UAE Announces Tax Exemption Rules

The United Arab Emirates has finally announced its new tax exemption rules. The UAE’s Ministry of Finance has announced many exemptions for institutions, entities, and resident and non-resident persons.

The primary objective of these new rules is to govern the residents who are not currently living in Dubai but still earning their money from this country.  Therefore, these non-resident persons and entities will not be required to register for the purposes of the payment of corporate tax.

The new tax rules would apply from June 1, 2023. The Government of Dubai is planning to implement the most flexible tax regime in order to develop Dubai as an important hub for attracting entrepreneurs and multinational companies from different parts of the world. 

The new tax rules bestow various relaxations and exemptions for the welfare of the country as a whole

In addition to granting tax exemptions, the Ministry of Finance has also announced various reliefs for small and micro businesses, start-ups, and freelancers.

The Government of Dubai wants to develop a conducive environment for the growth and development of the nation as a whole.

Therefore, it is now supporting start-ups and other businesses along with corporate entities by reducing the burden of taxation and compliance costs. All of these efforts are in line with the vision of the President of the UAE who intends to improve the ease of doing business in Dubai.

The Government is planning to undertake additional measures to enable Dubai to emerge as a global destination for foreign direct and portfolio investment.

According to the new rules, any non-resident person/company that earns income from the UAE but does not have a permanent establishment in the Emirates is exempted to register for the payment of the corporate tax.

Therefore, there is no legal mandate upon such an entity to pay the corporate tax which is as low as 9% according to the recent Ministerial decree. In addition, government-controlled businesses, natural resource businesses, and other organizations such as pension and investment funds are also exempted from paying corporate tax in the UAE.

However, the governing entity of a Government-controlled entity would be required to register itself and pay the corporate tax of 9% in a financial year, if it undertakes any activity apart from its mandated activity. These exemptions are already in line with the most flexible practices on corporate tax across the world.

The Ministry of Finance has also announced reliefs for small-scale businesses and start-ups. Any entity earning revenues of Dh 3 million or less and a net profit of more than Dh 375,000 in any financial year can claim under the Small Business Relief Initiative.

Under this initiative, start-ups and small businesses would not be required to pay any corporate tax. In addition, the burden of the compliance fees would also be reduced on these entities.

These new rules have proved to be extremely beneficial for the new businesses, artists, and consultants who, despite earning their income from the UAe, do not reside here. A foreign consultant is a non-resident person who provides online consulting services to clients in the UAE but does not have any permanent establishment in the country. Similarly, a foreign artist can create and sell his artwork to the people of Dubai without actually staying there. In both cases, the persons are non-residents but their income is state-generated. 

The Ministry of Finance has also devised some new rules for freelancers, and micro, small, and medium businessmen. According to the statistics, small and medium businesses are the largest contributors to the gross domestic product of the nation. With these exemptions, these businesses would be in a better position to pool these funds for the growth of the business itself.

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The burden to pay taxes would be reduced and they could easily channel the funds for their expansion, modernization, and diversification. This news has provided a major relief to these small businesses. According to the President of the Union of Small Businesses, tax exemptions will play a very crucial role in the development of these entrepreneurs. 

According to the latest update, these relaxations would be extended only until 2026. Therefore, after 2026, no start-up, small business, or non-resident entity earning income from the UAE would be eligible to enroll under this relaxation.

This exemption has been provided for a limited duration of time to financially strengthen these entities so that they can compete with multinational corporations.

The Ministry of Finance has recently acknowledged the need for these exemptions for the holistic development of these entities. International organizations such as World Bank and International Monetary Fund have applauded such a move of the Government so far.