Introduction:
On 9th December 2022, the UAE introduced Federal Decree-Law No. (47) of 2022, signaling a significant change in the taxation of corporations and businesses. This blog highlights the key points of the new tax regime and its implications for businesses in the UAE.
1. Standard Corporate Tax Rate:
Under the new tax regime, corporations and businesses with taxable profits exceeding Dh375,000 will be subject to a standard corporate tax rate of 9%.
This rate will apply to financial years starting on or after June 1, 2023.
2. Threshold for Small Businesses:
Start-ups and small businesses with taxable profits up to and including AED375,000 will benefit from a 0% tax rate.
This recognition of the vital role of small businesses aims to support their contribution to the UAE's economy.
3. Competitive Tax Regime:
The 9% standard corporate tax rate ensures that the UAE remains competitive globally, strengthening its position as a leading business and financial center.
The Ministry of Finance aims to strike a balance between taxation and business attractiveness.
4. Free Zone Entities:
Existing free zone entities will enjoy a 0% Corporate Tax rate on qualifying income.
Recognizing the significance of free trade zones, this measure supports their role in driving economic transformation in the UAE.
5. Normalizing UAE Tax Policy:
The introduction of the corporate tax regime aligns with the UAE's efforts to normalize its tax policy.
This move addresses the EU's blacklist of the UAE as a non-cooperative tax jurisdiction.
6. Global Minimum Corporate Tax Rate:
While the headline rate of 9% falls below the OECD's global minimum rate of 15%, the UAE government expresses support for the global minimum corporate rate.
It is possible that the 9% rate may be increased to 15% if the global community implements pillar two.
Conclusion:
The UAE's new corporate tax regime introduces a standard rate of 9% for taxable profits exceeding Dh375,000, providing a competitive tax environment.
Small businesses and free zone entities receive favorable tax treatment, reflecting the UAE's commitment to supporting their growth.
Businesses operating in the UAE should stay informed about these changes and ensure compliance with the new tax regulations.
