Breaking new! UAE Announces Federal Corporate Tax from June 2023 at 9%
UAE has always been a tax-free commerce hub, attracting businesses and entrepreneurs from all around the world to set up their operations here. However, since January 2022, the Finance Ministry has announced that the UAE will introduce a ‘federal corporate tax’ on business profits, which will be effective from 1st June 2023. The rate of statutory corporate taxation is fixed at 9% for taxable income exceeding 375,000 UAE dirhams, which is roughly about $102,000. Any profits under the stipulated amount, will not be considered for taxation and remain tax-free like before. This slab is fixed after giving enough consideration and thought for ‘small businesses’ and ‘start-ups’ to survive. Despite the 9% taxation rate, UAE will remain the most competitive region in the world, offering the lowest business tax, as compared to average statutory corporate rates of 21.4% in Asia, 21% in the US, and around 23.9% in Europe. Salaried individuals will continue to have tax-free benefits, as their annual income is non-taxable. Other incomes from Real Estate dealings and profits on equity, remain untaxable too, unless it is related to the trade of business. Foreign investors can continue to invest in UAE without worry of taxation on profits if they have no business venture in the country. Zero taxes can be enjoyed by those who have businesses in the ‘Free Zone’ area, as long as they meet all requirements. There are about 40 Free zones in the UAE alone, and others are yet to be established. Free zones are mostly designed around certain categories and businesses that fall under such categories, are eligible for license to the Free zone. Therefore, all such entities, even though their foreign ownership, will continue to benefit from ‘tax exemption’. This move has been implied to diversify the revenue away from the ‘revenue earned by the Government on oil’, which they were heavily relying upon until this policy was formulated. Being a giant oil-producing country, the UAE Government is moving from dependability on profits from oil, and instead levying statutory corporate taxation to meet the needs of the growing economy. Corporate taxes that companies will start paying from June 2023, need to be accounted for in their financial statements, that need to be prepared by internationally accepted accounting standards. The filing of corporate tax returns will be undertaken at the end of each financial year and there will be no advance tax payment. All businesses and commercial activities profiting 375,000 UAE and above, will have to comply with the accountability of 9% tax, with the only exception being companies that are dealing in the business of ‘natural resources’. Such corporates will remain subject to Emirate-level corporate taxation. Younis Haji Al Khoori, undersecretary of the Ministry of Finance, said: “As a leading jurisdiction for innovation and investment, the UAE plays a pivotal role in helping businesses grow, locally and globally. The certainty of a competitive and best-in-class corporate tax regime, together with the UAE’s extensive double tax treaty network, will cement the UAE’s position as a world-leading hub for business and investment.” “I don’t think this announcement should come as a surprise; corporation tax in the UAE has been in discussion for several years. And there is already corporation tax in the GCC, in Saudi and Qatar for instance,” Chris Payne, chief economist at Dubai-based Peninsula Real Estate, told CNBC. Many positively reacted to this news. The decision for taxation was invited as a practical and sensible approach, to move away from the dependency on hydrocarbon revenues, alone.
