A Guide to the Tax System in the United Arab Emirates

A Guide to the Tax System in the United Arab Emirates

A Guide to the Tax System in the United Arab Emirates

In implementing its tax policies, the UAE government has followed key principles. These principles have been formulated to suit changing socio-economic conditions. The primary focuses of UAE tax policy are simplicity, neutrality and equity. In deciding which tax to levy on companies, it is important to know which type of tax to apply. These are just a few questions that you may want to ask your tax adviser.

Value-added tax:

In anticipation of the VAT imposed by the UAE government in January 2018, many business owners have been looking for the perfect opportunity to transition their operations. While the tax is a good start, the Gulf States have been working on weaning themselves off the reliance on hydrocarbon revenues. Several Vision documents and specific strategies have been released, designed to wean their economies off the oil. While the IMF has long urged the Gulf States to adopt VAT and move towards a post-oil economy, the recent plunge in oil price has highlighted the need for such a move. Furthermore, the UAE has been battling massive fiscal deficits since 2014 due to a global pandemic. If you are looking to set up a business in these states, hiring a VAT agent in Dubai is better because they have extensive experience in the field. 

Withholding tax:

The UAE has a new corporate income tax that could bring in $13 billion in annual revenue. Previously, corporate income tax was restricted to certain oil companies, banks, and free zones. Now, this tax is being levied on all businesses. There are some exceptions, however. You are exempted from the tax if you earn $102,000 a year or less or are not engaged in natural resource extraction.

Corporate income tax:

The new Corporate Tax is set to come into effect in January 2019. It will be 9% of taxable profits of companies with a global turnover of AED 375,000 or US$100,000. While the tax rate will differ for smaller businesses, this change is consistent with international tax reform. Large multinationals will be exempt from the tax if they meet the OECD Pillar Two criteria. The UAE is one of only a handful of countries that have not yet implemented this tax reform.