History of taxes in the UAE

Globalization has earned every country an international reputation according to its unique selling points. The UAE’s brand has been built on its well-known reputation as a tax haven, offering a 0% rate on corporate income, personal income, capital gains, inheritance, and consumption taxes, among others.

As of 2016, the Federal Tax Authority was established ahead of the introduction of the first tax in the country. In 2018, Value Added Tax (VAT) was implemented, and soon after, in 2022, the Ministry of Finance announced the introduction of a corporate tax starting in June 2023.

This policy recovered the country’s GDP from the consistent fall in 2015 and 2016 as the country further diversified from its dependence on the oil industry which had caused the fall in 2015 due to the drop in oil prices. Moreover, the improvement was extensively significant with a rise of more than AED 134 billion. Evidently, the corporate tax is likely to have a similar positive effect.

In Conversation with Anjali Jawahar

We spoke with a professional from the UAE markets, Anjali Jawahar – head of operations and compliance at RadiantBiz business consultancy, her insight brings the on-the-ground perspective. Jawahar broke down the new tax policy and explained the different tax brackets.

She went on to define the criteria for each tax bracket, which is categorized by corporate income. There are three tax brackets: annual net profits below AED 375,000, above, and net profits exceeding AED 3.01 billion. The first category is exempt from taxation, while the next two need to pay tax rates of 9% and 15% respectively. Jawahar highlighted the fact 9% tax rate ranks UAE among the top 7 countries with the lowest tax rates.

Further, placing emphasis on the 15% tax rate which aligns with the Global Minimum Corporate Tax Rate Agreement for taxation on Multinational Companies (MNCs). She mentioned the 2020 amendment which eliminated the need for local sponsors to operate in the country and how it has boosted investors’ confidence in the region, with the country witnessing an inflow of investors and entrepreneurs.

Home to more than 600,000+ businesses, UAE had a 10.9% increase in business registrations in the year 2023 despite the announcement of Corporate Tax. In the fast-evolving volatile economy, investors are looking for a stable ecosystem that is not only good for their business but also for their families. UAE ranks 2nd on the world’s safest countries’ list and is not only a tax haven but also a safe haven!

Moreover the tax policy accounts for the lows of a business cycle, unlike the local sponsorship fee which was fixed and had to be paid no matter if the business was incurring losses.

But what about businesses eliminating all these costs and shifting to other countries in the region?

UAE maintains its brand image 

Jawahar deemed it unlikely, emphasizing how the neighboring countries have higher tax rates ranging from 10 to 20% with the additional requirement of a local sponsor being mandatory.

To maintain a presence in the Middle East, UAE is the most suitable place with its location offering direct access to two seas and one ocean, business-friendly policies, and political stability providing an escape from the region’s conflicts whilst availing its opportunities.

The head of compliance stated that for now, businesses need to familiarize themselves with the tax return filing procedure and just focus on their operations. She ensured the long-run consequences will have the businesses experiencing greater returns as most of the taxes are allocated to government spending on infrastructure construction and development.

She stated that the ruler of Dubai – Sheikh Mohammed bin Rashid Al Maktoum, recently approved the largest budget in the emirate’s history, amounting to $75 billion, allocated for infrastructure development.

Hence, businesses can expect the policy benefits to outweigh its costs. Jawahar demystified the inconvenience of the policy and presented a greater horizon for businesses in the UAE to look forward to.

Undoubtedly, the UAE has retained its reputation as a tax haven by introducing feasible tax rates and excluding taxation on personal income, capital gains, and inheritance. Is your business missing out on this tax haven?

For further information, contact us via mail at info@radiantbiz.com or call us at  +971 55 234 7124

Address:  RadiantBiz, 809, The Burjuman Business Tower, Sheikh Zayed Street – Al Mankhool – Dubai (UAE)

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Disclaimer: “The Arabia Times” strives for accuracy and fairness in our reporting. While “The Arabia Times” endeavors to ensure the information presented is correct, “The Arabia Times” cannot guarantee its completeness or accuracy. Opinions expressed are those of the authors and do not necessarily reflect the views of “The Arabia Times.”