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DUBAI, June 1 (Reuters) – The United Arab Emirates began imposing a 9% business tax on Thursday, offering breaks for small businesses and a possible exemption for export-focused free zone activity, as the previously tax-free oil producer seeks to boost Non-oil revenue and remains a regional commercial center.
The sales tax follows a 5 percent value-added tax (VAT) introduced in 2018, gradually undermining the UAE’s tax-exempt status, which has helped it function as an international trade and tourism hub and has attracted super regal.
Some of the tax rules have yet to be released, including details of how income earned by entities in the UAE’s more than 30 free zones, which export tens of billions of dollars in goods to neighboring countries, will be taxed.
The government said it introduced the tax to complement international efforts to crack down on tax avoidance and to address challenges posed by the digitization of the global economy. There is no personal income tax in the UAE.
Tax reforms are emerging in the Gulf Cooperation Council (GCC), which has traditionally financed its budget through hydrocarbon revenues. In 2017, the GCC countries agreed to introduce a value-added tax.
Standard & Poor’s ratings agency estimates that the tax could boost annual revenues in the seven UAE emirates by 1.5%-1.8% from 2025 under a VAT model that hands 70% of revenue to the collecting emirate and the rest to the emirate. federal government.
S&P’s Trevor Cullinan said: “The tax will help divert UAE government revenue away from the oil sector. However, the full impact is unclear as it has yet to be clearly announced how the tax will be distributed among the various emirates.”
OECD Tax Schedule
The UAE imposes a 9 percent tax rate on taxable income over AED 375,000 (approximately US$ 100,000), the lowest in the GCC, with the exception of Bahrain, which has no general corporate tax.
Saudi Arabia imposes a 20 percent tax on foreign companies, Qatar 10 percent and Kuwait 15 percent, while Oman has a corporate tax rate of 15 percent, according to consultancy PwC.
Muhammad Rasoul, chief executive of amana, a mid-sized UAE-based financial services company, said corporate tax is a natural step to bring the UAE in line with global best practice.
“The key is to make sure the economy remains competitive at a regional and global level…but let’s be clear – the tax rates don’t appear to be excessive, especially compared to what businesses in the rest of the world have to manage,” he said.
From Thursday, companies will be liable for corporate tax at the start of their financial year, meaning tax returns are not due until 2025.
The UAE tax is in line with the Organization for Economic Co-operation and Development’s (OECD) new global minimum corporate tax, signed by 136 signatories including the UAE, to ensure large companies pay at least 15% and make tax avoidance more difficult.
The UAE has not yet published rules on OECD taxation, but does not have its own corporate tax system and another country could impose 15%, tax experts said.
The UAE legislates 0% or 9%, but has warnings for those with lower incomes and excludes personal income from employment, investments and real estate.
Individuals earning more than Dh1 billion will only need to register, and the small business relief scheme means those earning less than Dh3 million will have no taxable income.
“They want to make it as friendly as possible for SMEs and start-ups. At the same time, they don’t want to encourage companies to move out of the UAE,” said Wassim Chahine, head of corporate tax at KPMG Lower Gulf.
The UAE Federal Tax Authority and the Finance Ministry declined to comment.
Reporting by Lisa Barrington; Editing by Simon Cameron-Moore
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