Why Corporate Tax is being introduced in the UAE?

The introduction of Corporate Tax is intended to help the UAE achieve its strategic objectives and accelerate its development and transformation. The certainty of a competitive Corporate Tax regime that adheres to international standards, together with the UAE’s extensive network of double tax treaties, will cement the UAE’s position as a leading jurisdiction for business and investment.

On 26 July 2021, the Ministry of Finance issued an official statement confirming the UAE’s support of the global minimum effective tax rate as proposed under “Pillar Two” of the OECD Base Erosion and Profit Shifting project. The introduction of a UAE Corporate Tax regime will provide a basis for the UAE to execute its support by applying a different Corporate Tax rate to large multinationals that meet specific criteria set with reference to the above initiative.

Given the position of the UAE as an international business hub and global financial centre, the UAE Corporate Tax regime builds from best practices globally and incorporates principles that are internationally known and accepted.

What is Corporate Tax (CT)?

Corporate tax is a form of direct tax levied on the net income or profit of corporations and other entities from their business.

Corporate Tax in the UAE:

The Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses (the “Corporate Tax Law”), was released to the public on 9 December, 2022 which introduces Corporate Tax in the UAE and will be effective from 1 June 2023.

Why Corporate Tax is being introduced in the UAE?

1. Enhance UAE as a Key Business and Investment Hub: The introduction of corporate taxes aims to bolster the UAE's reputation as a prominent commercial and investment hub, attracting businesses and investors seeking a dynamic and thriving economic environment, by offering greater transparency and stability to its investors.

2. Accelerating Development and Strategic: By instituting corporate taxes, the UAE seeks to expedite the realization of its strategic goals, propelling the execution of infrastructure projects and public services, which can benefit both businesses and residents of the UAE.

3. Comply with Global Tax Standards and Promote Transparency: The implementation of corporate taxes aligns with the UAE's commitment to international tax transparency standards, reinforcing its image as a responsible and compliant global player in the financial arena. The UAE has committed to working with other countries to improve global tax practices and reduce the risk of tax evasion and other harmful practices.

4. Eliminating Unethical Tax Practices: Through the introduction of corporate taxes, the UAE aims to root out unethical tax practices, fostering a fair and just taxation framework that promotes ethical business conduct and responsible financial practices.

5. Expanding Revenue Streams beyond Oil: The adoption of corporate taxes represents a strategic move by the UAE to diversify its revenue streams, reducing dependency on oil for sustained economic growth and stability.