18 Apr 2022
According to the official website of the UAE government “The UAE levies corporate tax on oil companies and foreign banks only”. It has not yet applied corporate tax on any other industries”. Hence, the least we can say is that the current corporate tax regime in the UAE is very limited. Going from there, it is important to be precise that the different emirates have their corporate tax rate. For instance, in Dubai where a decree regulates the matter and states “Every corporation conducting trade or business activities through a permanent establishment situated in the Emirate is subject to tax at a regressive scale”. This tax concerns gas companies and branch offices of foreign banks, and its rate is between 0% and a most of 55%, depending on the profits of the company. But, the tax levied on branches of foreign banks is generally 20%.
Freezone Taxations
Businesses registered in free zones are completely exempt from corporate tax for a certain time and that can be renewed when it expires. Moving on to income tax, it is much more straightforward: no resident pays any kind of income tax in UAE. The reason is that thanks to its 0% income tax rate, it attracts enough people to live and work in-country. This provides them with enough income without having to impose taxes on the residents of the country.
Conclusion
It seems unlikely that the government will implement neither a comprehensive corporate tax in UAE nor an income tax system. The reason for this is because it would hurt the “tax-free heaven” image the UAE spent decades building. Many companies operating in the MENA market have their headquarters in the UAE. And it’s all thanks to the economic diversification policies of the country, which has led through the creation of 45 free zones in the country. The country has become much less reliant on oil, and might not even need a strict tax regime to keep going on its development. Hence, imposing the companies a corporate tax in UAE might not be a good strategy and it may hurt the UAE economy at present.