What do you need to know about corporate tax in the UAE starting from 2023?
- How will the new corporate tax change the business environment in the UAE?
- Why do the UAE attract companies with tax incentives?
For a long time, the United Arab Emirates has been known as a region with a favorable climate for business activities. The simplicity of the tax system and the absence of taxes on profits earned within the country created conditions attractive to investors. However, starting from June 1, 2023, the situation changed as a new law regarding corporate tax came into effect.
New tax conditions
Under this act, corporate tax in the UAE now stands at9%from the profits of companies. At the same time, taxpayers become companies whose annual income exceeds375 thousand dirhamsthat approximately corresponds to102 thousand dollarsCompanies that earn less than the specified amount are exempt from paying this tax.
Tax calculations will be conducted for periods starting after June 2023, and tax returns must be submitted within nine months after the end of the tax period.
Objectives of implementing the tax
The UAE Minister of Finance stated that the introduction of this new corporate tax is aimed at strengthening the country's position as a leading financial and investment center on the international stage. This tax policy is expected to assist in the implementation of various strategies aimed at developing and modernizing the economy. The taxation concept has been developed in accordance with international standards, which enhances the level of tax transparency.
Classification of taxpayers
Taxpayers are divided into several groups:
- Local companies
- Legal entities registered in the UAE or actually operating from this country
- Individual entrepreneurs working in the Emirates
- Foreign companies with permanent establishment in the UAE
Conditions for free economic zones
Special conditions are provided for legal entities from free economic zones. If the income of such companies meets the criteria set by the new corporate tax law, they will be required to pay it. However, for qualified income, companies operating in free zones may be completely exempt from the new regulations.
Foreign taxpayers
Non-resident foreigners without a permanent establishment in the UAE can avoid taxation if their UAE income is not related to their business in the emirates.
Conclusion
As a result, the new law fundamentally changes the tax policy in the UAE, requiring the business community to adapt to the new conditions. At the same time, it opens up new opportunities for companies seeking to adhere to international standards. The introduction of corporate tax represents a significant step towards strengthening the financial structure of the UAE economy, which could positively impact its investment attractiveness in the long term.
Avoiding corporate tax payment in the UAE
In the United Arab Emirates, there are many organizations that are allowed to avoid paying corporate tax. This is due to their significant role in the country's economy and society. Full tax exemption is automatically granted to government institutions and companies under government control, as stated in the relevant Cabinet resolution.
Conditions for tax exemption
Some organizations may also expect tax benefits upon notification from the Ministry of Finance, provided they meet certain requirements.
Tax incentives for foundations
Additionally, there are other organizations that may be exempt from paying taxes with the consent of the Federal Tax Service. These include:
- state pension funds;
- private pension funds;
- social security funds;
- qualified investment funds.
Given this, subsidiaries of such funds that are fully controlled in the UAE can also benefit from tax incentives.
Taxation of profits
Regarding profit taxation, corporate tax laws operate based on residency and sources of income. Thus, residents of the UAE are taxed on income earned both within the country and abroad. Legal entities registered or established under UAE law automatically become tax residents.
Status of foreign companies
Foreign companies can also be recognized as residents if their actual management is conducted within the territory of the Emirates. In turn, the tax obligations of non-residents are limited to income derived from sources in the UAE.
Corporate tax rate
The corporate tax rate is set at9%of taxable income in excess of the amount in375,000 dirhamsper year. Incomes below this threshold are not subject to taxation. This creates the following tax categories:
- Income up to 375,000 dirhams is tax-free (0%);
- Income exceeding this amount is taxed at a rate of 9%.
Taxation in free economic zones
For residents of free economic zones, there is a distinctive tax rate: qualified income is not taxed (0%), while unqualified income is taxed at a rate of9%.
Examination of exemptions from taxation
It is also important to note that the tax legislation of the UAE excludes certain types of income from corporate tax to avoid double taxation. For example, the tax on dividends and capital gains in the country remains at a level of0%This implies that income from owning shares, both within the country and abroad, is not subject to corporate tax, creating very favorable conditions for investment.
Conclusion
Thus, the tax system in the UAE is aimed at supporting various categories of businesses and eliminating double taxation, which undoubtedly stimulates the development of entrepreneurship and attracts investments to the region.
Introduction of corporate tax in the UAE
In conclusion, the corporate tax in the United Arab Emirates, which came into effect on June 1, 2023, has indeed become a significant turning point in the economic policy of this country. As the author of this material, I am convinced that the transition to a corporate tax at the level9%— this is not just a financial measure, but a strategic step aimed at adapting the UAE economy to modern international standards and requirements for tax transparency. This law introduces tax liability for many businesses that previously enjoyed significant tax benefits.
Advantages for business
One positive aspect of this reform is the fact that small and medium-sized enterprises with annual revenues below the375 thousand dirhamsThey will remain completely exempt from tax payments. This creates additional incentives for entrepreneurs and contributes to business development, which is undoubtedly crucial for the diversification of the economy of the emirates.
Economic justice
The introduction of the corporate tax concept not only strengthens the UAE's position as one of the leading investment centers but also actively shapes a sustainable economic environment that fosters innovation and attracts foreign investments.
Tax system and its advantages
It is important to note that the UAE's tax system remains one of the most favorable in the world, especially when compared to other regions where tax rates are much higher.
- Government and controlled organizations, as well as certain types of businesses, such as extractive companies, will still be able to receive preferences.
- This will demonstrate the right approach to supporting strategically important sectors.
Conclusion
In summary, I can say that the introduction of corporate tax in the UAE opens new horizons for business and helps the country integrate more effectively into the global economy. This is a bold step towards strengthening financial stability and transparency, which over time can yield significant dividends for both public organizations and private companies.
Considering all the aforementioned factors, I am confident that the UAE remains a country with a favorable climate for doing business, where everyone can find their opportunities for successful development.
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