In a plan aimed at harmonizing international standards, the UAE announced that it will introduce a 9% federal tax on business profits starting from June 2023, in an effort by the Gulf state to diversify its sources of income so that this tax will be the fourth in 4 years.

The UAE's resort to this tax came after the move towards imposing a global minimum tax on multinational companies, which was approved by the Group of Twenty of the major economies last October.

In the face of declining oil revenues, the general fiscal trend in recent years in the Gulf has been toward higher taxes, not lower taxes.

The UAE decision - according to the French news agency - came at a time of intense regional competition, especially with Saudi Arabia trying to push its capital, Riyadh, to transform into an international center similar to Dubai, while the Kingdom seeks to diversify its oil-dependent economy.

According to a statement published by the UAE Ministry of Finance, the applicable corporate tax system will be among the most competitive internationally, indicating that corporate tax will not be imposed on personal income earned from a job, or on any other personal income gained through real estate investment activities or other investments.

The UAE says the tax aims to prevent harmful tax practices (UAE press)

Meet international standards

The Emirati statement quoted the Undersecretary of the Ministry of Finance, Younis Haji Al-Khoury, as saying that "with the introduction of the corporate tax, the state renews its commitment towards meeting international standards for tax transparency and preventing harmful tax practices."

But Scott Livermore, chief economist at Oxford Economics Middle East in Dubai, says that despite its desire to attract more business and corporate headquarters, the UAE will seek to appear as part of the global system.

Livermore explains that the UAE seeks to be seen as part of the global system and not as a tax haven, adding that staying outside the agreement will have only limited benefits, especially if it is approved by the Group of Twenty and the Organization for Economic Cooperation and Development.

According to the economist, even in the event of an increase in the tax burden on companies, the government will seek to compensate for this, similar to Luxembourg and Malta;

Where corporate tax is applied but with multiple exemptions.

The UAE’s decision to impose a 9% tax on corporate profits starting from June 2023 is long overdue and deserves celebration and will contribute to building the post-oil economy and diversifying sources of income, officially and effectively ending the era of the rentier economy and will not affect the attractiveness of the UAE https://t.co/UmYQkc5PDT https: //t.co/UmYQkc5PDT

— Abdulkhaleq Abdulla (@Abdulkhaleq_UAE) January 31, 2022

fourth tax

This is not the first tax imposed by the UAE;

In 2018, it imposed a value-added tax of 5%, and later imposed customs duties of 5% on imports.

It also imposed taxes on banks and insurance companies operating outside the country’s extensive network of free zones at a rate of up to 20% on their profits. The oil and gas sector in the country is also subject to taxes under a separate program, and the value of these taxes varies according to the nature of the investment.

The announcement by the UAE Ministry of Finance of its commitment to meeting international standards for tax transparency and preventing harmful tax practices came after the US Treasury confirmed that the leaders of the "Twenty" Group of Twenty ratified a historic agreement on new international tax rules that include imposing a tax on multinational companies at a minimum rate of 15%.

Some 136 countries - representing more than 90% of global gross domestic product - have signed an agreement brokered by the Organization for Economic Cooperation and Development to impose more equitable taxation on multinational corporations, and impose a minimum tax on global companies of 15%.

This system is scheduled to enter into force in 2023, which is reflected in the new UAE decision, which adhered to the same timing.

The Saudi Minister of Investment announces that the Kingdom has granted 44 international companies licenses to establish regional headquarters in Riyadh (communication sites)

fierce competitor

The decision comes at a time when the UAE is trying to prepare to face a fierce competitor in the region, the Kingdom of Saudi Arabia, which has the strongest economy, which is seeking to attract giant international investments as part of its plan for economic diversification.

On October 27, the Saudi Minister of Investment, Khalid Al-Falih, announced that the Kingdom had granted 44 international companies licenses to establish regional headquarters in the capital, Riyadh, noting that this comes within the framework of Saudi Arabia’s endeavor to become a regional commercial center that attracts foreign capital and skills. .

He stated that these companies include multinational companies in several sectors, including technology, food and beverages, consulting and construction, including Unilever, Baker Hughes and Siemens.

Saudi Arabia had announced - February 2021 - that it would give foreign companies an opportunity until the end of 2023 to establish headquarters or risk losing government contracts.