UAE’s Latest Tax Regime: A Boon for Public and Private Sectors

The UAE's decision to levy a 9% business tax beginning in June 2023 signals a tectonic shift in the country's taxation policy, intending to diversify national income and lower reliance on petrodollars.

It is one of the most crucial budgetary reforms in recent years, aimed at broadening the revenue base for the federal government and, most likely, individual emirates, in keeping with the present VAT distribution method.

A Newfangled Source of Revenue for UAE

In addition to license fees, service fees, and land sales, this is a new source of revenue. Global economies will collect over $150 billion in increased tax revenue due to the OECD's minimum tax guidance. The UAE will receive more than $25 billion in business tax revenue.

UAE Government’s Two-Pronged Tactic

UAE’s corporate tax rate is significantly lower than the majority of the other countries. Since there would be no tax on profits up to Dh375,000, which covers mainly the SME segment, this measure underscores the UAE government's two-pronged approach to generating revenues while encouraging small and medium firms.

? Last year, 17 countries cut their corporate income tax rates to align with the worldwide average of roughly 23%.

? The administration will maintain its investor-friendly stance by introducing a corporate income tax at one of the lowest rates in the world.

Collective Growth Prospects for Investors and Economy

? The UAE's reasonable corporate tax rate also makes sure that most existing companies can do business there and attract more foreign firms.

? The UAE achieves the proper balance by adopting a 0% tax rate for startups, SMEs, and free zone companies, and a 9% tax rate for significant enterprises, demonstrating the government's commitment to investor protection while also focusing on long-term economic growth.

An Initiative to Streamline and Enrich Tax Regime in UAE

This new tax framework will also ensure that enterprises have proper governance and tax structures that adhere to worldwide best practices. According to Younis Haji Al Khoori, Undersecretary of the Ministry of Finance, "the UAE confirms its commitment to fulfilling international standards for tax transparency and combating harmful tax practices" with the implementation of corporation tax.

? The new tax structure reflects the government's attempts to guarantee that the UAE complies with global tax trends while remaining competitive against its regional and international counterparts.

? The corporate income tax is another significant step toward making the UAE a more developed economy with the least amount of financial strain on private sector businesses.

? As a result, both the government and the business sector will be benefitted.

Corporate Tax in UAE: The Summary

The CT regime would build on international best practices rather than introducing new concepts to achieve smooth integration and cooperation with existing international frameworks. Here are the key focus areas that the UAE tax regime will facilitate:

? Flexibility and alignment with modern business practices ensure adaptability to changing socioeconomic circumstances

? Certainty and simplicity of tax rules support businesses' accurate decision-making and cost-effective operation

? Neutrality and equity provide fair tax treatment for different types of businesses

? Transparency

In keeping with the current system of dispersing VAT receipts, the new tax will broaden the revenue base for the federal government and, most likely, also for individual emirates—representing a new source of revenue in addition to license fees service fees, and volatile land sales. Nonetheless, the budgetary advantage will be limited due to the significant importance of free zones in the UAE's non-oil economy, which will be exempt from the new tax.

The new tax would provide numerous additional benefits for smaller businesses in the UAE. The UAE has already addressed this issue by decreasing tariffs?and charges. On a global level, the corporation tax rate of 9% is attractive. There will be no taxes on personal real estate investment. Corporate tax in UAE is designed to assist the government's strategic goals, which will help businesses flourish in the long run.