For the first time in the United Arab Emirates history, the government plans to introduce a federal tax on corporate earnings. As part of this effort, it is dismantling a levy-free tax regime that had made it a global magnet for businesses.
From June 2023, the government is set to introduce a 9% federal corporate tax on profits earned by businesses. Employees in the UAE will not be directly affected by this new taxation, but consumers could be indirectly affected if corporations raise prices as a knee-jerk reaction.
Thomas Vanhee, the Partner, Aurifer Middle East Tax Consultancy, said, “With the implementation of CIT, the UAE seems to have also introduced mandatory transfer pricing regulations. Free Zone companies are seemingly outside the scope of the new CIT regime, however, it seems that the carve-out is at least subject to certain conditions, such as complying with all regulatory requirements and not conducting business in mainland UAE. We also anticipate that the implementation of CIT will have an impact on the Economic Substance Regulations that were implemented in 2018”.
The exemption for the SME sector (up to Dh375,000 in income) is an encouraging development. Salaries and individual income are exempt from taxation.