The UAE plans to keep the rate of corporate tax announced last year unchanged for the foreseeable future as companies in the Arab world’s second-largest economy preparing to enter the new tax regime, the undersecretary of the Ministry of Finance said.
“The rate is agreed and fixed at 9 percent… as long as the [corporate tax] law is there,” Younis Al Khouri told The National on Monday in Abu Dhabi. “If there is any review, we will announce it later but as of today, no change in the rate.”
Last January, the UAE introduced the federal corporate tax with a standard statutory rate of 9 percent, which will go into effect for businesses whose financial year starts on or after June 1 this year.
In December, the country issued the federal corporate tax law, bringing the income of companies exceeding Dh375,000 ($102,000) into the corporate tax bracket.
Taxable profits below that threshold will be subject to a 0 percent rate. No corporate tax will apply on salaries or other personal income from employment — be it in the government, semi-governmental, or private sector, the Ministry of Finance said in a statement at the time.
The Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses provides the legislative basis for the introduction and implementation of the federal corporate tax.
Mr. Al Khouri said the Federal Tax Authority will provide further clarity about procedures and mechanisms of implementation for the corporate sector.
The UAE's corporate tax regime is based on a self-assessment principle, which means businesses are required to ensure that the documents submitted to the Federal Tax Authority are correct and comply with the law.
The new tax regime allows a generous compliance period, for example, businesses with a financial year starting on June 1, 2023, and ending on May 31, 2024, will have until February 28, 2025, to file their tax returns and make payments.
Where a business' first tax period starts on January 1, 2024, and ends on December 31, 2024, the return and payment would need to be made before September 1, 2025, the ministry said in a December 14 statement.
The new corporate tax will have a positive impact on the UAE’s revenue base. However, the government is still awaiting to assess the “effect and impact” of the new tax, Mr. Al Khouri said.
The Ministry of Finance, which generated Dh9 billion in VAT proceeds last year, reduced fees and charges for businesses and individuals when VAT and excise tax schemes were introduced, offsetting revenue generated from those schemes, he said.
The introduction of corporate tax is aimed at modernizing the economy, Mr. Al Khouri said.
“For 50 years, the UAE [tax system] was more based on the fees and the charges and usually the fees and the charges you pay upfront, while the corporate income tax you pay after,” he said.
Corporate income tax is “more beneficial” as it is “simpler and easier” for the business community, he added.
The ministry has drafted the corporate tax law by international best practices to support the UAE’s strategic goals, promote tax transparency and prevent harmful tax practices, given the UAE’s role as an active member of the Organisation for Economic Co-operation and Development (OECD) Inclusive Framework on Domestic Tax Base Erosion and Profit Shifting, he earlier told a gathering of company executives, tax experts legal advisers and businessmen.
The ministry is running a Corporate Tax Public Awareness Programme, along with the Federal Tax Authority to prepare companies, businesses, and tax experts for the new tax regime in the country.
The headline tax rate of 9 percent positions the UAE competitively when compared with other financial centers and developed economies globally.
The average top corporate tax rate for 2022 among EU countries was 21.16 percent, 23.57 percent among OECD countries, and 32 percent in the G7, the Tax Foundation in Washington said.
The UAE corporate tax law exempts certain entities, including those involved in natural resource extraction activities in the country. However, they remain subject to existing local emirate-level taxation, the ministry said last month.
Other exemptions are available to organizations such as government entities, pension or investment funds, and public benefit organizations.
Existing free-zone entities are also exempt from corporate tax as they are among the drivers of the UAE's economic growth, the ministry said at the time.
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