- Flexi Group
UAE to launch first federal corporate tax on business profits from June 2023
A federal levy on corporate earnings will be introduced in the United Arab Emirates in 2023, marking the first time that the country will do so. The move comes as the country prepares to end its tax-free status, which had made it a magnet for global business but had also drawn criticism for its lack of transparency.
As part of its efforts to align itself with new international standards, the UAE has enacted the measure. This includes moving toward a global minimum tax on multinational corporations, which was endorsed by the Group of Twenty major economies last year. To prevent international competition from offering more attractive rates, the ambitious plan seeks to establish a base levy of 15 percent at some point in the future.
The UAE announced in July that it supports global tax standards and said on Monday that its new 9 percent corporate tax rate, which will take effect in June 2023, would serve as a basis for implementing that support.
However, many of the world's largest corporations are based in free zones and will continue to be exempt from paying taxes as long as they do not conduct business with the mainland.
UAE's Ministry of Finance said in a statement that the corporate tax will not apply to personal income from employment, real estate, and other investments or to income earned from a business licensed outside of the UAE.
Furthermore, the new tax is not on individuals and their incomes, so the corporate tax will not apply to salaries and other employment income.
According to people with knowledge of the situation, the move comes as the global financial watchdog considers whether to add the United Arab Emirates, which is home to the Middle East's business capital of Dubai, to a "gray list" of countries that are not doing enough to combat money laundering and terrorist financing. The Financial Action Task Force, based in Paris, was scheduled to discuss the issue as early as next month, and UAE officials have been working hard to avoid the designation, which could have a negative impact on investment in the country.
Despite the fact that the gradual introduction of taxes has made the UAE a more expensive place to live than it was previously, the government took a number of significant steps during the pandemic to encourage the foreigners who make up the vast majority of the country's population to stay for the long haul. In 2020, the government will abolish the requirement for companies to have Emirati shareholders, marking a significant overhaul of the country's foreign-ownership laws. Last year, the government announced plans to grant citizenship to a select group of foreigners.
This month, the United Arab Emirates adopted a Saturday-Sunday weekend in order to better align itself with the global economy. However, analysts and businesspeople said that while the new taxes would reduce net profits, the country's competitiveness regionally and internationally would remain unaffected by the new measures.
Most other Gulf countries already impose corporate income taxes on multinational corporations doing business in their countries, with Saudi Arabia imposing a 20 percent tax, Oman 15 percent tax, and Qatar 10 percent tax.
BY fLEXI tEAM