UAE TAX
THE UNITED ARAB EMIRATES TAX SYSTEM IS CURRENTLY SHIFTING TOWARDS BECOMING A MORE MATURE AND TRANSPERANT REGIME, AS THE COUNTRY SEEKS ATTRACT MORE FOREIGN BUSINESS AND INVESTMENTS THROUGH ITS POSITIVE REFORMS.
THE TAXATION LEGISLATION IN THE UAE PROVIDES FOR BOTH DIRECT TAXES – SUCH AS CORPORATE INCOME TAX-AND INDIRECT TAXES LIKE VALUE ADDED TAX (VAT).
UAE Federal Corporate Tax Law
On 31st January 2022, the UAE Ministry of Finance (‘MoF’) made an announcement stating that the federal Corporate Tax (CT) in the UAE shall be effective for the financial years beginning on or after June 1, 2023. It is anticipated that the UAE Corporate tax will follow the best international taxation practices and is expected to have a low compliance implication for businesses.
The decision of introducing the Corporate Tax by the UAE is a step taken in response to the shift in the global tax outlook, especially in relation to the Pillar One and Pillar Two reforms that the Organization for Economic Corporation and Development (OECD) is seeking to introduce under the Base Erosion and Profit Shifting Project (BEPS Project 2.0).The Ministry of Finance has been guided by a set of internationally accepted principles to ensure efficiency, fairness, transparency, and predictability in the design and execution of the proposed UAE CT regime.
With the introduction of CT, the UAE government aims to accomplish the following:
- To cement UAE’s position as a leading global hub for business and investment;
- To accelerate UAE’s development and transformation to achieve its strategic objectives;
- To reaffirm UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices.
VALUE ADDED TAX (VAT)
Value Added Tax (or VAT) is an indirect tax. Occasionally, it might be referred to as a type of general consumption tax. In a country which has a VAT, it is imposed on most supplies of goods and services that are bought and sold.
VAT is one of the most common types of consumption tax found around the world. Over 150 countries have implemented VAT (or its equivalent, Goods and Services Tax), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia.
VAT is charged at each step of the “supply chain”. Ultimate consumers generally bear the VAT cost while businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to the government reflect the “value add” throughout the supply chain. Below is a simple, illustrative example explaining how VAT works (based on a VAT rate of 5%).
THE UAE ALSO OFFERS TAX FREE IMPORTS ON SEVERAL ITEMS FOR COMPANIES CONDUCTING RESEARCH AND DEVELOPEMENT ACTIVITIES IN THE COUNTRY, AS WELL AS GRANTS AND SUBSIDIES INITIATIVES.FOR MORE INVESTORS LOOKING TO OPERATE IN THE REGION ,THERE IS A MULTITUDE OF BENEFITS WITH DOING BUSINESS IN THE UAE AT MINIMAL OR NO COST WITH REGARDS TO TAXATION.
