On 31 January 2022 the United Arab Emirates (UAE) announced that it is introducing a 9% corporate tax with effect from June 2023. This tax will raise more government revenue as the UAE continues the process of economic diversification, modernisation and adoption of international standards.

The new corporate tax regime is to cover all business activities in the UAE apart from the extraction of natural resources. A tax-free threshold of Dh 375,000 would apply, so many small and start-up companies would not be paying tax in their early years, and the 9% tax rate would be applied to income above that level. The UAE considers that the low tax rate will ensure that the Emirates continue to be a favourable location for companies to do business.

The new corporate tax would not be imposed on foreign investors that do not have any business activities in the UAE. The various free zones in the UAE will continue to offer corporate tax incentives as before to enterprises that do not conduct business with the main part of the UAE (outside the zones), in addition to offering various non-tax incentives.

The UAE is supporting the OECD agreement to implement a global 15% minimum tax rate and to address the tax challenges of the digital economy, having been one of the signatories of the agreement on 8 October 2021. The introduction of a 9% rate would allow the UAE to back the implementation of the global minimum tax while ensuring that it receives some tax revenue from companies doing business in its territory.

The UAE is a member of the OECD’s Inclusive Framework on base erosion and profit shifting (BEPS) and is committed to the minimum standards on BEPS and the international standards on tax transparency and preventing harmful tax practices.

Previously, in the absence of a corporate income tax, companies have often drawn attention to the various fees for visa renewal, annual licence fees and other charges payable to the government. The introduction of a tax on corporate income may lead to calls by taxpayers for such fees to be reduced.

As before, there will not be any tax in the UAE on personal income from employment or income from real estate and other investments.