The UAE has taken significant measures to enhance the transparency of its tax system and facilitate the exchange of tax information by bringing its domestic tax rules in line with international standards. One such major move is the introduction of Corporate Tax (CT) which will be levied on business profits from financial years starting on or after June 1, 2023.

Here are some interesting aspects you should know about the UAE CT regime, that will assure you that corporate tax is the way forward and be thankful for doing business in the UAE.

Corporate tax and VAT: The difference

Taxes are the main source of revenue for most countries across the globe. While taxes help governments to generate additional revenue and fund public expenditure, there’s a difference between direct taxes such as corporate tax and indirect taxes like VAT and excise tax.

Indirect taxes like VAT and excise are taxes on consumption that are borne by the final consumer and are collected by businesses on behalf of the government. As such, although there is a compliance burden and cost for businesses in accounting for indirect taxes, the economic cost of VAT and excise is borne by the consumer and in no way represents a direct cost to businesses. On the other hand, corporate tax is directly imposed on the taxable profits of companies and is borne by the shareholders.

The most competitive corporate tax rate in the world

Four out of the six GCC countries have corporate tax regimes, ranging from 10 percent in Qatar through 15 percent in Kuwait and Oman, to 20 percent in Saudi Arabia. So a tax rate of only 9 percent in the UAE makes it the most competitive in the region.

The 9 percent CT rate is also one of the lowest CT rates globally and is positioned to maintain the UAE’s attractiveness for foreign direct investment for years to come.

Due to all these factors, UAE will continue to attract highly qualified individuals into the country because it still remains a tax-free haven for employment income (whether received from the public or private sector), and no tax will be levied on income or gains deriving from personal investments.

Corporate tax is beneficial

Clearly there are benefits of introducing a Federal corporate tax for business owners than paying additional individual income tax. The money collected from corporate taxes is a direct source of revenue for a country. It would help the government generate additional revenue in line with its futuristic development strategy and vision.

With a significant double tax treaty network, UAE will be placed further at an advantageous position with a competitive corporate tax rate. This will also strengthen UAE’s position in terms of transparency and implementation of Organisation for Economic Co-operation and Development (OECD) guidelines that will ultimately ensure businesses operate with the correct governance and tax structure.

Tax treaties help mitigate double taxation for non-residents

The Double Taxation Treaty (DTT) network to eliminate double taxation in the GCC is constantly growing — the UAE has treaties with over 112 countries, Kuwait with 82 countries, Qatar 60, Saudi Arabia 51 countries, Oman 31 and Bahrain with 44 countries. The tax treaty network is expected to expand even further.

These treaties eliminate double taxation and facilitate the exchange of tax information on a bilateral basis. They also play a crucial role in mitigating corporate tax for non-residents forming permanent establishments in other countries or reducing their withholding tax exposure in the four GCC countries.

No withholding tax in UAE

The UAE does not levy withholding tax or other forms of non-resident taxation. The Ministry of Finance confirmed that there will be no UAE withholding tax on dividends, interest, royalties and similar payments.

Withholding tax (WHT) is income tax paid to the government by the payer of the income rather than by the recipient of the income. The tax is thus withheld or deducted from the income due to the recipient.

With all these beneficial aspects of the approaching CT regime, thankfully your business is located in the UAE.

The next financial year is not too far! In no time, June 2023 would arrive. Going forward, all UAE businesses must start planning ahead for corporate tax compliance to ensure a smooth transition.

Are you prepared for UAE Corporate Tax 2023? Pass the buck to experienced corporate tax specialist

We have been offering quality-driven services in finance and taxation matters and have served as a trusted partner to leading businesses in the UAE. Our dedicated team based in the UAE possess in-depth knowledge and experience in the taxation field. From conglomerates to sole establishments our highly qualified chartered accountants and accounting experts manage the tax reporting of businesses of all sizes in the MENA region. We can not only help you prepare for the 2023 UAE corporate tax but also make sure you transition into the next financial year with no hassles whatsoever.

Should you have any queries related to corporate tax or require assistance during the readiness and implementation stage, feel free to contact our tax experts who will guide you with practical solutions.