The UAE is at the threshold of a major tax reform in the country. With effect from 1st June 2023, the UAE government is all set to levy corporate taxes on businesses for the first time ever. The country has been following a no-tax regime ever since its formation, making this a historic move from the part of the UAE government. This move is aimed at taking the tax regime of the country at par with the global standards and in providing better transparency, accountability and preventing harmful practices as well.

The new corporate tax regime is designed as follows:

• For businesses earning taxable income over and above Dh375,000, a standard tax rate of 9% will be applicable.
• For businesses earning less than Dh375,000 taxable income, 0% tax will be levied.

The latter has been brought out with an intention to support small businesses and entrepreneurs while bringing them under the tax regime as well. 

The introduction of the corporate tax regime comes at a time when the global economy is planning to introduce a global minimum tax on multinational corporations. The UAE had announced their support for the proposed global tax standards and this tax regime will help itself align to the international standards and make it an active player in the global economy as well. The new corporate tax regime also provides that those businesses set up in the Free Zone would not fall under the purview of the same provided they continue to not undertake business with the Mainland.

The UAE already follows a double tax treaty with other countries of the world. With the adoption of the new corporate tax, the country is all set to reinforce its position as one of the fastest growing economies and leading business hubs in the world. 

Corporate tax has been introduced in other GCC countries as well. Qatar plans to implement a 10% corporate tax regime, Oman and Kuwait both propose a 15% corporate tax regime and Saudi Arabia will have 20% corporate tax. The UAE has the distinction of being the country that levies the lowest corporate tax among the other GCC countries, which puts that less burden on the tax paying companies and makes the transition from no corporate tax that much easier.

Before this, the major tax reform that had been introduced in the UAE was back in 2018 with the introduction of Value Added Tax on goods and services at a rate of 5%. The UAE is not unfamiliar with corporate tax. The practice of levying corporate tax has been in practice for enterprises engaged in the exploration and production of oil and gas at 55% and for branches of foreign banks operating in the UAE at the rate of 20%. 

Even so, businesses in the country are exempt from paying tax on capital gains and dividends received from shareholdings. The new scheme also maintains the exemption on income tax for individuals, capital gains on real estate and other investments as well as intra-group transactions and restructurings.

Impact of corporate tax on business owners

Businesses are set to gain rather than be adversely affected with the introduction of the new corporate tax regime:

• Having a corporate tax system would help businesses comply with the laws and regulations of the land in letter and spirit.
• It can keep tax evasion and tax avoidance practices at bay.
• Companies need to file only one tax return every financial year, electronically.
• There is no requirement for advanced corporate tax payment on account of provisional tax returns.
• Group companies in the UAE can form a tax group and file a single tax return for the entire group. They are also eligible to transfer and offset tax losses to other members of the group.

Further details and exemptions are set to be rolled out in the coming months. As a business owner in the UAE, you may have doubts and queries about the new corporate tax and how it could affect your business. Clear all your doubts and learn more about the impact of corporate tax on your business with Kiltons, a leading business setup and service consultant in the UAE.  Give us a call or drop an email to us and we will help you understand your way about the new tax regime.