Tax Haven U.A.E. to Introduce Levy on Corporate Profits

Individuals will remain exempt from income tax, capital-gains tax on real estate and other investments, and other earnings, the ministry said. The state will only tax profits above 375,000 U.A.E. dirhams, equivalent to around $102,000, to help support small businesses and startups. In addition, the new rate won’t apply to companies involved in resource extraction, such as state-owned oil firms.

Some 136 countries, including the U.A.E., agreed in October to overhaul the global tax system, signing up to eventually implement a minimum corporate rate of 15% in a bid to prevent companies from exploiting low-tax jurisdictions.

The new U.A.E. corporate tax won’t apply to firms based in areas of the country known as free zones that offer their own tax incentives and regulatory environment, the country’s ministry said.

The new regime will alter the “social contract” between the government and some of the U.A.E.’s largest companies, Hasnain Malik, head of equity strategy at Tellimer in Dubai, said, but will have less impact on global companies with offices in the country, as many are based in free zones and target other markets.

It will be positive for the government’s finances, Mr. Malik added. The International Monetary Fund forecasts a fiscal deficit of 0.1% of economic growth in 2023 and gross government debt to gross domestic product ratio of 39%. 

Since the onset of the pandemic, the U.A.E. has implemented a series of policies designed to align its business environment with the rest of the world and make it more attractive for expatriates to live and establish businesses. Roughly 90% of the population is foreign.

At the start of 2022, the U.A.E. moved its workweek to match much of the rest of the world. The country, which largely follows a Shariah law legal system, has decriminalized cohabitation for unmarried couples and allowed alcohol consumption without a license. It has also abolished a requirement that companies have Emirati shareholders or partners, and begun offering citizenship to some foreigners.

Part of the liberalization push is to fend off an attempt by Saudi Arabia to open its economy to international tourists, companies and capital. The kingdom already levies corporate taxes on both Saudi and international firms, and introduced a 5% sales tax in 2018, later increased to 15%.

The U.A.E. has been slower to introduce taxes. In 2018, the state began levying a sales tax, or value-added tax, on most goods and services at a rate of 5%. Foreign companies working in the oil and gas production sector face separate levies.

Write to Rory Jones at [email protected]