UAE’s New Corporate Tax Policy on Entities – An Overview

UAE’S NEW CORPORATE TAX POLICY ON ENTITIES AN OVERVIEW Farahat & Co : https://farahatco.com/

UAE over a considerable period is famous for its zero-tax policy. Such policy paved the way for millions of individuals to migrate to the UAE notwithstanding its temporary nature to explore the UAE’s market with a view of having a serious commercial advantage. For that simple reason, UAE was famous for its Zero tax policy and was well-known for being a jurisdiction with zero tax. However, a new tax policy was announced by the Ministry of Finance (MOF) to impose a Federal Corporate Tax in UAE. One of the fundamental objectives behind the new change is to keep in line with the OECD (Organization for Economic Corporation and Development) policy for tax control. The purpose behind the establishment of OECD was to collaborate with member states/economies to promote sustainable economic growth.

THE OECD TAX POLICY The organization is built on the utilitarian purpose of making policies for better lives.

Amongst its many goals, the main goal of OECD is to carve its policies so that, it would uphold prosperity, equality, opportunity, and well-being.

OECD POLICY ON CORPORATE TAX Ensuing the initiative proposed by the OECD, which is commonly known as the “statement” establishing a new framework for tax reform which comprised or known as a “2 pillar package” with more than 130 countries which represented more than 90% of the global GDP, conquered to adhere to a new plan to reform international tax rules to ensure that multinational enterprises pay a fair share of tax irrespective of their place of operation.

In the said two-pillar package Taxing rights will be on more than 100 billion of profits are expected to be relocated to market jurisdiction each year.

Global minimum income tax will be declined to operate at a minimum rate of 15% The pivotal purpose of introducing this reformed tax regime by the OECD was to make sure that, large multinational companies pay their fair share of tax everywhere in the world.

THE FEDERAL CORPORATE TAX RATE The corporate tax for entities with an annual income of AED 375,000 or below will be zerorated whereas any taxable income which exceeds AED 375,000 will be taxed at a rate of 9% per annum.

In relation to multinational companies, a different tax rate is applicable. The new corporate tax law will ensure large multinational corporate enterprises pay a minimum level of tax on the income arising in each jurisdiction they operate. This policy is to be implemented based on the Global Anti base Erosion (GloBE) rules. The UAE’s novel corporate tax policy on multinational corporations is expected to harmonize with said policy initiated by OECD.

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