The UAE is to introduce a new tax that will see companies pay 9% on corporate profits of over Dh375,000 ($102,000). The tax will come into effect on 1 June 2023.
Profits generated up to that threshold will be taxed at a 0% rate, in order to support small businesses and start-ups. Companies operating in an existing free zone will also be exempt from the corporate tax.
The tax will not be applied to salaries or other personal income, interest and income earned from bank deposits or saving programmes. Similarly, investment in property by individuals in a personal capacity are also not subject to the new tax.
Organisations including government entities, pension funds, investment funds and public benefit organisations will also be exempt.
The introduction of the new tax is a “significant milestone”, Tally Solutions’ Middle East general manager Vikas Panchal told the Arabian Business website.
He said: “The 0% threshold for taxable profits up to and including Dh375,000 is recognition of the significant role that start-ups and small businesses play in the UAE’s economy, and the 9% standard rate ensures that the UAE’s corporate tax regime is amongst the most competitive in the world.”
Panchal added: “For a smooth transition to the corporate tax era, having a powerful integrated business management software should be the top priority for SMEs in the UAE. This can help generate quick business reports across accounting, inventory, and compliance along with easy management of daily financial transactions. Moreover, it is advisable to take guidance from accounting and tax experts to ensure 100% compliance.
“We will be conducting extensive campaigns in association with domain and subject matter experts to help businesses make a seamless transition to the corporate tax law.”
The Ministry of Finance has described the new corporate tax as “an important milestone in building an integrated tax regime that supports the strategic objectives of the UAE, further encouraging global competitiveness”.
Aligning UAE’s tax regime
As well as the introduction of the new corporate tax, the UAE’s Federal Tax Authority (FTA) is exploring ways of ensuring the emirates’ tax regime aligns with international best practices.
In a statement it said: “The FTA is striving for world-leading tax procedures and is planning a road map of how taxation will be applied, assessed and monitored in the UAE.”
The FTA recently launched a tax strategy to mark World Future Day 2022. The organisation’s Director General, Khalid Ali Al Bustani, said: “The Federal Tax Authority’s strategy for exploring the future of the tax sector primarily aims to identify the basic motives, scenarios, and proactive measures required for sustainably upgrading tax procedures in the UAE, and promoting a culture of future-mapping within, paving the way for it to become a world leader in the field.”
The FTA has organised a series of seminars to try to raise awareness of its EmaraTax platform, and its goals of building a more advanced future of tax in the UAE.
Al Bustani said: “Over the past few days, the Authority organised a series of events to mark World Future Day, including an awareness seminar on the methods and tools of forecasting the future, which highlighted the importance of the FTA’s participation in celebrating World Future Day, and showcased various effective future-planning mechanisms, with detailed steps and frameworks.
“Furthermore, the FTA held a brainstorming session on the future of taxes to discuss the impact of future planning on the UAE Vision 2031, and on the principles and timeline for the Authority’s strategy to explore the future.
“The session also examined global trends in forecasting the future of the tax sector.”
He added that the FTA is collaborating with research specialist Garner to assess the impact of technology on tax systems in the UAE.