The United Arab Emirates, one of the world’s most popular expat destinations, is to introduce a 9% corporation tax rate as the country moves to further modernise its economy and adapt to international norms. The UAE’s tax-free status has long attracted global multinationals and expatriates from all over the world, driving the economy’s diversification away from oil and gas revenues, especially in the emirates of Dubai and Abu Dhabi. Businesses will be subject to the tax from 1 June 2023. The country’s statutory tax rate (9%) for taxable income exceeding 375,000 UAE dirhams ($102,000), and zero for taxable income up to that amount is “to support small businesses and startups,” the ministry of finance has said, adding that “the UAE corporate tax regime will be amongst the most competitive in the world.”
Why is this tax important for the UAE?
Corporation tax rates vary widely by country, with some jurisdictions regarded as “tax havens” due to their ultra-low rates. Experts say that this form of taxation can be more advantageous for entrepreneurs than paying extra individual income tax partly because tax-take is used within the country on things like vital infrastructure. As such, and due to other policies within the UAE and its international partners, this is being considered a good move for most expat-run businesses in the country, the population of which is 80% expatriates. “With the double tax treaty networks, UAE will be placed further at an advantageous position with a competitive corporate tax rate,” Vikas Arora, chief executive at Dubai-based service provider CXO Factor, told the Gulf News. “This also strengthens the UAE’s position in terms of transparency, implementation of Organisation for Economic Co-operation and Development (OECD) guidelines to ensure businesses operate with the correct governance and tax structure.”
In recent years, the UAE has been reforming laws to make the country even more appealing to expats. In 2018, the cabinet approved new legislation that allows expatriates to remain in the country long after they retire. At the time, deVere Group CEO Nigel Green said: “Dubai and Abu Dhabi are perennially popular destinations for ambitious expatriates looking to embark upon or further their careers because of the incredible possibilities offered in terms of finance, trade and commerce, plus the famous ‘can do’ attitude and the low tax environment in these destinations. But they will become even more attractive locations for overseas talent thanks to the government passing these new laws that allow expats to stay on in the UAE long after they retire.” He continues: “With Dubai and Abu Dhabi becoming ever-more appealing relocation destinations, recruiting more top talent here will inevitably become easier for companies that are based in these emirates. In addition, I believe that it will help drive further driving confidence in the UAE as a place for overseas firms to do business and invest.” Similarly, in 2020, a new law was approved which allows nationals from any country to own 100% of businesses; previously all companies had to have an Emirati ‘sponsor.’ According to David Holloway, senior lecturer in Law at the University of Birmingham Dubai, the new decree confirmed a “transformative approach” to foreign investment in the UAE.