Several businesses in the UAE, excluding small firms, are expected to pay a corporate tax of 9% starting next year. 

The government has just issued Federal Decree Law No. 47 of 2022 on Taxation of Corporations and Businesses, otherwise called the Corporate Tax Law, state news agency WAM reported on Friday. 

Under the decree, the government will levy a standard rate of 9% of companies’ taxable profits exceeding AED375,000 ($102,000). Companies will be subject to the new tax from the beginning of their first financial year that starts on or after June 1, 2023.  

The corporate tax will not be levied on salaries or personal income from employment, as well as earnings made from bank deposits, savings schemes and real estate investments made by individuals. 

No tax will be collected from businesses that don’t meet the income threshold of AED375,000, to support small businesses and start-ups. 

Competitive tax rate, more exemptions 

The new tax is said to be in line with global best practices and is one of the most competitive in the world. It is expected to boost the UAE’s position as a global business and financial hub. 

According to the Ministry of Finance, the corporate tax law is an important milestone “in building an integrated tax regime that supports the strategic objectives of the UAE and enhances its global competitiveness.” 

Also excluded from the corporate tax coverage are “natural resource extraction activities” in the UAE. However, entities engaged in these activities are still subject to existing local taxation. 

Other organisations, including government entities, pension funds, investment funds and public benefit organisations will also be exempted. Free trade zone entities will also be eligible to get a zero tax rate. 

Why is the UAE introducing corporate tax?

According to the Ministry of Finance, imposing a corporate tax could help “cement” the UAE’s position as a major global hub for business and investment. It will also help the country realise its development and transformation ambitions.

“Introducing a [corporate tax] regime also reaffirms the UAE’s commitment to meeting international standard for tax transparency and preventing harmful tax practices,” the ministry said.

Corporate tax has been implemented in many parts of the world, including most states in the Middle East region.

When will the new tax take effect?

The corporate tax will be charged on earnings for financial years starting on or after June 1, 2023.

An entity that has a financial year starting on July 1, 2023 ending on June 30, 2024 will be subject to the corporate tax from July 1, 2023.

A business with a financial year starting on January 1, 2023 and ending on December 31, 2023 will be subject to tax from January 1, 2024.

(Reporting by Cleofe Maceda; editing by Anoop Menon)