According to the Ministry of Finance, the UAE would impose a federal corporate tax on profits from firms beginning on or after June 1, 2023.
Companies have to pay a basic statutory tax rate of 9%, which puts the UAE in a competitive position when compared to other financial centers and mature economies throughout the world. According to the Tax Foundation in Washington, DC, the average top company tax rate in the EU27 is 21.3 percent, 23.04 percent in the OECD, and 69 percent in the G7.
To help small and medium-sized businesses, taxable profits of up to Dh375,000 ($102,000) will be tax-free. The legislation has not yet been released, and the details of the corporation tax structure are still being worked out.
According to the ministry, “the tax structure will be among the most competitive in the world.” It will follow the regulations of the World Trade Organization.
Personal income “from work, real estate, and other investments, as well as any other income generated by people that do not result from a business or other form of commercial activity licensed or otherwise permitted to be done in the UAE” will be exempt from taxation.
Businesses involved in the “extraction of natural resources” – oil and gas production — will be exempt, according to the ministry, because they are already subject to emirate-level taxation.
Corporate tax incentives granted to enterprises in free zones that do not conduct business onshore are unchanged.
There will be no withholding taxes on domestic and cross-border payments. Corporate tax will not apply to foreign investors who do not conduct business in the UAE.
Capital gains and dividends received from eligible shareholdings would be tax-free for UAE firms.
“Generous loss utilization regulations” will be in place, and “UAE groups will be taxed as a single company or will be able to seek group relief in respect of losses, intragroup transactions, and restructurings.”
Younis Haji Al Khoori, Undersecretary of the Ministry of Finance quoted, “As a leading jurisdiction for innovation and investment, the UAE plays a pivotal role in helping businesses grow, locally and globally,”
According to Tax Foundation data, corporate tax rates have steadily decreased over the last 40 years, with the global average falling from more than 40% to between 25% and 30%.
The global weighted average of corporate taxation has declined from close to 50% in the 1980s to around 25% in 2021.
Fundforth Accounting Services is gearing up to help you analyze and prepare your business if you comply with the latest requirement for corporate tax implementation.
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