Reality Or Myth: The Introduction Of Corporate Tax In The Uae

By Author: George SK
Total Articles: 1
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In 50 years, the UAE managed to become a significant international hub, home to one of the most impressive economic growth we have witnessed in recent decades. This reputation has been partially built around the city of Dubai, with its multiple free zones. These free zones attract foreign entrepreneurs and investors thanks to a tax-free policy, and even though this is true for the whole mainland of the UAE, Dubai and its free zones is the city that put the UAE on the map on this aspect.

Corporate tax is the direct tax imposed on a corporate body from their business. The tax levied on a company is much like taxable income for individuals but in the case of certain jurisdictions, this might be a lot different. The rate of tax also varies with each jurisdiction. Both domestic and foreign corporations are taxed by most systems. Foreign corporations may be taxed on a worldwide income whereas domestic corporations may be taxed within the jurisdiction. Many systems impose a tax on particular corporate attributes based on capital stock issued or authorized, total equity, net capital, or other measures unique to corporations. ...
... Many countries exempt tax from organizations in lieu of certain events like the formation or reorganization of a company which requires immense capital cost. There are some systems that provide tax benefits due to any losses, credits, or any other similar stuff of all members within a group.

Corporate lawyers in Dubai and UAE provide legal services that include corporate due diligence, initial public offering (IPOs), debt capital markets, equity capital markets, foreign direct investment (FDI), and corporate risk evaluation. However, the UAE has been planning tax reforms recently to diversify the country’s sources of wealth. So, is a corporate tax in UAE a possibility for the future?

The implementation of indirect taxes in the UAE
Although the current UAE corporate tax rate is 0%, except for gas-related and branches of banking businesses, the country has recently undertaken the implementation of indirect taxes such as a 5% VAT. This implementation has been widely discussed and applied in the whole GCC region, for instance, Saudi Arabia implemented a 15% VAT and plans on decreasing it to 5-10% in the next few years. This introduction of such indirect tax has been considered as essential in countries where the citizens are taken care of by their government, from birth to death UAE and Saudi citizens receive high pensions ensuring them a comfortable lifestyle, and several goods and services (water, electricity, gas, fruits, and vegetables) have long been subsidized by their government. However, over time the Welfare state of the GCC countries such as the UAE has been put in danger because of the multiple moments gas prices have dropped, and more recently with the Covid pandemic the GGC countries have been needing to diversify.

So, what does the future hold for taxes in the UAE? Although there is currently no corporate tax in UAE, it is hard to imagine that the country will not end up implementing a corporate tax regime in UAE on the federal level. Such implementation at the moment might hurt the tax-free heaven image the UAE has built over the last 50 years, but in the long run, it should generate supplementary earnings and help the UAE succeed in its sources of revenue’s diversification strategies. Moreover, in the GCC region’s context of economic diversification, the UAE will not be the only country with such a corporate tax, for instance, the corporate tax rate in Qatar is currently 10%, and in Saudi Arabia, it is 20%.