UAE is all set to implement a nine per cent corporate tax from June 2023, which is not only the lowest among all the GCC countries but also nearly three times lower than the median corporate tax rate of 25.1% worldwide. According to a study by UHY, a leading accounting network, “This measure is in line with the UAE’s ambition to establish a more transparent local economy while continuing to retain its attractiveness as a global hub for foreign investment”.

The study further says that with SMEs and start-ups comprising 94% of the UAE economy, the leadership has ensured the economic engine of the business landscape is empowered towards growing strategically while striking a balance in meeting compliance and regulatory obligations that protect businesses in the long haul. For multinationals, however, the study says that “UAE will adhere to the global minimum tax rate of 15 per cent, which 136 countries have agreed to under the aegis of the Organisation for Economic Cooperation and Development (OECD),” it said.

This taxation policy comes at a time when, according to a study by a leading accounting network UHY, businesses worldwide are preparing themselves for higher tax costs as governments seriously consider increasing taxes on corporates following a period of low tax regime due to the COVID-19 pandemic. The reduced corporate taxes left a serious dent in the public finances of countries which they now seek to repair.

According to Subarna Banerjee, chairman of UHY, “Countries around the world have wanted to remain competitive by keeping the tax burden on companies as low as possible in recent years. The cash-strapped governments of 2022 will likely now be considering increasing taxes on corporations. Businesses worldwide should be prepared for their tax costs to begin to rise in the coming years”.

The increase in corporate tax rates is primarily aimed at increasing public finances, keeping in view that corporations can be an easier target from the political perspective than individuals. The United Kingdom has already announced its intention to raise corporation tax rates to 25 per cent from April 2023 which is more than two percentage points higher than the European average. Donald Trump reduced the federal corporate income tax rate to 21% in 2017, but his successor and incumbent President Joe Biden has pledged to raise federal corporate income tax to 28 per cent.

In recent years, global corporate tax rates have been steadily decreasing, with the G7 average falling from 32 per cent in 2014-15 to 26 per cent in 2020-21. This was primarily done to make the countries more investor-friendly destinations. In the past three years, even France has lowered its headline rate from 31% to 26.5%. 

According to the chief executive and managing partner of UHY James Chartered Accountants James Mathew, “However, the investor-friendly corporate tax rate of nine per cent is indicative of the country’s efforts in cementing its position as a destination of choice for foreign investment while building a foundation on tenets of regulatory compliance, legislative obligations, and robust AML (anti-money laundering) measures”. He further believes that this corporate tax policy would bring positive effects into play in the UAE economy. He further said, “The arrival of corporate tax in the UAE in 2023 has already put into motion discussions around effective tax planning".

“SMEs make up 94 per cent of the UAE economy and almost two-thirds of the SMEs feel constrained due to lack of access to finance at a reasonable cost. With the introduction of VAT in the UAE in 2018, banks adopted a favourable approach in channelising finance to SMEs and now with corporate tax coming into force, the SME sector will stand to gain significantly with measures that increase the transparency factor of their business,” James Mathew added.

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