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New 9% Tax in Dubai Explained

Introduction: Unveiling the UAE’s Corporate Tax Landscape

In a groundbreaking move, the United Arab Emirates Ministry of Finance announced a paradigm shift by introducing a nine percent corporate income tax on December 9th, 2022. This landmark decision marks the first instance of corporate tax in the UAE, with implementation beginning on June 1st, 2023.

However, it’s crucial to note that while corporate taxes have been introduced, personal income, real estate profits, investments, and capital gains remain untaxed at zero percent. In this comprehensive guide, we unravel the intricacies of the new corporate tax, its implications, and the relief measures introduced simultaneously.

Understanding the Nine Percent Corporate Tax

The nine percent corporate tax is applicable only to companies with business profits exceeding 375,000 Dirhams or approximately 102,000 US Dollars. Companies generating less than this threshold are exempt from corporate taxes, positioning the UAE’s tax rate as one of the lowest globally.

This move aligns with international efforts to combat tax avoidance while signaling the UAE’s commitment to maintaining an attractive business environment to support startups, small businesses, and overall economic growth. Compared to the global average corporate tax rate of 23 percent and Europe’s average of 21 percent, the UAE’s nine percent remains highly competitive.


Impact on Free Zone Companies: Navigating the Provisions 

Provisions have been outlined for free zone companies, shedding light on how the nine percent corporate tax will be applied. Free zone companies engaged in qualifying activities will be exempt from the nine percent tax, continuing to benefit from a zero percent tax rate. However, taxable income from non-qualifying activities will be subject to the nine percent corporate tax. 

Qualifying activities, as defined in Article 2 of the ministerial decision, include manufacturing and processing goods, holding of shares and securities, ownership management and operation of ships, regulated reinsurance, fund and wealth management, financing and leasing of aircraft, and the distribution of goods in or from a designated zone, along with logistics services. 

For a detailed understanding of specific activities and their tax implications, our experts at Gen Zone are available for consultations.

 

Small Business Tax Relief: A Beacon for Startups

 Simultaneous to the introduction of corporate tax, the UAE has implemented a small business tax relief. Eligible businesses, generating annual revenues up to 3 million Dirhams, can treat their taxable income as zero for a specific period. This relief serves as a vital support mechanism for small businesses, exempting them from corporate tax for the qualifying time frame.

However, businesses exceeding the 3 million Dirham threshold in a prior tax period are ineligible for this relief. The relief period spans from June 1st, 2023, to December 31st, 2026, offering a strategic window for eligible businesses to thrive.

 

Navigating the Relief Timeline: An Overview

To qualify for the small business tax relief, businesses and individuals must generate annual revenues up to 3 million Dirhams. The relief is applicable for financial years falling between June 1st, 2023, and December 31st, 2026.

Businesses exceeding the 3 million Dirham threshold in a prior tax period are disqualified from availing this relief. For instance, if a business experiences accelerated growth and surpasses the 3 million Dirham annual revenue mark in 2024, they lose eligibility for the relief from that point onward.

 

Conclusion: Strategizing for the Future with Gen Zone

As the UAE transforms its tax landscape, businesses must stay informed and strategically plan for the future. Whether you seek clarity on the corporate tax rate, guidance on preparing your business, or assistance in establishing a free zone company in the UAE, our experts at Gen Zone are here to help.

Book a consultation using the link in the description, and let us guide you through the complexities of the new corporate tax regime. The future of your business in the UAE begins with informed decisions – we’ll see you there.

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