is indeed a privilege enjoyed by UAE for decades. Any individual was able to start a company in UAE and run their business without paying tax for 50 years!! But in recent days, UAE has made a step closer to modernize the tax system in UAE in order to meet the international practices and standards. Being a tax exempted country for all these years, UAE has always captured the attention of the foreign investors as the benefits for the investors and to their business was uncountable. Now the world Trade Hub is ready to adopt the Corporate Tax system to diversify the state revenue. Not only the corporate tax, but plans to impose the additional tax are also lined up.

Corporate tax regime – 2023

Though the discussion on implementing corporate tax has been made in the GCC since 2015, UAE was least expected to impose the same. But, on 31st January 2022, the United Arab Emirates announced that the country will introduce a Corporate Tax Regime for the very first time. The corporate tax is expected to be implemented and will come to effect on or after 1st June 2023. As per the announcement, all such activities which are undertaken by a legal entity are deemed as the “business activities” which falls under the scope of the corporate tax regime. Thus, the corporate tax will be applicable to all businesses and commercial activities in UAE.

NEWLY PROPOSED RATES

According to the Ministry of Finance’s announcement, the following are the three (3) different rates of the new corporate income tax:

  • 0% rate on taxable income up to AED 375,000
  • 9% rate on taxable income above AED 375,000; and
  • a different tax rate (which will be announced later) to be applied for large multinationals that generate consolidated global revenue of more than EUR 750 Million (i.e. AED 3.15 Billion)

Exemptions to Corporate Tax

The extraction of the natural resources will be under the existing emirate level corporation tax. Following are also exempted Corporate Tax:

  1. Individual’s salary
  2. Any individual investing in real estate in their personal capacity
  3. Any sort of real estate, dividends, capital gains, or other income derived from personal ownership of shares or securities.
  4. Any revenue or interest derived from bank deposits or savings programs by an individual.

Corporate Tax and its Impact in UAE

Without a doubt, the corporate tax regime 2023 will create a massive impact on the structures, business operations and the future merger acquisition activities in UAE. Of course there will be benefits in introducing the corporate tax in UAE as it will help to achieve the economic vision and generating revenue in the country. Future investors, on the other hand, who were drawn to UAE Markets because of the benefits on the corporate tax exemption may lose their interest. Before the benefits provided by the UAE upon the tax exemption was incomparable and unique comparing to other foreign countries. As of today, this future interesting policy of UAE may put those investors in dilemma, leaving them other choices as well.

We believe that the authorities will be reviewing the market conditions and the foreign direct investment into UAE following the implementation of new Corporate Tax regime from after 1st June 2023, and thereafter may think of implementing or discarding the new tax regime for future years.

Article contributed by Swadhaba Shirin.

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