The United Arab Emirates recently issued a federal corporate tax law which will impose a 9% rate on taxable incomes that exceed AED 375000. Those falling below this earning threshold will be exempt from the law. The Ministry of Finance said that the law will not be applied to salaries of personal income, when it issued the 56 page document on its website. The tax will be in effect from beginning of the financial year of 1st June, 2023.
This corporate taxation has been introduced with the aim to help the UAE reach its strategic objectives and enable and accelerate its development. The Ministry stated that, “The certainty of a competitive corporate tax regime that adheres to international standards, together with the UAE’s extensive network of double tax treaties, will cement the UAE’s position as a leading jurisdiction for business and investment.”
The rate of 9% set by the UAE for corporate tax compares very favourably with other countries. The the EU it is 21.3%, in the OECD countries it is 23.04% and in the G7 countries it is 69% as per the Tax Foundation of Washington DC. Also the UAE corporate tax law has made allowances and exemptions for certain government entities, investment and pension funds, public benefit organisations as they play a vital role in keeping the fabric of society in place. Also exempt are existing free zone operators, and the law makes it possible for intra-group companies to restructure, using each other’s available tax losses for this purpose.
The Federal Tax Authority will be in charge of the administration, collection and enforcement of the new tax law.