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The United Arab Emirates, a major member of OPEC, has begun imposing a 9% corporate tax, marking a shift in its corporate tax exemption policy.
Major Middle Eastern countries that have had tax exemptions for years are imposing new taxes aimed at boosting non-oil revenues and diversifying their economies, which otherwise rely on hydrocarbon revenues.
The UAE started imposing corporate tax on large companies on June 1, following the introduction of a 5% value-added tax in 2018.
The UAE does not impose personal income tax on individuals. Other countries in the GCC region have adopted similar policies.
In December, the UAE introduced a federal corporate tax law that applies to companies with taxable income exceeding Dh375,000 ($102,000). Profits below that threshold will not be subject to corporation tax, Upstream understands.
The finance ministry said no corporate tax is levied on salary or other personal employment income, whether in the government, semi-government or private sector.
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free zone exemption
In a new set of rules, the Commerce Department said qualifying entities in more than 30 free trade zones – which export tens of billions of dollars of goods to neighboring countries – will be charged a 0% tax rate even on certain strategic dealings with the mainland. The same goes for time. Activities such as manufacturing, goods processing and logistics services, according to Reuters.
“The purpose of the system is to ensure that strategic sectors thrive in free zones. A certain level of immigration may occur, but the overall goal is to ensure that the UAE remains attractive,” local media quoted Shabana Begum, the ministry’s executive director of tax policy, as saying explain.
Experts believe that while hydrocarbons will remain a “valuable source” of government revenue for many years to come, a broader tax base will protect the economy from oil price swings.
income diversification
Aathira Prasad, director of macroeconomics at Nasser Saidi & Associates, told The National, the UAE’s largest news daily, that the new tax will increase the share of non-oil revenue in the budget and “increase the ratio of tax revenue to gross domestic product.” ratio – currently estimated to be around 15% of GDP”.
“This will also provide additional support to the UAE’s efforts to strengthen fiscal consolidation,” she added.
The new corporate tax system is expected to support the country’s plan to double economic growth to $816.8 billion by 2031.
State-run Abu Dhabi National Oil Co. is spending billions of dollars to increase oil production to 5 million barrels per day by 2027 from the current 4 million barrels per day.
The government is also investing heavily in decarbonization plans, aiming to achieve net zero emissions by 2050, which requires huge investments.
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