After the United Arab Emirates [UAE] finalise that it would adopt corporate taxes from June of next year, it’s important for expatriates and business owners in the area to have a basic understanding of what this kind of taxation entails.
What is corporate tax?
Profits earned by corporations are subject to a tax that is placed directly on the businesses. If the tax were applied to businesses, their owners would have to split up cash to cover the cost of everything they make, from products to employees to real estate to the damage their operations have on the environment.
Benefits of UAE corporate tax:
Starting in June of 2023, UAE businesses who operate and have permanent presence in the country will be required to pay corporation tax. The UAE government has often stated that this is not an income tax.
As a result, a person’s wage and other forms of job income will be exempt from company tax (whether received from the public or private sector).
Business owners in a wide variety of sectors, most notably the oil and banking industries, will be required to pay the corporate tax that is standard practise in a number of GCC states. Because of this, all types of businesses in the area are subject to various taxes and levies from the government.
When your yearly net profit is more than Dh375,000, you’ll have to pay taxes on the money the business has made. When an individual is not needed to get a business licence or permission in order to invest in real estate in their personal capacity, they should not be subject to the requirements of the commercial investor.
Beginning in June of 2023, companies who are not based in the United Arab Emirates but have a permanent operation there will be required to pay corporation tax.
The Implementation of UAE Corporate Tax
For decades, Gulf countries like the United Arab Emirates have kept taxes at a minimum, if not completely non-existent, to entice international company owners and their investment. In comparison to other nations in the area, the United Arab Emirates has one of the most favourable tax regimes, making it an appealing location for international investment.
But a number of changes are now under progress to establish new income streams while lowering reliance on traditional sources of revenue in the area. Several other Gulf nations, including the United Arab Emirates, have also established their own value-added taxes.
Is this sudden vogue for levying more taxes?
While nations in the Gulf have yet to implement income tax for individuals, several have instituted VAT on purchases, with Saudi Arabia increasing its VAT rate to 15% recently.
In the majority of the world’s nations, taxation is the primary means of bringing in money. While taxes aid governments in general by bringing in more money to spend on public services, there is a significant distinction to be made between direct taxes like the corporation tax and indirect taxes such as the value-added tax and the excise tax.
Indirect taxes like value-added tax and excise tax are paid to the government by enterprises but are ultimately passed on to the consumer. Having no company tax is a major selling point for companies already doing business there or looking to set up shop there.
For these reasons, value-added taxes (VATs) and excise taxes (excise taxes) have been widely adopted as a replacement for earlier, more regressive forms of corporate taxation.
Competitiveness of UAE Corporate Tax:
As nations try to outdo one another in luring foreign investment, corporate tax rates have been falling globally from above 50% to below 20%. The GCC, however, is a first-of-its-kind case since these tariffs are being implemented there.
Tax rates for corporations vary from 10% in Qatar to 15% in Kuwait and Oman to 20% in Saudi Arabia; the United Arab Emirates is the only GCC member state without a corporate tax system. According to the UAE’s finance minister, the country’s 9.0% UAE corporate tax rate puts it “among the most competitive” in the world.
The Impact of Corporate Tax on UAE businesses?
Profits from companies operating in the United Arab Emirates will be subject to taxation beginning in the fiscal year beginning on or after June 1, 2023.
Reports suggest that a business with a financial year starting on January 1, 2023 and ending on December 31, 2023 will become subject to UAE corporate tax from January 1, 2024 (— which is the beginning of the first financial year that starts on or after 1 June 2023.”) not clear?
UAE Corporate Tax – A Boon to The Country
(Some nations are seen as tax havens because of their low corporate tax rates. The statutory rate, which is the declared UAE corporate tax rate before any deductions, is often higher than the effective corporate tax rate, the amount a firm actually pays.) not clear?
In certain cases, company owners would be better off if they paid corporation taxes rather than increased personal income tax. Revenue for a nation comes mostly from taxes on businesses.
The UAE will be in an even better position thanks to the double tax treaty networks because of the country’s cheap corporate tax rate. That companies operate with the necessary governance and tax structure further boosts UAE’s standing in terms of transparency, adherence of OECD principles.
More tax treaties are on the way, and they play a significant role in lowering the corporate tax burden for non-residents who set up shop abroad by way of permanent establishments or by limiting their exposure to withholding taxes in the four GCC nations (Currently the UAE does not levy withholding tax or other forms of non-resident taxation.)
Conclusion
Wealth managers and financial experts provide their thoughts on how taxpayers or a company owner should best prepare tax-related documents in light of the fact that tax laws in the GCC are fast evolving as a result of economic diversification into the non-oil sector. Since tax returns cannot be amended in many countries, taxpayers are urged to exercise extreme caution while ensuring tax compliance.
