The United Arab Emirates on Monday announced that it is introducing a federal corporate tax on business income for the first time. It is the latest measure to bring the country at odds with many governments around the world, but also one that takes away its competitive advantage.
The United Arab Emirates, home to Abu Dhabi, Dubai and five other emirates, is constantly introducing new taxes as it seeks to diversify revenues from its main oil sector. It is unclear how the new 9 percent corporate tax on earnings will affect consumers as some businesses may raise their prices as a result.
Businesses from various sectors in the UAE are still grappling with the impact of the coronavirus pandemic. Untold numbers of foreigners, who comprise nearly 90 percent of the UAE’s population, have lost their jobs amid the pandemic and took pay cuts in key industries such as tourism, real estate and the construction sector. The UAE has recently taken steps to try and retain foreign investors, including easing restrictions on business ownership rules and granting longer-term visas for some.
It has also liberalized some of its Islamic laws regarding alcohol and unmarried couples, and moved to a Monday-Friday working week. Still, the United Arab Emirates faces stiff competition from neighboring Saudi Arabia, which is working overtime to attract businesses and families to relocate to the kingdom.
The UAE Ministry of Finance said that the new federal tax of 9 percent on profits will be effective from June 1, 2023. Corporate tax will not apply to personal income or income earned from employment, real estate and other investments. Licensed business outside the United Arab Emirates. The UAE has long established itself as a place where foreign investors are welcome and where income is tax-free. Low taxes and a conducive business environment helped transform a 50-year-old nation over the years.
The new corporate tax also does not apply to companies in Emirati free zones unless they conduct their business onshore. Another exception is oil and gas companies, which are subject to their own tax schemes. To support small businesses and startups, the ministry said, business profits up to approximately USD 102,000 will not be taxed. In addition, foreign taxes can be credited to the UAE Corporate Tax to avoid double taxation. The tax scheme will allow UAE business groups to be taxed as an entity or to apply for relief amid losses or restructurings. Various emirates in the UAE have been continuously introducing fees and taxes over the years.
After oil prices fell dramatically in mid-2015, the government reduced some subsidies and imposed a 5 percent value-added tax on most goods and services, a standard tax still lower than in many countries around the world. Is.
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