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The UAE Ministry of Finance will introduce a new corporate tax regime

The Ministry of Finance of the UAE will implement a corporate tax on business income, which will be effective on or after 1 June 2023. This tax regime will support investment activities, and provide the free flow of trade, services, financing and capital in the country.

The new regime will introduce best practices globally and will minimize the compliance burden for commercial organizations in the country, which is a global financial center. The government of the UAE strives to support small businesses and startups in the country, therefore the standard tax rate of 9% will apply to taxable income, which exceeds AED 375,000 (USD 102,000). The UAE corporate tax rates for taxable income up to AED 375,000 will be 0%.

Businesses in the country will have enough time to prepare for the implementation of corporate tax and further information about the new tax regime for businesses will be provided towards the middle of 2022, according to the announcement by The Ministry of Finance on its official website.

All businesses and commercial activities in the state will be subject to the UAE corporate tax. The exception is the extraction of natural resources because Emirate-level corporate taxation also applies to this activity. Individuals who invest in UAE property won’t be subject to the corporate tax, provided the individual is not obliged to get a commercial permit or license to carry out such activity in the country. The new UAE corporate tax will not be imposed from the income earned by freelancers as long as their annual net income does not exceed AED 375,000.

Businesses in free zones will be subject to the new corporate tax regime, but with the use of incentives currently being offered to firms in these trade zones. Commercial organizations in free areas will be obliged to register and file a corporate tax return. More detailed information about the compliance obligations of trade zone businesses will be provided later.

Investment returns, capital gains, dividends and other income earned from owning securities by an individual will not be subject to the corporate tax regime. This also applies to interest and other income earned by an individual from saving schemes and bank deposits.

The majority of countries around the world have a comprehensive corporate tax regime, including most of the GCC Member States. The UAE has one of the lowest rates of corporate tax in the world. For example, the corporate tax rate of the USA constitutes 21% and in the UK the rate is currently 19%.

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