United Arab Emirates will introduce corporate income tax from June 2023

The United Arab Emirates has announced plans to introduce a general corporate tax rate of 9 % that will apply to all companies except those involved in the extraction of natural resources such as oil and gas. Until now, only banks and companies have been subject to such a tax.

The new tax is intended to support the government's finances and will be included in the country's revenue sources, thus providing more capital to achieve a significant economic improvement. Entities will be required to pay the corporate income tax at the beginning of June 2023, when it will come into effect for financial years.

The measure excludes personal income earned from employment, so employees will continue to be exempt from paying tax on their income. There will also be no withholding tax on cross-border and domestic payments. In addition, a 0% tax rate will be established for profits not exceeding $102,000. All of this is in favour of the development of small and medium-sized enterprises.

In turn, they will be obliged to file one tax return per tax year and will not be required to make advance payments or file temporary tax returns.

Younis al-Koury, undersecretary of the Ministry of Finance, has argued that the UAE's position as the world's leading business hub will be strengthened. With this measure, the government aims to encourage companies to establish their headquarters and expand their activities in the country by exempting them from paying tax on capital gains and dividends received.

In view of this, the government is considering a gradual reduction in government tariffs in order to provide a supportive environment for all businesses, but especially small and medium-sized entities operating in the city. 

It also aims to implement the transfer pricing requirements set by the OECD. Transfer prices are the prices agreed between companies in the same sector for the exchange of goods or services between them. This federal corporate tax adds to the list of taxes established by the government since, in October 2017, a special tax on products considered harmful to citizens' health, such as tobacco, was enacted. In addition, in 2018, a 5% value added tax (VAT) was introduced on most goods and services.

This will bring the UAE into the group of Gulf Cooperation Council countries that have already adopted corporate tax regimes such as Qatar, which has a 10 % rate, or Saudi Arabia, which has it set at 20 %.

The introduction of the corporate tax is seen as the most significant tax reform carried out in the nation since 2018. The Ministry of Finance will announce more details in the middle of this year so that companies can prepare and ensure proper compliance with the new tax policies.