UAE corporate tax will be among the ‘lowest in the world’

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Dubai: That the UAE will introduce a corporate income tax has been seen as a virtual certainty in local business and audit communities. Such a tax would be a natural progression from the VAT introduced in 2018 – but it is events on a global level that could have accelerated the process of introducing a corporation tax.

The UAE’s corporate tax rate is the lowest in the Gulf: Qatar is at 10%, Oman and Kuwait at 15%, and Saudi Arabia at 20%.

Last October, the world’s major economies moved closer to a minimum corporate tax rate. No less than 136 countries had reached an agreement to impose a minimum tax on large multinational corporations operating across national borders.

The fact that the UAE’s corporate tax system will come into effect on June 1, 2023 gives businesses – and everyone involved – plenty of time to prepare. “There is usually an element of surprise when most governments consider introducing any type of tax,” said Atik Munshi, managing partner at Enterprise House, a consultancy. “So a one-year window should actually be enough for trading houses to plan for.

“It would have been even better if more time had been given. The tax measure should bring more financial discipline in businesses and record keeping will certainly improve. With a tax rate of less than 10% and an exemption limit of Dh375,000, the United Arab Emirates is a very attractive place to do business. The business community will take this on board and be part of the UAE’s success story. »

need to tax

Why do governments want a global minimum corporate tax rate? Large multinational corporations have traditionally been taxed based on where they report their profits rather than where they actually do business.

This has allowed several large corporations to avoid paying high taxes in the countries where they do most of their business by shifting their profits to low-tax jurisdictions.

However, it is interesting to note that global corporate tax rates have been steadily declining since the 1980s. The average global corporate tax rate was above 40% in the early 1980s and has fallen well below 25% in 2020 as governments compete to cut tax rates to attract business and talent.

A number of tax experts say the most immediate trigger for the current global tax deal may have been the COVID-19 pandemic, which has hit economies around the world and affected government tax revenues. Amidst all this, the American technology giants – Google, Facebook (or Meta) and others – have made record profits.

The rate of 9% applied by the United Arab Emirates remains one of the most competitive in the world. According to Nimish Goel, partner at Dhruva Advisors, “It’s probably one of the lowest in the world. Businesses have had ample time to prepare for the new regime as of June 1, 2023.

“The zero percent tax for small businesses and startups is well aligned with the UAE government’s investor-friendly outlook.”

Tax system planning starts now

As was the case when the VAT announcement was made ahead of the introduction in January 2018, the next 16 months will be all about businesses preparing for the change. “Companies in the areas of auditing, accounting and tax consulting should prepare well in advance to integrate corporate tax into a company’s reporting system and push for more compliance. from all their clients,” said Kunal Bilakhia of Taxpro Advisors.

The Federal Revenue Authority will be responsible for the administration, collection and enforcement of UAE corporate tax collections.

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