Fig: All You Need to Know About UAE’s New Corporate Tax
The UAE Ministry of Finance is set to introduce a new corporate tax on business profits. The new rule will take effect in financial years starting on or after June 1st, 2023. In a move that will help small businesses, the Ministry has also mentioned that there will not be any tax on profits of up to Dh 375,000.
Additionally, there will be no corporate tax levied on personal income from employment, real estate, or any other investments and incomes earned by individuals that are not derived from business or other commercial activities.
The Ministry noted that the move is part of a plan for a global minimum tax rate applying to large multinational companies that meet the requirements.
This new corporate tax will be launched by the Finance Ministry to align with international efforts to combat tax avoidance and to address the challenges posed by the digitalization of the global economy.
What Does the Tax Cover?
The tax introduced will be for all corporate and commercial activities, as previously, the UAE has only issued taxes applying to banks and insurance companies. This move is seen as a change from a no-tax policy to a tax friendly-environment, allowing the Government income to fund the development of the country.
This change comes four years after the VAT tax introduction, leading to growth in VAT services in UAE.
Fig: VAT Services in UAE
While remaining an attractive region for economic activities, these reforms create new revenue streams to reduce dependency on other areas of revenue income such as the country’s reliance on petroleum. Other countries in the region have either introduced or increased tax rates. For instance, recently Saudi Arabia’s VAT tax rate was tripled to 15%.
Keeping these changes in mind, the UAE’s corporate tax regime will honor tax incentives offered to free zone businesses that operate offshore and comply with the Ministry’s requirements.
