From June 1, businesses in the UAE are now required to pay corporate tax on their taxable profits.
Inayat-ur-Rahman, business editor
The introduction of a corporate tax in the UAE marks an important step in the country’s economic transformation. From 1 June 2023, businesses in the UAE will now be required to pay corporate tax on their taxable profits, bringing the country in line with global tax standards. This development has sparked discussions about the impact of corporate taxation on businesses, individuals and the overall economy.
Arslan Mushtaq, tax partner at athGADLANG revealed this in an exclusive interview with Gulf Today, adding that corporate taxes play a vital role in generating revenue for governments. For the UAE, the corporate tax represents a shift away from a pure reliance on oil revenues to diversify funding sources, marking a move towards a sustainable and mature economy.
“The implementation of corporate tax brings the UAE in line with international norms and enhances its competitiveness on the global stage. It demonstrates the country’s attractiveness for transparency, accountability and creating opportunities for foreign direct investment (FDI) and long-term economic growth. commitment to a strong business environment,” Mustak added.
“Corporate tax in the United Arab Emirates is the new tax regime that businesses must comply with starting June 1, 2023.”
“The corporate tax rate in the UAE is set at 9% on adjusted taxable profits. Companies are required to pay this tax every year considering their taxable income exceeds the tax-free threshold of Dhs375,000. Companies with taxable income not exceeding Dhs375,000 Exemption from corporate tax to incentivize the establishment of start-ups and new businesses,” Mustak added.
“Businesses are obliged to register for corporate tax to ensure compliance. They are responsible for calculating and paying corporate tax on taxable profits. This annual tax liability should be carefully assessed and planned for as it affects financial resources and working capital.”
“The new corporate tax will affect businesses in the UAE in a number of ways.
Short-term impact on business. Working capital challenges: Corporate taxation in the UAE poses a challenge to the working capital of businesses. It affects their financial resources and requires careful assessment and strategic cash flow management. Companies need to bridge the gap created by corporate taxes and ensure sufficient working capital to operate smoothly.
Budget planning and tax considerations: Corporate taxes have a direct impact on a business’ budget planning. Companies must consider the impact of corporate tax when preparing their budgets to ensure they have sufficient reserves to meet their tax obligations. Group Registration and Loss Carryforward: Group entities in the UAE can opt for single-tier corporate tax registration, which enables them to consolidate taxable income and optimize tax liability.
Long-term impact on the business environment: Encouraging start-ups and new businesses: The corporate tax regime in the UAE provides incentives and encouragement for start-ups and new businesses.
The exemption threshold reveals its positive impact on entrepreneurial activity, allowing small businesses to thrive. The UAE offers attractive conditions and support for new businesses.
Tax compliance costs and the need for professionals: The introduction of corporate tax has brought certain implementation, training and compliance costs to companies. However, this has also led to an increased demand for tax professionals and tax planning experts. Firms recognize the importance of minimizing their tax burden and seek professional help to navigate the complex tax environment, ensure compliance while optimizing tax strategies.
Pricing and Purchasing Power: Shareholders may shift the tax burden on to end users by adjusting prices, thereby affecting their purchasing power. Monitoring the impact on pricing and purchasing power is critical to understanding the potential impact on the overall business environment and consumer behaviour.
Foreign Direct Investment (FDI) and Economic Growth: The impact of corporate taxation on foreign direct investment (FDI) decisions and investment returns is an important consideration. The competitive advantages of the UAE tax system, coupled with double taxation treaties, minimize the impact of corporate taxation on FDI. Investors will continue to be attracted to the UAE due to highly competitive tax rates.
Suhail Memon, tax director of athGADLANG, told reporters that corporate taxation will play a vital role as a source of revenue for the UAE government. Revenue generated through corporate taxation will help fund various public welfare activities. By reducing reliance on oil revenues, a corporate tax will enable governments to build a diversified and sustainable funding base that ensures the well-being and prosperity of their citizens.
“In summary, the implementation of corporate tax in the UAE has had a significant impact on businesses operating in the country. It affects every aspect of business operations. However, amidst these challenges, corporate tax also provides opportunities for start-ups and new businesses through exemptions and incentives. Chance.”