The United Arab Emirates (UAE) has announced that it will introduce corporate taxes in 2023. The new tax policy will levy a 9% corporate tax on taxable income above 375,000 UAE dirhams ($102,000) annually. The decision to introduce corporate tax aims to reduce the country’s dependence on oil revenues and diversify its sources of income. This article will discuss the taxes companies in UAE previously paid, the new corporate tax policy, and how it will affect businesses operating there.
Taxes paid by Companies in UAE
Before introducing the new corporate tax policy, companies in UAE were subject to various taxes and fees, including customs duties, excise taxes, and value-added tax (VAT). However, they were not required to pay corporate income tax.
1. Value-added tax (VAT)
Value-added tax (VAT) is a consumption tax levied on most goods and services in the UAE. The standard VAT rate in UAE is 5%, while some goods and services, including healthcare, education, and public transportation, are exempt from VAT.
VAT is obligatory for companies earning more than AED 375,000. It is paid quarterly within 28 days after the end of the tax period.
2. Excise Tax
Excise tax is levied on goods considered harmful to health or the environment, such as tobacco, sugary drinks, and carbonated beverages. The excise tax rates in UAE range from 50% to 100%, depending on the product type.
3. Customs duties
Customs duties are charged on imported goods into the UAE. The rate of customs duty varies depending on the type of product and its origin. But generally, it’s 5% of the cost, freight, and insurance value of imports.
However, some goods, such as medical equipment and books, are exempt from customs duty. The export tax in UAE is 0%
New Corporate Tax Policy in UAE
The new law was announced in December 2022 and is set to come into effect for financial years starting June 1, 2023 (arabianbusiness.com). The new UAE corporate tax regime levies a standard rate of 9% on business profits, with a zero percent rate for taxable earnings up to AED375,000.
Implications for Businesses
The introduction of corporate tax in the UAE represents a significant shift in the country’s tax policy and may impact businesses operating in the region. Companies that exceed the taxable income threshold must pay corporate tax, which may increase operating costs and reduce profits.
However, the UAE’s relatively low tax rate may still make it an attractive destination for businesses looking to expand or relocate. The exemption for small businesses and startups may also encourage entrepreneurship and innovation in the country.
Conclusion
The UAE’s decision to introduce corporate tax is aimed at diversifying the country’s sources of revenue and reducing its reliance on oil exports. Before the new tax policy, companies in UAE paid various taxes and fees, including VAT, excise tax, and customs duties. The new corporate tax will be 9% on taxable income exceeding AED 375,000 ($102,000) annually, with exemptions for small businesses and startups. The implications of the new tax policy for companies operating in the UAE will depend on their taxable income and operating sector. Overall, introducing the corporate tax in the UAE represents a significant shift in the country’s tax policy and may have implications for businesses operating in the region.
For information on taxable businesses in UAE, contact finnection via email at info@finnection.ae or call us at our toll free number +971 800 0120070
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