Impact of Corporate Tax in UAE
The United Arab Emirates has always stood as a popular place for businesses from all over the world. The UAE, which once focused mainly on oil, is now working hard to grow its economy in different directions. The government has brought in a new law for corporate tax to support this growth. This change is a big step for the UAE. In this article, I will explain the impact of corporate tax in UAE and why companies need to understand these new rules.
Why Did UAE Introduce Corporate Tax?
The Ministry of Finance in the UAE announced corporate tax on January 31, 2022. The Federal Tax Authority later released the Corporate Decree-Law on December 9, 2022. The law will take effect from June 2023. The main goal is to help the country earn more money, move away from oil, and meet international tax standards. The UAE wants to become a true global business hub by diversifying its economy.
Who Needs to Pay Corporate Tax in UAE?
This federal tax applies to all businesses and commercial activities in the seven emirates, except:
- People who earn salaries or income from investments, as long as they do not need a commercial license.
- Businesses in free zones that meet special rules and do not do business on the UAE mainland.
- Companies involved in extracting natural resources, which still follow Emirate-level taxes.
Exemptions in the Corporate Tax System
- Dividends earned from UAE companies
- Dividends and gains from selling shares of UAE or foreign companies
- Profits from group transactions or group re-organizations
What Are the Corporate Tax Rates in UAE?
- 0% tax for taxable income up to AED 375,000
- 9% tax for taxable income above AED 375,000
- Large multinational groups (over AED 3.15 billion global revenue) follow extra global tax rules
What Are the Main Impacts of Corporate Tax in UAE?
The new corporate tax will have different effects on businesses, investors, and consumers. Let’s break it down by category:
Impact on UAE Free Zones
- Companies in free zones still enjoy many benefits, as long as they don’t operate on the mainland.
- Free zone businesses must file an annual CIT return.
- If free zone companies make money from the mainland, they may face more paperwork.
Impact on Multinational Companies (MNCs)
- The low corporate tax in UAE (just 9%) attracts more global companies and investments.
- MNCs find UAE attractive because the tax rate is lower than many other countries.
Impact on Mergers and Acquisitions
- Investors like that dividends and capital gains are tax-free for certain qualified ownership.
- Mergers and acquisitions become easier because investors keep more profits.
Impact on Foreign Direct Investment (FDI)
- The UAE now looks more attractive to foreign investors who want to work in a stable and clear tax system.
- More investors may move their focus from the mainland to free zones for better incentives.
Impact on Consumers
- When businesses have to pay more taxes, some of them might raise their prices.
- This could mean that customers may spend less, as their purchasing power is affected.
Impact on the Overall Economy
- The state can earn more money, which can help pay for schools, hospitals, and roads.
- If prices go up, people might buy less, and this can slow down business growth for a while.
What Are the Key Benefits of Corporate Tax?
- The UAE still has a much lower tax rate than other Gulf countries.
- The new tax law matches international rules, making the UAE a trusted place for global business.
- More tax income means the government can spend more on public services.
- The law encourages new investments and helps the non-oil sectors grow.
- Corporate tax revenue will help build better infrastructure and services for everyone.
How Can Mubarak Al Ketbi (MAK) Auditing Help You?
Mubarak Al Ketbi (MAK) Auditing provides expert advice to businesses in UAE on all aspects of corporate tax. Our skilled professionals have years of experience with accounting, auditing, and tax consultation. We make sure that your company follows the new tax rules with ease. Whether your business is big or small, we help you get ready for the future without losing sleep. When the going gets tough, the tough get going—let’s work together to make your business thrive.
Contact us for more details:
- For more information, visit our office:
Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates - Or contact/WhatsApp us at: +971 50 276 2132
