Navigating the UAE Corporate Tax Landscape

HLB HAMT Management Consultancy (HHMC) Team

The UAE government introduced Corporate Tax on 9th December 2022 which will come into effect on 1st June 2023. Although the government is receiving some pushback to this new tax announcement, this is a much-needed action that can benefit businesses to remain competitive and achieve the long-term success that would in turn promote the economic growth of the country.

Corporate Tax: An Overview

The Organization for Economic Cooperation and Development (OECD) played a significant role in the new reforms in UAE tax rules. In 2021, OECD has introduced the global minimum tax rate of 15 percent to which UAE was also a signatory. The aim of this global treaty is to address the gaps in existing tax rules that cause tax avoidance and money laundering. This made UAE think about the limitations of their domestic rules which they have overlooked. So, this is one of the reasons why the UAE has decided to introduce the Corporate Income Tax.

In a nutshell, all reforms in the UAE tax rule are being done to bring tax transparency to level up with international standards and to prevent harmful financial practices. So, Corporate Tax is not a choice but a necessity. Corporate Tax applies to all businesses in mainland UAE and free zones.

“Nine (9)” is a significant number in the new tax rule of UAE.

The Corporate Tax law was introduced on 9th December.
The businesses have 9 months to submit their CT return for each tax period.
The rate of Corporate Tax is also 9% for taxable income exceeding AED 375,000.

How new Corporate Tax become beneficial to the UAE business environment?

When the UAE government announced the introduction of Corporate Tax, entrepreneurs became skeptical and reacted negatively. Many people criticized that implementing Corporate Tax would adversely affect foreign investment in the country since the absence of Business Corporate Tax has been the Unique Selling Point of UAE throughout history.

Now, it’s time to look into the broader picture to understand how the new Corporate Tax will become beneficial to the UAE business environment.

UAE corporate tax is twice as low as the global average corporate income tax, making it the lowest in the world. So, the country will continue to rank as the most attractive investment destination.
Implementing Corporate Tax also signals UAE’s commitment to maintaining economic stability and boosts the growth of the UAE companies in the global market by providing a safe and stable business environment.
To protect small-scale businesses and startups, corporate tax will not be levied on companies whose taxable income is up to AED 375,000.
Large companies performing their business activities in other countries can avoid paying higher taxes by shifting their profits to lower tax jurisdictions.
This diversification strategy that generates additional revenue for the country would reinforce UAE’s position as the global hub for business and investment.

The actions that a company can take to deal with Corporate Tax

Analyze the impact of Corporate Tax on their business and prepare the periodic budget accordingly.
Raise the prices of their product. This is a risky action as there are chances that your customer may switch to your competitor. So, make sure that rising prices won’t drop the demand for your products.
Upskill your team to meet the challenges ahead.
Invest a portion of your money in Research and Development activities instead of providing bigger dividends to your shareholders. This is an essential step to stay competitive and for long-term investment.
Have a thorough understanding of the tax governing jurisdiction and get a true picture of the situation.
Have solid, proper documentation to file your Corporate Tax in compliance with the law.

HLB HAMT Management Consultancy (HHMC) to Assist!

Corporate tax filing is a laborious and stressful task that requires careful monitoring to ensure compliance with the regulations set by the corporate tax legislation in the UAE. If you aren’t well knowledgeable about the new Corporate Tax regime, it would cause financial strains on your business ventures. HLB HAMT Management Consultancy (HHMC) can assist you in filing your corporate tax and can suggest the most effective practice to deal with the taxation issue your company is facing. Contact us to clear all your queries and to file your Corporate Tax within the deadlines.