The Impacts of Corporate Tax in UAE

A corporate tax is a type of tax levied on a company's taxable profits, i.e., the profits remaining after the company's expenses as per tax laws. Corporate Tax has become a topic of debate in the UAE since it was introduced by Federal Decree-Law No. 47 of 2022, which imposed a 9% corporate tax rate that came into effect on June 1, 2023. However, businesses with annual profits below?AED 375,000?will be liable to a 0% corporate tax rate in the UAE, minimizing the impact on small and medium enterprises (SMEs). Additionally, the UAE government has introduced Small Business Relief (SBR) to create an attractive environment for SMEs.

How does the Corporate Tax in UAE Impact Businesses?

The introduction of corporate tax in the UAE has both positive and negative impacts on businesses in the UAE.?

On the positive side, the UAE government can use revenue generated from corporate tax to support businesses through infrastructure development, grants, and subsidies.?

On the negative side, businesses may experience an increase in compliance and administrative costs, thus reducing profitability and competitiveness. Also, limited funds and cash flow challenges may hinder their growth and investment in technology and workforce.

However, the 9% corporate tax rate is only applicable to business profits exceeding AED 375,000, mitigating the negative impact on SMEs.?

How Small Business Relief (SBR) Impacts Corporate Tax in UAE

A small business relief introduced by the UAE government as outlined in Ministerial Decision No. 73 of 2023 aims to minimize the burden of corporate tax in the UAE and compliance expenses for start-up businesses. To qualify for SBR, taxable individuals must have revenue not exceeding AED 3 million during a specific tax period?from June 1, 2023, to December 31, 2026.?

The small business relief is not applicable to qualifying freezone companies or members of a Multinational Group of Companies with revenue over?AED 3.15 billion.

Conclusion:?

The corporate tax in the UAE may increase costs for small and medium-sized enterprises (SMEs). However, the government's efforts, along with the introduction of SBR, help alleviate these burdens and foster a favorable environment for businesses of all sizes to grow and contribute to the UAE's economy.?

The UAE's low overall tax environment makes it an attractive place for SMEs to establish and expand their operations.