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Business profits in the UAE will be taxed at 9% from June 1, 2023

Its statutory tax rate of 9% makes it 'among the most competitive' in the world, says the finance ministry

UAE will introduce a tax on business profits on June 1, 2023, a major update to its corporate tax structure.

UAE’s Ministry of Finance will impose a corporate tax on business profits beginning on or after June 1, 2023. The ministry confirmed that small businesses will not be taxed on profits up to Dh375,000.

Corporate tax will not be charged on income earned from employment, real estate, or other investments, or on any other income that is not derived from business or commercial activity, whether licensed or not.

UAE companies with international headquarters are exempt from paying taxes on capital gains and dividends received from their qualifying shareholdings, as international headquarters. The UAE government will allow foreign taxes to be credited against the corporate tax due.

UAE groups will be able to be taxed as a single entity or may apply group relief in respect of intra-group transactions and restructurings.

Businesses that prepare and maintain sufficient financial statements will benefit from the UAE corporate tax regime since compliance burdens will be kept as low as possible.

Business tax returns will be filed only once a year, and advance tax payments or provisional tax returns will not be required. The OECD Guidelines for Transfer Pricing will apply to UAE businesses.

Taxation across the board

As of now, UAE’s corporate taxes only apply to banks and insurance companies. They are taxed at 20%. A limited corporate tax is already imposed by individual emirates on companies engaged in oil exploration and production at rates of up to 55 percent.

While personal income taxes are still absent in the Gulf, many countries have begun to implement VAT (value added tax) on individuals and businesses. Saudi Arabia tripled its VAT rate to 15 percent last year.

UAE’s latest announcement is nothing more than a natural progression of leading economies of the world wanting to set a minimum corporate tax rate. Specifically, it is intended to prevent corporate titans – especially those in the technology sector – from setting up skeletal operations in a low tax regime and then paying little or nothing on their profits in their home countries.

After the pandemic broke out and nations were suffering severe economic disruptions, efforts to cut corporate taxes across jurisdictions gained traction. The UAE’s decision to introduce capital gains tax across the board will help bring its corporate tax regime in line with global trends.

GCC countries continue to be attractive jurisdictions for foreign investments due to their favorable tax regimes. The region is, however, undergoing a number of reforms to create new revenue streams while reducing its dependence on mainstream sources. Some countries already have value-added taxes, while others have different types of taxes.

Since the UAE is expanding as an economy and taking a greater role on the international stage, the authorities should put in place a transparent corporate tax system.

The fact that firms operating in free zones and not conducting business in the UAE will be exempt is interesting. The digitalization of government services in recent years has significantly reduced the burden on companies to file corporate tax returns. This appears to make it the right time in the economy’s maturity to follow the lead of other GCC countries.

Source : Gulf News