The United Arab Emirates said on Monday that it is establishing a federal corporate tax on business revenues for the first time. It's the latest move to put the country in line with many other countries across the world, but it also reduces the country's competitive advantage.
The United Arab Emirates, which includes Abu Dhabi, Dubai, and five other emirates, has been steadily implementing additional levies in order to diversify revenue away from oil. Consumers are unsure how the new 9% corporate tax on earnings would affect them, as some businesses may hike their prices as a result.
The consequences of the coronavirus pandemic are still being felt across the UAE's many industries. Untold thousands of foreigners, who make up around 90% of the UAE's population, lost their employment as a result of the pandemic, and pay in major areas like tourism, real estate, and construction were dropped.
The UAE has recently taken efforts to try to retain foreign investors, including relaxing limitations on corporate ownership laws and extending some visas for longer periods of time. It has also liberalized various Islamic restrictions concerning alcohol and unmarried couples, as well as switching to a Monday-Friday workweek.
However, the UAE is up against stiff competition from Saudi Arabia, which is working nonstop to entice businesses and families to come to the kingdom. The UAE's Finance ministry announced that a new federal profit tax of 9% will take effect on June 1, 2023. Personal income from work, real estate, and other investments, as well as revenue derived from a business licensed outside the UAE, will be exempt from the corporation tax.
Companies in Emirati free zones are similarly exempt from the new corporate tax unless they conduct their operations onshore. Oil and gas firms are another exception, as they have their own taxation structures.
Small business and startup profits up to $102,000 would not be taxed, according to the ministry, in order to encourage small enterprises and startups. Furthermore, to avoid double taxation, international taxes can be offset against the UAE's corporation tax. The tax plan will allow UAE business groups to be taxed as a single entity or to seek relief in the event of losses or reorganization.
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