As most of you are already aware, UAE’s Minister of Finance announced the introduction of a 9% federal corporate tax on business profits, effective from June 1, 2023. The UAE, a magnet for the world’s elite, has been notorious for its tax-free status – carving its place as an attractive business hub. So, many are probably wondering now what’s the motive behind this new corporate tax? Will implementing it deter the UAE from topping the global economic map against regional competitors?
But before digging deeper into the scope of UAE’s corporate tax, let’s try to understand the root cause behind implementing it and how this change could potentially impact investments in the UAE.
Why introduce a 9% Tax Rate Now?
Simply put, all reforms that have been recently enacted in the UAE are mainly to align with international standards. So, by introducing a 9% corporate tax, the UAE reaffirms its commitments to comply with international efforts to combat tax avoidance and money laundering. The shift to a 9% corporate tax also stems from the UAE’s efforts to diversify its budget revenues away from petroleum.
Experts even predict that this new tax regime could potentially bring in over $13billion in government income.
UAE’s Corporate Tax Scope
The new tax regime will be levied on all business and commercial activities in the UAE, except for the extraction of natural resources – which will remain subject to the emirate level taxation. It’s worth noting that the 9% would kick in only for companies whose profits exceed $102K (AED375K), in order to support small businesses and startups.
As for large multinational companies, the minister mentioned that a different tax rate will be imposed on them to meet certain criteria. In reference to the new rules dictated by the Organisation for Economic Cooperation and Development, the UAE has agreed to take part and ensure a fair profit distribution is imminent amongst big companies by paying a minimum tax rate of 15%.
Exceptions
Just like any other new reform, there will always be certain exceptions. The minister assures residents not to panic since no tax will be imposed on the following categories: real estate income, employment income, investment returns, or any other sort of income earned by individuals in their capacity – that is not attributed of course to a business or trade in the UAE.
The same applies to foreign investors who have not conducted business in the UAE and to any dividends or capital gains they acquire. Luckily for all investors and employees, 0% tax rate on FDI, personal income, and real estate investments!
Key Insights
The aforementioned exemptions (especially for free zone businesses) and minimum compliance burden on businesses will undoubtedly further strengthen UAE’s position as a leading financial hub while simultaneously maintaining its global competitiveness. In fact, UAE’s corporate tax rate is the most competitive within the region, in comparison to KSA, Egypt, Kuwait, Oman, and Qatar which impose rates ranging from 10% to 35%.
The new legal reforms will oblige businesses to operate within a compliance framework which ultimately ensures transparency and encourages companies to address bigger challenges, i.e. global digitalization.
Therefore, to all our property investors out there, don’t fret! Your real estate investments will not be impacted by this change whatsoever. If anything, whoever invested with SmartCrowd shouldn’t be worried at all! Apart from being a startup that already exempts us from paying the tax rate, our revenues don’t impact client returns.
Moreover, what many of you probably don’t know is that the Dubai International Finance Centre (DIFC) law and the Abu Dhabi Global Market (ADGM) law both state that a DIFC- or ADGM-incorporated firm pays no tax for the first 50 years after the law takes effect. As a result, companies formed in the DIFC and ADGM might expect to pay no tax until 2071 and 2063, respectively. Lucky us!
