Corporate Tax in the UAE: How may this affect your business?

The UAE Ministry of Finance have recently published the Federal Law No. 47/2022 on the Taxation of Corporations and Businesses (“Corporate Tax Law.”) The Corporate Tax Law was issued on December 9, 2022, in an effort to aid the UAE in achieving its strategic objectives and accelerate the country’s development and transformation.

Paula Villegas Guevara, an Associate in the corporate practice says, “The effective date on which corporate tax will become applicable varies from business to business, based on their financial year. Most businesses in the UAE follow a financial year from January 1 to December 31 – therefore, corporate tax will be applicable to these companies starting from January 1, 2024.”

The rate has been set at 9 per cent and is applicable on taxable profit exceeding AED 375,000. A zero per cent threshold taxable profit is less than AED 375,000 during the same tax period, regardless of the number of businesses or business activities the taxable individual is engaged in during that period.

The Cabinet Decision has defined a ‘business’ as ‘an activity conducted regularly, on an ongoing and independent basis by any Person or in any location, such as industrial, commercial, agricultural, vocational, professional, service or excavation activities or any other activities related to the use of tangible or intangible properties’, while defining a ‘business activity’ as ‘any transaction or activity, or series of transactions or series of activities conducted by any natural or juridical person in the course of its business.’

The introduction of Corporate Tax in the UAE has many benefits, including:

1. The rate is relatively low in comparison to other Gulf countries, for example Saudi Arabia has a tax rate of 20%, whereas Oman and Kuwait have a tax rate of 15%.
2. The competitive Corporate Tax regime adheres to international standards, the average tax worldwide being approximately 24%, and assists in positioning the UAE as a leading jurisdiction for business and investment.
3. Corporate Tax will introduce many benefits to the citizens of the country, including:
   1. Boosting the government’s revenue and expenditure.
   2. Reducing the government’s reliance on hydrocarbon revenue.
   3. Increasing the Foreign Direct Investment.
   4. Boosting the country’s Gross Domestic Product (GDP) by 2-3% in the short term.
4. The non-oil sector contributes approximately 70% to the country’s annual GDP. Corporate tax will help increase the non-oil sector in the coming years.
5. Corporate Tax generated will be reinvested into infrastructure and public services, strengthening the country’s economy and wellbeing.

Author: Paula Villegas Guevara.