UAE: Introduces the Lowest Corporate Tax in the World
UAE has been a perfect destination for business so far. The country is wealthy and has a diversified economy with success stories of ventures from everywhere. However, the UAE has become more like any other nation worldwide by declaring plans to levy a federal corporate tax on the company’s (net) profits.
As part of a comprehensive tax reform, the UAE Ministry of Finance will implement a UAE corporate tax on the net earnings of multinational corporations. This new corporate tax in UAE will come into effect on June 1, 2023.
What is a corporate tax in UAE?
A corporate tax is a direct tax imposed on companies and other entities’ net income or profit from their business.
The introduction of corporate tax (CT) in the UAE will provide significant improvements for businesses with new opportunities for financial growth. In addition, with a competitive corporate tax rate of 9%, the UAE makes for a great business investment. Also, it is considered one of the world’s lowest corporate taxes.
Note: As per the Ministry of Finance, UAE’s new corporate tax rates are:
- 0 percent for taxable income up to AED 375,000
- 9 percent for taxable income above AED 375,000
The main objective of introducing the corporate tax in the UAE:
The UAE has announced a series of new tax initiatives to raise government revenue, improve its regulatory framework, and increase accountability standards.
By introducing the CT, the UAE aims to:
- Strengthen its position as a major international center for trade and investment.
- Speed its growth and transformation to fulfill its strategic goals
- Reaffirm its dedication to upholding global standards for tax transparency and avoiding unfair tax practices.
Where and Where isn’t UAE Corporate Tax Applicable:
CT will apply to |
CT will not apply to |
Business activities conducted under a commercial license in the UAE |
An individual earnings salary and other employment income, whether received from the public or the private sector |
Applicable when foreign entities and individuals conduct a trade or business in the UAE in a regular manner |
Interest and other income earned by an individual from bank deposits or saving schemes |
Banking operations |
A foreign investor’s income earned from dividends, capital gains, interest, royalties, and other investment returns |
Applicable for real estate management, construction, development, agency, and brokerage activities. |
Investment in real estate by individuals in their personal ability |
How Does the UAE Corporate Tax Regime Benefit Small Businesses?
Many consider small enterprises a vital source of technological innovation and job development. Moreover, small business owners in the UAE have long been praised for contributing to the country’s economy. As a result, small firms and start-ups will profit from the new federal income tax law.
The UAE’s corporate tax on multinational corporations will benefit small enterprises in the following ways.
- Reducing corporate concentration
- Promoting healthy competition
- Combating tax evasion
- A transparent system of corporate taxation
- Prevent harmful tax practices
Henceforth, the new tax changes in the UAE will create a more conducive environment for businesses, which makes it an even better time to start a company and generate employment in the UAE. Moreover, if you wish to start a company in Dubai, you can seek assistance from a business expert.
Business Setup Worldwide is a leading consulting firm with over 6+ years of experience providing business advisors to our clients. Our professional advisors are well-versed and up-to-date with the various types of tax systems in the UAE. In order to schedule a free consultation, contact us.