The UAE’s 9% corporate tax is one of the lowest in the world

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The UAE’s decision to levy a 9% tax on corporate profits from June 2023 is very attractive and very competitive at the same time as being one of the lowest in the world.

Senior officials of small and medium enterprises in the United Arab Emirates said Khaleej times the new tax regime will bring more transparency and will also strengthen corporate balance sheets.

According to the Tax Foundation, three countries – Bangladesh, Argentina and Gibraltar – increased their corporate income tax rates while 17 countries reduced their corporate tax rates in 2021. Comoros, Puerto Rico and Suriname have the highest corporate tax rates in the world at 50%. , 37.5% and 36%, respectively. While Barbados, Uzbekistan and Turkmenistan levy the lowest corporate tax at 5.5%, 7.5% and 8.0%, respectively.

Globally, the global average statutory corporate tax rate, measured in 180 jurisdictions by the Tax Foundation, is 23.54%.

Ayman Youssef, Vice President of Coldwell Banker, UAE, said the corporate tax rate is an attractive rate globally and no tax will be levied on personal real estate investments.

“This will require businesses to file only one corporation tax per fiscal year. In addition, the government has fully taken into account start-ups and SMEs by imposing no tax on profits up to 375,000 Dh. There will be no compliance burden and will continue to encourage new investment in the country,” Youssef said.

Anis Sajan, Vice President of Danube Group, said that by waiving income taxes up to Dh375,000 and keeping the headline rate at just 9%, the UAE has ensured that small businesses continue to thrive and, at the same time, mid-term and large companies operate in one of the most competitive tax frameworks in the world.

“I am convinced that the Federal Tax Authority and the Ministry of Finance will facilitate an easy and smooth implementation of the new tax framework, just as they did when introducing value added tax (VAT) in the UAE,” he said.

Exemptions

Dhaval Jasani, Founder and CEO of ZTI Global Consulting, said that the UAE corporate tax system will continue to honor the tax incentives currently offered to companies in the free zone that comply with all regulatory requirements and do not no business with mainland UAE.

“Similar to the VAT, the corporation tax will also have a group taxation regime, as clarified by the Ministry of Finance, pending interpretation of the provisions of the legislation, once the legislation is published. UAE entities will need to comply with transfer pricing rules and requirements, with reference to regulations to be published and OECD transfer pricing guidelines.At this time, we do not see any exemptions for startups apart from the taxable income of Dh375,000 which would not be subject to corporation tax. We will have to wait for legislation to assess if exemptions are given to startups,” Jasani said.

Bal Krishen, President and CEO of Century Financial, said the UAE’s corporate tax regime was designed to minimize the compliance burden for businesses.

“In addition to the UAE’s extensive network of double tax treaties, the new regime will enhance the UAE’s status as a global hub for business and investment. As a result of the new corporate tax, the UAE reaffirmed their commitment to comply with international standards of tax transparency and to prevent harmful tax practices,” he said.

Free trade zones

Sunder Nurani, President of the Institute of Chartered Accountants of India (ICAI), Dubai Chapter, said the new tax regime will further strengthen transfer pricing as companies will be required to comply with transfer pricing rules and documentation requirements with reference to the OECD on transfers. Pricing guidelines.

“One of the most important questions that come to mind is the applicability of corporate tax to free zones in the UAE. As can be seen from the frequently asked questions section of the Ministry of Finance, the Free zone companies will be subject to corporate income tax, but the UAE’s corporate income tax system will continue to honor the tax incentives currently offered to free zone companies that comply with all regulatory requirements and who are not doing business with the mainland UAE. Another issue of interest to UAE companies is that corporate tax will not apply to qualifying intra-group transactions and restructuring” , did he declare.

Infrastructure strengthening

Vinayak Mahtani, CEO of bnbme holiday homes, said the corporate tax announcement had been expected for some months.

“With golden visas and nationalities issued to residents, the UAE has given all the right signals to attract long-term investment. This will require significant infrastructure investment in the future to support this growth and corporation tax will help support this investment.

“This is a significant improvement in the ease of doing business for SMEs and startups like ours. Given the exemption of domestic and cross-border payments, the UAE will maintain its position as a global financial hub and international business hub, attracting cross-border global startups from the region and beyond,” said Jamil Ahmad, co-founder and CBO of Fashinza.

Pankaj Mundra, co-founder of 360tf Nimai, said the introduction of corporate tax in the UAE is a much-awaited move after the introduction of Pillars 1 and 2 of the OECD Inclusive Framework.

“This will make the UAE more competitive in terms of global tax best practices. The introduction of corporate taxes will strengthen the balance sheet of companies as it will have more transparency, more concrete procedures and policies for keeping books of accounts and financial statements. Global banks and private equity funds will have more confidence in UAE corporate finances, thereby injecting more capital into the region, especially the UAE,” he said.

Ismail Marfani, director of Iman Developers, pointed out that it is promising that the government does not tax investments. “There is no corporation tax on capital gains and real estate. This is a great move by the government as Dubai is one of the most attractive places for real estate investment. The country’s real estate market is undervalued compared to other global cities like Miami and New York and there is great potential for a return on short-term rentals and property appreciation. With supply finally catching up with demand, it’s a wise move not to put up any roadblocks for people looking to invest in real estate.

Soham Chokshi, CEO and co-founder of Shipsy, a smart logistics management platform, believes the 9% corporate tax regime is designed to support the government’s strategic ambitions that will drive long-term business growth. .

“With the exemption in place, the move is likely to cover high-profit industries and businesses more than SMEs. The impact on industries such as manufacturing, logistics and supply chain could be less compared to financial and technology industries. It is possible that this is part of a series of strategic announcements that help position the UAE as an integral part of the global system but still a relative tax haven.

Mayank Sawhney, Managing Director of MaxGrowth Consulting, said the announcement of the introduction of corporate taxation for companies in the UAE (which includes companies incorporated in the UAE as well as self-employed persons doing business in the UAE) from the fiscal year beginning June 1, 2023 has come very well along the lines anticipated, with very few surprises, as the groundwork for the introduction of corporate taxation in the UAE has been done by the UAE Ministry of Finance over the past few years and it was only a matter of time before the official announcement of the same is made by them.”

Sawhney added: “However, the timing of making this official announcement on January 31, 2022 in the midst of Expo 2020 currently taking place in Dubai is a bit surprising as most of us established tax professionals in the United Arab Emirates, expected this official announcement for the introduction of the corporate taxes to be paid after the end of Expo 2020 Dubai after March 31, 2022, given the psychological impact that such announcement could have on foreign investors looking to invest in the UAE.”

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