UAE is planning to introduce a corporate tax rate of nine percent from profits for companies making over $102,000. The new corporate tax would be implemented from June 1, 2023, and is said to be the right decision regarding UAE’s policy of expanding its global network through economic cooperation.
Some companies and funds are exempted from corporate tax like investment funds, pension funds, oil companies, and mineral and metal extraction companies. Free trade zones also exempted which have eligible income models.
About The Law!
This new decision comes in the face of blacklisting by the European Union as a non-cooperative tax jurisdiction. The nine percent tax rate is also under the minimum of fifteen percent as suggested by the Organization of Economic Co-operation and Development (OECD).
The EU had asked companies like Airbnb and Uber to collect VAT from their consumers as a part of the new initiative of Vat in the digital age. So these services in UAE will be collecting VAT-included rates from their consumers.
UAE expressed the willingness to change the existing rate to fifteen percent if the member nations would implement pillar two where there will be a global uniform tax rate all across the nations.
The administration is not charging corporate tax for companies that earn below $102,000 as this is a step towards promoting more small-scale businesses and start-up initiatives. UAE is molding itself as a global investment hub and this would encourage all sorts of business initiatives regardless of the size of the investments.
Novel ideas and innovative concepts are encouraged that can procure talented individuals to get to work for the betterment of the UAE and its economy.
Financial analysts are saying that there is ample time for companies to prepare themselves. So there is no need for panic regarding the new tax laws. However, experts warn that the accounting division of the companies should be more focused and organized from now on as they will have to make separate, standalone financial statements that need to be filed under tax compliance.
These should be strictly business-based transactions. Another official pointed out that the new corporate tax is the lowest compared to other countries and this will also help the UAE to create an alternative source of income.
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Most middle-east nations don’t levy any sort of tax on their residents as the major source of income for these nations is from oil and corporate dividends. Until recently, this economic model worked for them but now with the status of fossil fuels being depleted soon, middle east nations like UAE are looking to diversify their economy.
The main investments for this sort of non-oil economy are in tech, service, and tourism. In 2018, UAE introduced Value Added Tax (VAT) to its goods and services at a 5 percent rate. All these factors are contributing to a new economic revolution in the UAE which is gaining strength as a non-oil economy.
Neighboring countries like Saudi Arabia have also started expanding to the tourism sector as part of a long-term economic expansion. The only major tax that’s still not added to the UAE tax list is the Income tax.
Until now, there is no income tax for the residents of the UAE and this is one of the attractions that make people prefer the UAE as a global hub for jobs and overall quality of life. But when we look at the future of the UAE, as it aims to become a complete non-oil economy, it has to create alternate income sources.
Income tax would be one of the options that the nation might have to rely on at such a stage.