São Paulo – The Ministry of Finance of the United Arab Emirates announced the country will introduce a 9% corporation tax from June 2023. The rate will kick in on annual profits above AED 375,000 (approximately USD 102). Small- and medium-sized enterprises will not be taxed, several local media outlets like Arab News and The National reported on Monday (31).
The UAE is following other Gulf Cooperation Council (GCC) countries in adopting corporate tax regimes, with five out of six GCC countries now operating the levy. Following the UAE, Qatar has the second lowest corporate tax of 10%, followed by Oman and Kuwait with 15%. Saudi Arabia possesses the highest corporate tax rate of 20%.
On a broader scale across the Arab world, Egypt has a standard corporate income tax of 22.5%, with companies engaged in the exploration and production of oil and gas taxed at a rate of 40.55%. Lebanon imposes a 17% and Libya 24%.
A tax rate of 9% positions the UAE competitively when compared with other financial centers and developed economies globally. The average top corporate tax rate among European Union countries is 21.3%, 23.04% among OECD countries, and 69% in the G7, according to the Tax Foundation.
Foreign taxes paid will be credited against any payable UAE corporate tax, meaning there will be no double taxation. To support small- and medium-sized enterprises there will be a zero-tax rate for taxable profits up to AED 375,000 (approximately USD 102,000).
The Ministry said the tax regime will be among the most competitive in the world and in line with World Trade Organization (WTO) rules. Corporate tax rates have continuously declined over the past 40 years, with the worldwide average declining from more than 40% to between 25 and 30%, according to Tax Foundation data.
The legislation has yet to be issued and the details for the corporate tax regime are subject to finalization. The new tax will support government finances and will add to its revenue sources to reinvest back into the economy. The government has already done that extensively during the pandemic to support the economic recovery.
Exceptions
Corporate tax incentives offered to free zone businesses that do not conduct business onshore are unaffected. UAE businesses will be exempt from paying tax on capital gains and dividends received from its qualifying shareholdings.
The new program left intact the exemption for individuals from income tax, capital gains tax on real estate and other investments, and other earnings that do not come from a business. Businesses involved in oil and gas production will be exempt, as they are subject to emirate-level taxation already, the Ministry said.
Translated by Guilherme Miranda
