A New Era Is Here: Understanding The Impact Of The New Corporate Tax On Business In The UAE The UAE's new corporate tax law is designed to fast-track the country's economic and strategic development and enhance the competitiveness and attractiveness of the UAE as a business and financial center.
By George Hojeige Edited by Aby Sam Thomas
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The UAE has proven over the years that when it comes to quickly adopting policies and implementing nationwide changes, it is definitely ahead of the curve. From swiftly and strategically handling the COVID-19 pandemic, to hedging the nation's economy and ensuring fast economic recovery, the UAE has demonstrated a remarkable ability to activate widescale change. This year, with the upcoming corporate tax set to be implemented in June, the UAE has once again underpinned its commitment to transformative legislation, especially one that will strengthen its position as a leading global business hub and a hotspot for foreign direct investment.
The UAE's new corporate tax law is designed to fast-track the country's economic and strategic development and enhance the competitiveness and attractiveness of the UAE as a business and financial center, while reinforcing the country's commitment to adopting international taxation standards. With the country's ambitious economic, social, investment and development plans in the coming years, corporate tax can fuel the UAE's drive to enact the large-scale transformation it has envisioned for the nation.
For one, Dubai has recently revealed its extensive Dubai Economic Agenda, or D33, which intends to raise the Emirate's foreign trade from AED14.2 trillion to AED25.6 trillion by 2033, and solidify its position as the best place to work and live globally. In addition, with corporate tax pegged at a low rate of 9%, the UAE remains a highly attractive business destination when compared with other international business hubs that have higher corporate tax rates.
The new tax regime will require all businesses and individuals that have a commercial license in the UAE to register for corporate tax and secure a corporate tax registration number. In some cases, exempt persons might also be required to register for corporate tax. However, registering for corporate tax does not necessarily mean a business is liable to pay tax. The tax will only be levied on taxable profits and not on the total turnover of a business.
Related: Here's How The UAE's New 9% Corporate Tax Could Impact The Country's Entrepreneurial Ecosystem
To promote and support the growth of small companies and startups, the corporate tax rate is set at 0% if a business's taxable profit does not exceed AED 375,000. For taxable profits exceeding AED 375,000, a 9% corporate tax rate will apply, while a different tax rate will apply to large multinational corporations.
Free zone companies may be exempt from corporate tax if they fulfil certain conditions specified in the UAE Corporate Tax Law. Under the new tax scheme, social media influencers, freelancers, sole proprietorships, and civil companies can be subject to tax. Government entities and government-controlled entities are exempt from corporate tax, as well as businesses involved in the extraction of natural resources, since these entities are already governed by Emirate-level taxation. Personal income will remain tax-free, as well as income derived by an individual from bank deposits, dividends, capital gains, interest, royalties, real estate investment, and more.
The upcoming corporate tax law is expected to cause sweeping changes across businesses of all sizes, where accurate accounting and up-to-date financial records will be pivotal. For companies aiming to have a system in place before the new tax law takes effect, consulting a tax specialist is a must. At Virtuzone, we have a team of highly qualified and experienced accountants and tax experts who can assist with that.
The new policy will likely push businesses to adopt internationally accepted accounting processes and systems, further lifting the quality of business in the UAE to a global level. With the positive changes that this imminent reform will bring, the UAE is in a great position to keep its status as one of the largest and fastest-growing economies in the Middle East and around the world.
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