The UAE, well known for its record economic growth, has announced plans to impose a federal corporate tax on business (net) profits. The UAE Ministry of Finance will establish a corporation tax in Dubai on the net profit of multinationals from June 1, 2023, as part of a comprehensive tax overhaul.
The Ministry of Finance declared that net profits up to Dh 375,00 (INR 75,96,910 Lakh) would be tax-free. This is in keeping with a big initiative aimed at assisting small & medium enterprises. Furthermore, the government will levy a 9% corporate tax on businesses for net profits over $102,000 (INR 75,96,910 Lakh). And 0 percent for net profits below that amount.
These substantial improvements will open a new window of financial growth for businesses and in coming years, this reform can prove to be a big advantage for Indian entrepreneurs.
The 9% corporate tax on businesses is the lowest across the globe. Thus, big multinational companies should prioritize the UAE to open their new branch. Also, according to a Fundera survey, the average small business owner earns INR 53,85,975 per year. As a result, this announcement is a big boon for small and medium enterprises too as they can continue to take advantage of 0% TAX
What Are the Highlights of New Corporate Tax in UAE
Due to favorable tax regimes in most GCC nations, the Gulf Cooperation Council remains an attractive jurisdiction for foreign investment. However, several reforms are in the works to generate new revenue streams while lowering the region's reliance on traditional revenue sources. Below are the highlights of the new tax regime in the UAE.
1. Individual Earnings
Individuals will continue to be exempt from taxation on earnings from work, real estate, equity investments, and other sources of personal income not tied to a UAE trade or business. Therefore, the personal income tax rate in the UAE still stands at 0 percent. Foreign investors who do not conduct business in the country will also be exempt from the corporate tax in Dubai.
2. Regulations on Loss Utilization
Loss utilization regulations will be generous in the UAE's corporate tax framework. Furthermore, UAE groups will be taxed as a single entity. They can also use collective relief for losses, intra-group transactions, and reorganizations.
3. UAE Corporate Tax on Net Profits
In terms of profit, corporate tax on business in the UAE will be applied to the business's adjusted accounting net profit. For instance, a business's turnover is AED 1 Million ( INR two crores). after all deductions (e.g. REntal, Salary). the company's net profit comes out to be AED 3,00,000 ( INR 60 lakhs ). The enterprise will be exempt from taxation in the UAE.
4. Tax Incentives
In the case of free zones, the 9% tax will be applied to enterprises within the free zones that gain commercially from the mainland. The current advantages for free zone enterprises will be honored for businesses that comply with all regulatory standards - and do not conduct business with the mainland.
5. Minimal Compliance Costs
The corporate tax in UAE will ensure that compliance costs are kept to a minimum for multinationals that develop as well as maintain appropriate financial records. The corporate tax will be levied on the earnings of UAE companies as reported in their financial statements. Moreover, the reports should be prepared by internationally accepted accounting standards, with exceptions and adjustments.
Moreover, the administrative burden to businesses to file corporate tax returns will be significantly less. Thanks to the digitalisation of government services over the last few years
6. Business Activities
Except for the extraction of natural resources, which will continue to be subject to emirate-level corporate taxation, the UAE corporate tax will apply to all enterprises and commercial activities.
7. Assessment Year
Multinationals would only have to file one corporate tax return every fiscal year. Furthermore, they will no longer have to make advance tax payments or prepare provisional tax filings. With reference to the OECD Transfer Pricing Guidelines, UAE enterprises will be subject to transfer pricing and documentation requirements.
How Will The UAE Tax Regime Benefit Small Businesses?
Many people consider small businesses an essential source of employment creation and technical innovation. Small company owners have long been lauded for their contributions to the economy in the UAE. Their impact on employment growth and innovation, in particular. As a result, the new federal income tax policy will benefit small businesses and startups.
Here are some ways the UAE corporate tax on multinational companies will boost small businesses.1. Reducing Corporate Concentration
Corporate concentration is the reason for the slowing of productivity growth and the economy's slowing in general. Net income, revenues, assets, and market capitalization are distributed more evenly among the largest firms. The rising concentration reveals that big companies raise prices while decreasing salaries, offering lower-quality goods and services, and limiting output. Large enterprises and multinationals will be impacted by UAE taxation, but startups and small businesses will benefit from the expanding economy.
2. Promoting Healthy Competition
Corporate concentration links to rising inequality and large businesses' increasing political weight, in addition to suffocating competition. The concentration of wealth and power in the hands of a few large corporations can instill a sense of discontent among small enterprises. As a result, the UAE is introducing a business tax to line with worldwide efforts to promote healthy competition amongst global investors.
3. Combating Tax Evasion
Corporates are given credit for increasing competition and improving customer welfare due to their ability to utilize economies of scale. Large firms' increasing efficiencies in comparison to their smaller counterparts are well-known. The tax for Indian entrepreneurs who are planning to do business in Dubai is only when their net earnings go beyond INR 75.96 Lakh. This new tax regime will help small businesses to stand out in the market while keeping a check on the issue of corporate tax evasion.
4. Transparent System of Corporate Taxation
It makes sense for the government to take action as the UAE's economy grows and it assumes a larger position on the world stage. Tax transparency allows a high-level understanding of an MNE's business activities through tax data. The UAE corporate tax is a reasonable price to pay for the benefit of conducting business as a corporation.
It can fund the costs of public services that benefit businesses in particular, as well as to capture a portion of large corporations' revenues. Hence, the new tax regime will also meet issues posed by the global economy's digitisation.
5. Prevent Harmful Tax Practices
The new corporate tax regime takes the UAE several steps to meet international standards on 'tax transparency' and prevent 'harmful' practices. The administration will pave the way for the UAE to handle the problems posed by the global economy's digitization and other issues. Furthermore, put its support for creating a worldwide minimum tax rate into action by applying a different corporation tax rate to large multinationals that meet specified criteria laid forth in the plan above.
Corporate Tax Rate in 2025
As per the Ministry of Finance, CT rates are:
- 0 percent for taxable income up to AED 375,000.
- 9 percent for taxable income above AED 375,000 and.
Ready to Launch Your Business in The UAE?
The new tax regime lays the groundwork for a robust economic recovery in the UAE, allowing the country to return to pre-pandemic levels. As a result, it is a perfect moment to start a business in the UAE. Speak to Shuraa specialists now if you're still unsure whether Dubai is the right place for your company.
Shuraa Business Setup is a pioneer in Dubai business setup services. We have branch offices across the globe in major cities like London, Delhi, Mumbai, and Dhaka.
From guiding you on the right path to transforming your entrepreneurial idea into a successful firm, we do it all. You can connect with any of our nearest offices for a consultation. Thus, leverage the UAE's cutting-edge infrastructure, strategic location, outstanding connectivity, and supportive workforce and start a business in Dubai today.
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