UAE: starting from the financial year beginning on or after June 1, 2023, the UAE Ministry of Finance will levy an additional corporate tax on business profits. Furthermore, the Ministry announced that profits up to Dh375,000 will be exempt from tax, a move that will benefit small businesses.
Individuals will not have to pay corporate tax on their earnings from employment, real estate, and other investments, as well as any income that doesn't arise from business or other forms of commercial activity, whether licensed or not.
Rizwan Sajan, Chairman of the Danube Group, says that the UAE is gradually moving from non-tax to tax environments. This will give the UAE Government more income for developing the country. Four years after introducing VAT on January 1, 2018, this comes about four years after the introduction of VAT.
Initially, this might force businesses to adopt it, but businesses will eventually adjust just as they do in all other developed nations."
Across the board tax
In the UAE, corporate taxes were previously only imposed on banks and insurance companies. The tax rate is 20 percent. Companies involved in the exploration and production of oil and gas are subject to a limited corporate tax that can reach up to 55 percent in some emirates.
In the Gulf, income taxes are not implemented as of yet, but many countries have been implementing VAT (value-added tax) on individuals and businesses, Saudi Arabia tripling its rate to 15 percent last year.
As nations around the world set a minimum tax on corporate income, the latest UAE announcement is a natural development. Ultimately, it is designed to prevent multinational corporations - particularly US technology companies - from running skeletal operations in tax-friendly countries and then paying little on profits in their own countries.
DEDUCTIONS FROM TAXES
According to Justin George Varghese, through various deductions, corporate taxes can be lowered and therefore businesses typically pay a lower effective corporate tax rate as a result, which is usually lower than the statutory tax rate, which is actually 9% in UAE.
In the months after the pandemic broke out and countries experienced severe economic disruptions, there was a movement for a minimum corporate tax cut across jurisdictions. By introducing an across-the-board capital gains tax, the UAE is bringing its corporate tax regime into line with global developments, a tax consultant said.
Most of the countries within the GCC have favorable tax regimes, making the region an attractive location for foreign investment. In order to develop new revenue sources in the region while reducing dependence on mainstream sources of income, a number of reforms have been implemented. Many countries have already announced value-added taxes, while in others, different forms of taxation are being introduced.