Corporate Tax in UAE

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1 Corporate Tax in UAE and its Impact

1.1 Cost of Doing Business

1.2 Foreign Direct Investment

1.3 Profit Margin

1.4 Demand for Tax Consultants

1.5 Source of Revenue for the Government

1.6 Loss-Protection In place

UAE is renowned for its business-friendly laws and policies, which have 0% corporate tax for companies operating within the nation. However, this comes to an end by June 1, 2023. This news has been the talk of the town since the Federal Tax Authority (FTA) of the nation announced corporate tax for people who are either nationals or residents and have business or trade permits to operate in the nation.

The new idea of corporate tax in UAE has kindled many debates on the positive and negative impact on businesses and the nation itself.

Corporate Tax in UAE and its Impact

The introduction of corporate tax in UAE was announced on January 31, 2022, giving ample time for businesses to comprehend and understand the nuances of doing business in the new system.

Cost of Doing Business

Corporate tax in UAE is applicable for businesses generating taxable income of more than 375,000 AED. So, the cost of doing business for companies that generate income more than the mentioned would be higher.

However, there is no tax levied on free-zone businesses as they technically do not conduct business on the mainland.

Foreign Direct Investment

The nation was and is still known for its tax system. The introduction of corporate tax in UAE will impact foreign investment wisely. Nevertheless, the UAE, with a 9% corporate tax, will be much lesser than many countries.

Moreover, the nation has a double taxation treaty providing repatriation benefits.

Profit Margin

There is a high possibility for businesses to reduce their loss via tax percentage by increasing their profit margin. This may have an effect on people’s purchasing patterns for a short duration.

Demand for Tax Consultants

The nation has always enjoyed so many benefits when it comes to taxes. Be it income tax, corporate tax, etc. Since the introduction of corporate tax in UAE, it has become mandatory for many businesses to find tax consultants. This, in turn, will create more job opportunities.

Moreover, since the tax system is not complicated, the implementation, training, and appointment of resources would not demand a huge cost on the businesses.

Source of Revenue for the Government

Tax systems have been one of the most important revenue-generating platforms for the government. A proper tax system in place for a rapidly developing nation will be very helpful in bringing reforms.

This will reduce the reliance on oil-generated income to have a diversified fund. Like VAT in UAE, corporate tax will be another source of revenue, creating a balanced economy.

Loss-Protection In place

Businesses operating in the UAE will have the choice and route to register for single-tier CT, enabling them to consolidate their taxable revenue by allocating losses among group members.

Instead of calculating and paying taxes at the level of each firm, this will assist businesses in managing their tax obligations at the group level.

Additionally, businesses that are losing money, or are not generating any money, will be able to carry those losses forward and deduct them from future taxable profits. As a result, companies that are not profitable won’t have to pay corporation tax.

Are you a company operating in UAE and worrying about the new tax law? Worry no more. We at JAXA Auditors have skilled professionals who can help your business with tax, accounting, audit, bookkeeping, and many more. Contact us today.