Alongside the international pressure for global tax standards builds, UAE announces its new corporate tax.

According to experts, the new 9% corporate tax positions the country as a highly competitive tax regime globally and regionally.

However, this new tax will not apply to some businesses and companies. The 9% company tax does not apply to those companies whose taxable incomes are less than AED 375.000 and to those who operate in free zones (if they do not deal with the mainland).

The corporate tax (CT) will align the UAE with the international standards for tax transparency, and it will set in motion some positive changes for the business landscape. The CT will accelerate the nation’s development, attracting new businesses and investments.

This new tax could be seen as a deterrent for new investments, but the decision to implement the CT is a step toward the OECD’s plans to implement a 15% minimum tax on multinational companies. Furthermore, this 9% tax is far below the average corporate income tax in 2021 (23.54%), and other ‘low tax’ hubs impose taxes at nearly double the UAE’s proposed rate.

The UAE’s tax transparency and governance agenda

The new CT is not only a step towards international pressure, but it is an advantage for the UAE’s long-term stability and ease of doing business. The 9% CT is a milestone that will help solidify the country’s status as a global business hub.

“With the new tax regime, UAE businesses will be operating in alignment with its international tax transparency and governance agenda, resulting in stability and ease of doing business. This will also support companies with attracting global talent and expanding into new sectors,” Stuart Cioccarelli, Partner and Head of Tax, KPMG Lower Gulf explained.

Three important facts to be underlined:

1-   New corporate tax will not apply to personal income, real estate, and other investments earned by individuals.

2-   UAE businesses will be exempt from paying tax on capital gains and dividends received from their qualifying shareholdings.

3-   Foreign taxes will be allowed to be credited against UAE corporate tax payable.

As the new corporate tax will be effective from June 1st, 2023, the UAE Ministry of Finance plans to issue further information on the UAE corporate tax regime toward the middle of the year, giving companies the right time to prepare for the change.