UAE Corporate Income Tax set to Start | Business Setup in UAE
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UAE Set to Step into the Mainstream: Corporate Income Tax Starts in June 2023

The United Arab Emirates to introduce a Federal Corporate Income Tax (CIT) on business profits for the first time, the Ministry of Finance (MoF) announced on 31 January 2022. It is expected that the CIT regime will be applicable for fiscal years starting on or after 1 June 2023.

Over the years, UAE has been following a no-tax regime. Citizens paid no tax on their income and most businesses did not have to pay any form of corporate income tax. Most of the government’s revenue came from the nationalized private fossil fuel industry, which paid about 50% of its revenue in taxes. Foreign banks, on the other hand, have long paid 20% corporate tax on their operating profits. Hotels and restaurants in Dubai also pay certain taxes. Thus, this change is a historic move from the part of the government.

“Cement the UAE’s position as a world-leading hub for business and investment”

The move aims to align the country’s tax system with global standards and ensure greater transparency, accountability and prevention of harmful practices. Younis Haji Al Khoori, Undersecretary of MOF, stated that “the certainty of a competitive and best-in-class corporate tax regime, together with the UAE’s extensive double tax treaty network, will cement the UAE’s position as a world-leading hub for business and investment”.

The country has a statutory tax rate of 9% on taxable income over 375,000 UAE dirhams (102,000 USD) and a zero rate on taxable income up to that amount “to support small businesses and start-ups”. The ministry said individuals will continue to not be taxed on income derived from employment, real estate, equity investments or other personal income not related to trade or business in the UAE. This tax is also not levied on foreign investors who do not conduct business in the country.

UAE-Corporate-Income-Tax-(CIT)-

Business setup in UAE mainland are subject to a fixed amount of tax, while free zones in Dubai, such as the Dubai South Free Zone or Meydan Free Zone, impose 0% corporate and personal tax on company profits. As per the MoF’s Public Consultation Document on the proposed UAE CIT, free zone business can continue to benefit from corporate tax incentives as long as they meet the necessary requirements stated in the document.

Ultimately, this is a move that will align UAE with other competitive economies. Given that the proposed tax remains low compared to other low-tax regions in the globe, it will surely bring in more entrepreneurs, SMEs and business owners to realize that business setup in UAE is a major winning move.

 

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