The United Arab Emirates announced on Monday, 31st January 2022, that for the first time ever they will be introducing a federal Corporate Tax on business profits. Businesses based in the UAE will now, therefore, be subject to the tax from 1st June 2023.
The news represents a significant shift for a country that’s long attracted businesses, having previously always carried a tax-free status, and follows the introduction of 5% VAT in 2018.
The country’s statutory tax rate will be 9% for taxable income exceeding 375,000 United Arab Emirates dirhams ($102,000), and 0% for taxable income up to that amount “to support small businesses and startups,” the ministry said, adding that “the UAE corporate tax regime will be amongst the most competitive in the world.”
The UAE has stated that the new corporate tax regime will ensure the compliance burden is kept to a minimum for businesses that prepare and maintain adequate financial statements. The relevant transfer pricing and documentation requirements will apply to UAE businesses with reference to the OECD Transfer Pricing Guidelines.
Businesses will be required to file one corporate tax return each financial year and will not be subject to making advance tax payments or preparing provisional tax returns.
Individuals, however, will continue to still not be subject to tax on their incomes from employment, real estate, equity investments, or any other personal income unrelated to a UAE trade or business, and the tax also won’t be applied to foreign investors who don’t conduct business in the country.
The Ministry of Finance has also said that free zone businesses can “continue to benefit from corporate tax incentives” as long as they “meet all necessary requirements”. Welcome news to the many companies within the UAE’s free zones who have long enjoyed zero taxes and full foreign ownership, among other benefits.
The announcement should be seen as a natural progression to leading economies of the world wanting to set a minimum tax on corporates and takes the UAE several steps in meeting international standards on ‘tax transparency’ and prevent ‘harmful’ practices as stated by Younis Haji Al Khoori, Under-secretary at the Ministry of Finance.
How can Animo help?
With local and global experts at our disposal, our consultants can provide you and your business with adept guidance on how next steps and best practice on conducting business in the UAE following this announcement. And, as further detailed legislation is released over the coming months, Animo will be able to keep you updated accordingly.
If you have any further queries on the above mentioned, get in contact with us today by calling +44 (0)207 060 0835, emailing firstname.lastname@example.org, or by filling in a contact form below and we will be happy to connect you with a consultant best suited to support your individual business needs.