UAE Implements 9% Business Tax in Step Toward Revenue Diversification

The United Arab Emirates announced Thursday that it had introduced a 9% business tax, with provisions for small businesses and probable exemptions for free-zone activities. This move follows a 5% value-added tax introduced in 2018, reflecting the nation’s evolving tax strategy that initially positioned it as a tax-free trade and tourism hub and a haven for the ultra-wealthy.

According to S&P’s Trevor Cullinan, the tax is designed to diversify revenue sources beyond oil, but the full impact is uncertain due to a lack of clarity on tax distribution among the individual emirates. With a threshold of taxable income above 375,000 dirhams ($100,000), the UAE’s rate is the lowest in the Gulf Cooperation Council, aside from Bahrain, which doesn’t impose a general corporate tax.

Muhammad Rasoul, CEO of financial services firm Amana Capital, said the corporate tax aligns the UAE with global best practices, as long as the economy remains competitive.

The Organization for Economic Cooperation and Development (OECD) in 2021 introduced a global minimum corporate tax rate of 15%, set in an international agreement signed by 136 countries, including the UAE. The purpose of this measure was to dissuade multinational corporations from allocating their profits to regions with lower tax rates. It aimed to ensure that all large corporations contribute their fair share of taxes, no matter where they operate. If a corporation’s effective tax rate in a specific country falls under the 15% limit, the country where the corporation is headquartered is allowed to supplement the tax up to the minimum rate, thus discouraging profit migration to tax shelters. Tax specialists say that if the UAE had not implemented its own corporate tax system, another country could have levied the full 15% tax on a multinational that tried to use its operations in the UAE as a tax shelter.