- New corporate tax to be introduced in the UAE from next year.
- It will be charged at 9 per cent on an income above AED 375,000.
- Companies operating in free zones and the real estate industry will be exempt from this tax.
- It is the lowest corporate tax levied in the GCC region.
The UAE is set to impose a federal tax on corporate earnings from next year. The country attracted many entrepreneurs and global organisations because of its tax-free environment. However, for the first time, taxes will be charged to corporate organisations. The rate of tax is fixed at 9 percent, which is going to be the lowest among all GCC countries in order to maintain its attractiveness for global organisations. Companies will have to pay the tax if they earn more than AED 375,000 as profit.
This decision is made to align the country with new international standards and the global move towards levying a minimum tax on corporate entities. With this new corporate regime, the UAE also reaffirms its commitment to support tax transparency.
This new tax will be implemented from June 2023. Companies operating within free zones will not be impacted by this new tax, provided they only conduct their business in free zones.
The new corporate tax regime can be attributed to the fact that the UAE was in the consideration to be “greylisted” among countries that are not taking substantial actions to combat terrorist financing and money laundering, according to the global financial watchdog.
The UAE, in the past, has taken numerous actions in this regard by introducing VAT and customs duty on imports. Both are taxed at 5 per cent. Furthermore, insurance companies and banks that operate outside the free zones are also taxed. The tax levied on these organisations is calculated at the maximum of 20 per cent on their earnings. There’s also a separate program that governs the tax of the oil and gas sector in the country.
According to experts, the rate of tax levied is quite reasonable, particularly if we compare it with other countries. For example, Saudi Arabia charges a 20 per cent tax on the net adjusted profits. It is the highest tax charged in the region. In Oman, the corporate income is taxed at 15 per cent, while Qatar and Kuwait have 10 and 15 per cent corporate tax, respectively. There are, however, certain exceptions in these countries. Bahrain, to date, is the only country in the region that has not announced the corporate tax.
Despite the fact that the introduction of these taxes has increased the living cost in the UAE, the government announced several initiatives during the pandemic to attract foreign investment. The results are evident as the real estate sector is booming and more people are inclined towards buying property in Dubai and other emirates. Moreover, the country also abolished the requirement to have a local sponsor, allowing entrepreneurs to fully own companies in the country.
There will be no impact of this tax on individuals since it is levied on the organisation level. Furthermore, the real estate sector won’t be impacted by the new tax. Having said that, employees may be indirectly impacted since some companies may reduce their pay scales in order to maintain shareholders’ profits.