Tim Elliott
Welcome to Lawgical, the UAE’s first—and as far as we know, still the only—legal podcast here in the Emirates. My name is Tim Elliott. Lawgical comes to you from the Dubai-based legal firm HPL Yamalova & Plewka. As always, here’s the managing partner, Ludmila Yamalova. Lovely to see you.
Ludmila Yamalova
It’s great to see you too, Tim. Thanks for chatting with me once again.
Tim Elliott
This is a huge announcement we’re going to talk about today, Ludmila. We’re recording this on the 1st of February, and it’s in response to yesterday’s announcement from the Ministry of Finance in the UAE. We are going to see federal corporate tax on business profits being introduced. It’s effective on or after the 1st of June, 2023, so just under 18 months. It is huge news. It’s been expected, I guess, in some form, but it was still a bit of a shock really to lots of people.
Ludmila Yamalova
Well, both of those statements are correct. We are indeed surprised, extremely surprised, though we have been hearing enough rumors over the last several years about the potential introduction of some form of tax, and in particular, since the UAE introduced VAT, there was speculation that this was just the first step in tax reform and other taxes would follow. However, there have also been equally just as many statements or suggestions that corporate tax would not be coming anytime soon. There were even some assurances that VAT would be the only form of tax. So, we’ve heard contradictory narratives for a while—on one hand, assurances that no taxes would be introduced, and on the other, hints that VAT was only the beginning. That being said, we were extremely surprised because I don’t believe many anticipated that this would come the way it did and as soon as it did. There was no advance notice or even suggestions that this announcement was imminent. Yet, here we are, with the Ministry of Finance making a huge announcement about corporate tax yesterday.
Tim Elliott
Let’s talk about what we know from the announcement. There was a press release from the UAE Ministry of Finance that’s being pored over by social media, journalists, and, of course, business owners. Let’s start with what we know as of right now. Businesses will become subject to UAE corporate tax from the beginning of their first financial year that starts on or after the 1st of June, 2023. And the standard statutory tax rate is going to be 9%, isn’t it?
Ludmila Yamalova
Correct. It is a corporate tax with a rate of 9%, applying to companies with business profits above AED 375,000, which is about USD 100,000 annually. Importantly, companies with profits below that threshold will not be taxed. The announcement also states that corporate tax will apply to all businesses and commercial activities except for the extraction of natural resources, which will remain subject to Emirates-level taxation. Beyond that narrow exception, the tax applies across the board. Interestingly, the statement also mentions free zones, noting that free zone businesses will continue to benefit from existing tax incentives, provided they do not conduct business with mainland UAE. That’s a very interesting distinction because most free zone companies, particularly those in professional services or trading, often deal with mainland UAE in some form. This could mean that many free zone companies might still be subject to corporate tax despite this stated exemption.
Tim Elliott
Another immediate concern for many is personal income. Does this corporate tax apply to personal income, or is that still off the table?
Ludmila Yamalova
This is strictly a corporate tax. Personal income—whether from employment, real estate, investments, or other sources—is not subject to this tax. That’s a relief for many, as it means salaries and personal earnings are not affected. The Ministry of Finance has been clear on this point, so personal income tax is not part of the current corporate tax framework. That being said, given the unexpected nature of this announcement, it’s natural for people to remain cautious about what other tax reforms might come in the future.
Tim Elliott
One of the more nuanced aspects of this announcement is how the corporate tax regime will interact with international businesses. For example, the UAE won’t impose withholding taxes on domestic and cross-border payments or subject foreign investors who do not carry on business in the UAE to corporate tax. Additionally, UAE businesses will be exempt from paying tax on capital gains and dividends received from qualifying shareholdings, and foreign taxes will be credited against UAE corporate tax payable. Can you explain what this means in simpler terms?
Ludmila Yamalova
In simpler terms, this is about ensuring that the UAE remains competitive for international businesses. First, no withholding taxes means that payments moving in and out of the UAE won’t have automatic deductions for tax purposes, which is common in other jurisdictions. Second, the exemption on capital gains and dividends received from qualifying shareholdings means that businesses with investments in other companies won’t be taxed on those earnings in the UAE. However, what constitutes a “qualifying shareholding” has yet to be defined and will likely be detailed in future regulations. The mention of foreign tax credits ensures that if a business has already paid taxes abroad, it won’t be taxed again on the same profits in the UAE, thanks to the UAE’s double taxation treaties.
Tim Elliott
Why now? The UAE has long been a tax-free environment, but this move shifts the country toward a low-tax model. Is this part of a larger global trend or a domestic necessity?
Ludmila Yamalova
It’s a bit of both. On one hand, introducing corporate tax allows the UAE to diversify its revenue streams and reduce its reliance on oil and gas revenues. On the other, it aligns the UAE with international tax standards, particularly as the country seeks to enhance its reputation as a global business hub. For years, the UAE has faced criticism as a tax haven, and this move demonstrates its commitment to transparency and compliance with global tax frameworks. It’s also worth noting that a 9% tax rate is very low compared to other major economies, where rates typically range from 20% to 30%.
Tim Elliott
Anything else from the announcement worth highlighting?
Ludmila Yamalova
Yes, the UAE corporate tax framework will include generous loss utilization rules, allowing businesses to offset taxable income with losses and even apply for group relief in some cases. Additionally, businesses will only need to file a single annual tax return, simplifying compliance compared to jurisdictions that require provisional filings or advance payments.
Tim Elliott
That’s another episode of Lawgical, this time focusing on the UAE’s new corporate tax law, which will take effect for financial years starting on or after June 1, 2023. As ever, our legal expert here on Lawgical is Ludmila Yamalova, Managing Partner at Yamalova & Plewka. Thank you, Ludmila.
Ludmila Yamalova
Thank you, Tim. Always a pleasure.
Tim Elliott
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