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Corporate tax to consolidate UAE’s position as a leading global business hub

The UAE’s 9% corporate tax rate positions the country as a highly competitive tax regime, globally and regionally

The UAE’s latest move to diversify its revenue sources will have a positive impact on economy in general and real estate sector in particular besides aligning the country's corporate sector with best international practices for tax transparency, experts and top executives say.

Shabana Begum, partner and head of transfer pricing at KPMG Lower Gulf, said the corporate tax announcement by the Ministry of Finance will undoubtedly set in motion some positive changes for the business landscape that will align the UAE with international standards for tax transparency and aim to prevent harmful tax practices.

“The corporate tax (CT) rate of nine per cent announced is highly competitive both within the GCC and globally and will consolidate the UAE’s position as a leading global hub for business and investment, accelerating the nation’s development and transformation,” Shabana said.

“The new corporate tax regime will be effective for financial years starting on, or after, June 1, 2023, which for calendar year end businesses, means the first reporting period will be from 1 January 2024. This is considered a generous period of preparation time and reflects the UAE’s commitment to maintain its business-friendly environment,” she added.

SMEs to welcome tax benefits

Stuart Cioccarelli, partner and head of tax at KPMG Lower Gulf, said SMEs, the engine of the UAE economy, will welcome the additional benefits as companies with taxable income up to Dh375,000 do not have to pay tax. Similarly, he said the zero per cent free zone incentives will continue for businesses set up in the UAE’s free zone.

“While free zone companies will continue to be exempt provided they do not conduct business on mainland, they must file tax returns though. Individuals who carry out activities such as real estate investment in their own name will not be subject to corporate income tax,” Cioccarelli said.

He said private sector companies may in fact welcome the reduction of fees and charges, given that it is better to pay a corporate income tax on profits rather than pay fees and charges on a loss-making company.

“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,” he added.

UAE remains a business hub

Rizwan Sajan, chairman and founder of Danube Group, said the UAE is currently aligning with international policies and guidelines and changing policies which will help keeps its economy in a profitable bracket going forward.

“The nine per cent corporate tax which will be levied upon businesses starting June 2023 will be levied on businesses who show profits above Dh350,000, no individuals, real estate, investments or salaried employees will have to bear the brunt of this new slab. This tax has been brought in a few weeks after the government in the UAE changed the working week and is aligning to position the UAE as a global economic hub in terms of business and investment,” Sajan told Khaleej Times on Wednesday.

He said the UAE corporate tax regime will ensure the compliance burden is kept to a minimum for businesses that prepare and maintain adequate financial statements. “Businesses will only need to file one corporate tax return each financial year and will not be required to make advance tax payments or prepare provisional tax returns,” he said, adding that the transfer pricing and documentation requirements will apply to UAE businesses with reference to the OECD Transfer Pricing Guidelines.

“This new structure will be dampening for businesses initially but I feel, once we look at the larger picture, this tax will help keep funds in check for the economic and overall holistic development plans of the UAE,” Sajan said.

Salient features of new corporate levy

- The applicability of CIT is from June1, 2023. However, the impact of OECD BEPS 2.0 Pillar 2 will be from Jan 1, 2023, per current intended timelines. Companies’ first UAE and Pillar 2 tax returns may be due in 2025

- For large Multinational Enterprises (MNE) Groups the tax rate is likely to be 15 per cent based on OECD BEPS 2.0 Pillar 2

- There are no provisions for withholding tax or advance tax

- There is no capital gains tax and dividends tax from qualifying shareholdings

- OECD Transfer Pricing Rules will apply under the UAE corporate income tax regime

- There will be tax grouping provisions and group relief, so UAE groups may be able to file one consolidated tax return

- The detailed corporate tax law will be released towards mid-2022

— muzaffarrizvi@khaleejtimes.com