For a very long time, businesses and investors have enjoyed the absence of a Federal Corporate Income Tax (CIT) in the UAE. The country has managed not to enforce its law on Corporate Income Tax (CIT)—a direct tax levied on the income or capital of corporations—due to its commitment of encouraging foreign investments into the country, which is a huge part of its domestic policy.
However, in the recent years, the economy of the GCC region has been significantly impacted by the decline of oil prices, leading to the GCC nations running a high deficit. Of course, the effects of the COVID-19 pandemic definitely did not help the region, including the UAE, soar high on the economic front.
The significant drop in the oil prices, as well as the blowback of the pandemic, has given a signal to the UAE that maybe, it is time to introduce a Federal Corporate Tax regime post the introduction of the Value Added Tax (VAT) law in 2018.
So, what are the main benefits of introducing a Corporate Income Tax (CIT) Law in general, and how would it help the UAE in its Vision 50? Let’s look at these here:
1. Increase Government revenue
Corporate Income (CIT) can be a useful way for nations to get higher revenues, especially because corporations are deemed the largest money generators in the economy. By targeting those making large revenues, the government can achieve a solid and steady cash flow.
2. Redistribute the benefits to the society
The best impact of Corporate Income Tax (CIT)? Equality! Levying tax on corporations making large profits can help redistribute the benefits to the society by providing public services that these companies wouldn’t normally provide.
3. Providing tax planning advantages
If you are the business owner, settling your corporate taxes can prove more beneficial than paying additional individual income tax. Corporate Income Tax (CIT) also makes it easier for a corporation to deduct losses, allow them to do better tax planning, as well as get future tax advantages.
4. Regain economic balance
With the effects of the pandemic and the oil price decline, introducing a Federal Corporate Income Tax regime can allow the government to launch programs that can help the nation regain economic balance.
5. It can help renew investment in small businesses
It may seem a lot for small businesses to pay Corporate Income Tax, but in the long run, it can help them gain more investments. How so? For one, it would give the government more budget to give them the necessary aid that can propel their business towards greater heights!
It may seem a lot for small businesses to pay Corporate Income Tax, but in the long run, it can help them gain more investments. How so? For one, it would give the government more budget to give them the necessary aid that can propel their business towards greater heights!
6. What is the expectation of the Corporate Income Tax in the UAE?
My personal views and expectations are 10% to 15%. I do believe that the UAE and in order to be competitive and still attracts investors, should compete with other neighboring countries in the Middle East. So, 10% sounds just about right; however, with the new minimum Global Tax rate of 15%, the UAE may adopt that.
If you have not seen it, here is the Dubai’s Expected Revenues for 2022. 20% is coming from Value Added Tax (VAT), which makes it very appealing for the UAE Corporate Income Tax to be introduced.
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