Inayat-ur-Rahman, Business Editor

The introduction of corporate tax in the UAE signifies a significant step in the country’s economic transformation. Effective from June 1, 2023, businesses in the UAE are now required to pay corporate tax on their taxable profits, aligning the nation with global taxation standards. This development has sparked discussions on the implications of corporate tax for businesses, individuals, and the overall economy.

This was revealed by  Arslan Mushtaq, Partner Tax at athGADLANG, during an exclusive interview with Gulf Today, adding that corporate tax plays a crucial role in generating revenue for governments. For the UAE, the corporate tax represents a shift from relying solely on oil-generated income to diversified funding sources, signalling a move towards a sustainable and mature economy.

“The implementation of corporate tax brings the UAE in line with international norms and enhances its competitiveness on the global stage. It demonstrates the country’s commitment to transparency, accountability, and creating an attractive business environment for foreign direct investment (FDI) and long-term economic growth.” Mushtaq added.

“Corporate tax in the United Arab Emirates is a new taxation system that businesses must comply with as of June 1, 2023.”

“The corporate tax rate in the UAE is set at 9% on adjusted taxable profits. Businesses are required to pay this tax annually, considering their taxable income over and above the exemption threshold of Dhs375,000. Companies with taxable income of up to Dhs 375,000 are exempt from corporate tax, incentivizing the establishment of start-ups and new businesses.” Mushtaq added.

“Businesses are obligated to register for corporate tax to ensure compliance. They are responsible for calculating and paying corporate tax on their taxable profits. This annual tax liability should be carefully assessed and planned for, as it affects the financial resources and working capital.”

“The new corporate tax will impact the businesses in UAE in multiple ways.

Short-Term Impacts on Businesses. Working Capital Challenges: Corporate tax in the UAE poses challenges to businesses’ working capital. It affects their financial resources, requiring careful assessment and strategic cash flow management. Companies need to bridge the gap created by corporate tax and ensure sufficient working capital for smooth operations.

Budget Planning and Tax Considerations: Corporate tax has a direct impact on budget planning for businesses. Companies must consider the implications of corporate tax when preparing their budgets, ensuring adequate provisions are made to meet their tax obligations. Group Registration and Loss Carryforward: Group entities in the UAE have the option of single-tier corporate tax registration, which allows them to consolidate taxable income and optimize tax liabilities.

Long-Term Impacts on the Business Environment:  Encouragement for Start-ups and New Businesses: The corporate tax regime in the UAE offers incentives and encouragement for start-ups and new business ventures.

The exemption threshold reveals its positive impact on entrepreneurial activity, allowing small businesses to thrive. The UAE provides attractive conditions and support for new ventures.

 Tax Compliance Costs and Demand for Professionals: The introduction of corporate tax entails certain implementation, training, and compliance costs for businesses. However, it also leads to an increased demand for tax professionals and experts in tax planning. Companies recognize the importance of minimizing tax burdens and seek professional assistance to navigate the complex tax landscape, ensuring compliance while optimizing tax strategies.

 Pricing and Purchasing Power: Shareholders may pass on the tax burden to end-users by adjusting prices, impacting their purchasing power. Monitoring the implications on pricing and purchasing power is essential to understand the potential effects on the overall business environment and consumer behaviour.

Foreign Direct Investment (FDI) and Economic Growth: The impact of corporate tax on Foreign Direct Investment (FDI) decisions and returns on investment is a significant consideration. The competitive advantage of the UAE’s tax regime, coupled with the double tax treaties, minimizes the impact of corporate tax on FDI. Investors will continue to be attracted to the UAE due to its highly competitive tax rate.

Suhail Memon , Director Tax  at athGADLANG told this reporter that corporate tax will play a crucial role as a revenue source for the UAE government. The income generated through corporate tax will contribute to funding various public welfare initiatives. By reducing reliance on oil-generated income, corporate tax will enable the government to establish a diversified and sustainable funding base, ensuring the welfare and prosperity of its citizens.

“In conclusion, the implementation of corporate tax in the UAE brings about significant impacts on businesses operating in the country. It affects various aspects of business operations. However, amidst these challenges, the corporate tax also presents opportunities for start-ups and new businesses through exemptions and incentives.”