Why is the UAE introducing corporate taxes?
In January of 2022, the Ministry of Finance in the UAE announced that they will introduce a corporate tax in the year of 2023. By the end of June next year, businesses in the UAE could be facing a new tax of 9% on their net income.
The UAE does not have a long history of taxes for foreigners. Up until 4 years ago, they were well known for having a 0% tax rate. It attracted many foreign entrepreneurs and professionals to work and invest here. In the beginning of 2018, they introduced a 5% VAT on all goods and services being sold to UAE customers. This was the first time that businesses other than oil, gas, banks, and insurance faces any tax.
Natural resource companies (oil and gas) have been subject to paying taxes of up to 55% for years as this has been the UAE’s largest revenue source. Furthermore, foreign banks that operate in the UAE are subject to a flat rate corporate tax of 20%.
This year however, they have taken the next step by announcing that all onshore businesses will have to pay a tax of 9%. So, what changed? Why is the UAE introducing corporate taxes?
The UAE is trying to keep up
In recent years, the UAE has faced pressures to introduce taxes as many other countries do the same. Other GCC countries have had corporate federal taxes for years now. Some examples are Saudi Arabia, with the highest rate of 20%, Oman with 15%, and Qatar with a competitive 10%.
The UAE want to keep up with the international tax standards which promote healthy business and prevent harmful tax practices.
As you can see, the UAE continues to offer the most competitive tax rate so far. This means that some things might not change with the new tax. Read more about what the changes will be here.
If you would like to read more about the official Government guidelines, have a look at their website here.
You can also continue reading about the upcoming tax changes in our UAE Taxes series.