What, if anything, will change in Dubai after the New 9% Corporate Tax is introduced in 2023?
Dubai is one of the last remaining spots on our planet where economic liberty prevails. The vision of the rulers of the Kingdom has shown incredible results. In a short 40 years, the United Arab Emirates has been nothing short of an economic wonder – perhaps even a valid model to imitate.
How did the Emiratis achieve so much in such a short timeframe? Well, pretty simple, actually – they embraced the very basics of business liberty. No taxes in the country for generally anything. Imagine this: 1. No payroll taxes, 2. No dividend taxes, 3. No sales taxes for visitors, 4. No income taxes. On top of it, you also get a super safe and modern place to live. There is only one catch – you must follow the local rules closely. Otherwise, you quickly get expelled.
Compare this with the business taxation in Europe today – 1. Ever-increasing pressure on businesses, 2. Heavy and burdensome bureaucracy and regulations, 3. Open hostility to entrepreneurs in many countries, and 4. Ever-worsening business environment.
Assume Mr. Sven from Sweden has a growing online business, and after years of hard work, he has finally found buyers for his venture. Just before the sale, he looks at his options: 1. Sell the business in Sweden and instantly become subject to heavy taxation and government harassment (Terrible sale tax and an even worse dividend tax) or 2. Incorporate in Dubai and do the transaction there with no hassle whatsoever. It is really a no-brainer. The word about the opportunity quickly spreads around, and many Europeans (and not only Europeans) are flocking to Dubai to quickly set up their operations there while dealing with clients worldwide.
You might ask: “Who is John Galt?” in today’s Europe? Many would say: “He got fed up, and he moved to Dubai.” This is precisely what the UAE has managed to achieve. Some call it jokingly:
“The Emiratis have created a slick Disneyland for Millionaires.”
Yet “miraculously,” even without all of this taxation that is so prevalent in today’s Western world, the Emirates prosper while Europe stagnates.
This success does not go unnoticed; naturally, the UAE is under pressure to institute taxation to join the club of “Modern” nations. There are even plans of a global minimum effective corporate tax rate of 15% for large multinational enterprises. In other words, no more tax incentives around the world.
It seems complicated that the UAE will adopt this – it will be the exact opposite of their growth vision and philosophy. Yet, late in 2022, the Emirati government passed a corporate taxation law.
Some Questions About the New Corporate Tax in Dubai
Let’s look in some detail at the taxation situation in Dubai after the law comes into effect. The video below also offers some good insight about the current situation.
When will the corporate tax come into effect?
The initiation date of Corporate tax in Dubai is 1st June 2023.
What would be the minimum threshold for corporate taxation?
The tax will apply to businesses and persons accumulating profit of over AED 375,000 per year.
Would this still be among the lowest corporate tax rates worldwide?
The answer is Yes. Even at 9%, Dubai will still remain one of the lowest corporate taxation jurisdictions in the world.
Will this taxation apply to salaries paid to UAE residents?
The answer is “No.” Individuals getting salaries in Dubai will continue to enjoy the 0% income tax.
Now, The Good News
While introducing such taxation laws might signal a transition towards more government intervention in business in UAE, there are many reasons to suggest that this law will not change much in daily business in Dubai.
1. The law only applies to business conducted in the United Arab Emirates. You have to be selling in the UAE to be subject to this tax.
This is the great news. Most businesses established in the UAE have very little to do with transactions in the local economy. Instead, they operate internationally while just basing their headquarters in Dubai. Such businesses will see no change in their day-to-day operations.
2. There are exemptions to the Corporate Tax.
a. The law will not apply to many critical businesses in the country. For example, natural resource extraction companies will be exempt from Corporate Tax. Government branches, pension funds, investment funds, and public benefit organizations will get exemptions as well.
b. Accrued interest and other personal income from bank deposits or savings programs will be exempt from Corporate Tax. Real Estate returns will also not going to be taxed.
The UAE will keep and benefit from its tax-friendly environment in the foreseeable future. The UAE is a prosperous nation that does not need tax increases to fill its budgetary need. This 9% corporate tax introduction is an elegant response to international pressure on the UAE government.