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New UAE corporate tax lowest in GCC

Bahrain is the only GCC country that has not introduced the corporate tax

The UAE on Monday introduced a federal corporate tax on business profits starting from June 1, 2023 for the first time. It introduced the corporate tax at the rate of nine per cent, the lowest in the six-nation Gulf Cooperation Council, to keep a low base to maintain its attractiveness for businesses.

Bahrain is the only country in GCC which has not introduced the corporate tax as Qatar, Oman, Saudi Arabia and Kuwait have already implemented corporate taxes.

In Saudi Arabia, the rate of income tax is 20 per cent of the net adjusted profits, highest in the GCC region.

Omani companies and foreign entities that have a permanent establishment in Oman will have to pay the corporate tax at the rate of 15 per cent of profits while Kuwait and Qatar charged a flat rate of 15 per cent and 10 per cent, respectively, with certain exceptions available.

Saad Maniar, a senior partner at Crowe, said the UAE introduction to modest nine per cent corporate tax is a step in the right direction for the sustainable future of the UAE economy.

“This is in line with global best practice. With the introduction of the corporate tax, the need to have enhance corporate governance will also be intensified, which will further strengthen the overall economic growth,” Maniar told Khaleej Times on Sunday.

Nazar Musa, CEO at leading UAE company Service Provider PRO Partner Group, said the latest government move will bring in Corporation Tax across the UAE in 2023.

"The UAE has introduced a corporate tax on profits of nine per cent once profits rise above Dh375,000. It can be argued that this development was somewhat expected however, the swiftness may have caught some sectors by surprise," Musa told Khaleej Times on Monday.

No impact on individuals, real estate

At present employees aren’t directly affected as the release states definitively that there won’t be taxes on income. Indirectly there will of course be a strain on some organisations to maintain shareholder profits and so this may affect the packages that employees receive. However this is just conjecture at present.

Interestingly income from real estate will also not be liable for taxation and so this sector has also been protected and points to the UAE focusing on attracting this form of investment.

Companies will not need to pay corporate tax on any profits below Dh375,000 per annum. The ability to protect the income of growing businesses will allow them to re-invest and go some way to secure the space for entrepreneurs and SME owners.

"If we look at corporate tax around the world, the nine per cent corporate tax in the UAE ensures that the country retains its position as a competitive place to conduct business. Corporate tax in Germany is 15 per cent, 17 per cent in Singapore, 19 per cent in the UK, 21 per cent in the US, and 28 per cent in France. The lack of income tax should also still attract talent into the UAE from around the world," Musa said.

Large multi-national companies will pay the international rate of 15 per cent, and with a double taxation agreement this will mean they will not pay any additional tax over this level on their UAE business revenue, he added.

"Almost all other countries in the GCC have some form of corporation tax so this will bring the UAE largely in line with the regional rate,:" he said.

It will be interesting to understand the opportunities around owning businesses in the free zones as well as businesses owned by GCC nationals. How those businesses will be regulated in the future could create some strong opportunity.

With this announcement and a number of recent announcements including the introduction of 100 per cent foreign ownership in the UAE this make it a very interesting time to be in the UAE corporate environment.

— muzaffarrizvi@khaleejtimes.com

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