UAE & Tax
The United Arab Emirates (UAE) has traditionally been recognized for its minimal taxation policies, a strategy that has significantly contributed to its appeal as a global business hub. Historically, the nation’s substantial oil revenues allowed the government to fund public services without imposing direct taxes on individuals or corporations. However, as part of a strategic move to diversify its economy and reduce reliance on oil, the UAE has introduced several tax measures in recent years.
Introduction of Value Added Tax (VAT)
In January 2018, the UAE implemented a Value Added Tax (VAT) at a standard rate of 5%. This consumption tax applies to most goods and services, with certain exemptions and zero-rated categories. Businesses generating annual taxable supplies exceeding AED 375,000 are mandated to register for VAT, while those with supplies over AED 187,500 have the option to register voluntarily. The Federal Tax Authority (FTA) oversees VAT administration, ensuring compliance through regular audits and providing guidance to businesses.
Excise Tax for Health and Environmental Objectives
October 2017 marked the introduction of excise tax in the UAE, targeting products deemed harmful to public health and the environment. The tax rates are as follows:
- 50% on carbonated beverages
- 50% on products with added sugar or sweeteners
- 100% on tobacco products
- 100% on energy drinks
- 100% on electronic smoking devices and vaping liquids
This initiative aims to discourage the consumption of these products, thereby promoting healthier lifestyles and generating additional government revenue.
Corporate Taxation Developments
In a significant policy shift, the UAE announced the introduction of a federal corporate tax on business profits, effective for financial years starting on or after June 1, 2023. The tax rates are structured as follows:
- 0% for taxable income up to AED 375,000
- 9% for taxable income exceeding AED 375,000
This move aligns the UAE with international tax standards and aims to enhance its global economic competitiveness.
Global Minimum Tax and Domestic Measures
Further aligning with global tax reforms, the UAE is set to implement a 15% minimum top-up tax on large multinational companies starting January 2025. This measure is part of the Organisation for Economic Co-operation and Development’s (OECD) global minimum corporate tax agreement, targeting companies with consolidated global revenues of at least €750 million. The initiative seeks to prevent tax base erosion and profit shifting, ensuring that multinational enterprises contribute a fair share of taxes.
Tax Administration and Compliance
The Federal Tax Authority (FTA) is responsible for administering and enforcing tax laws in the UAE. Its functions include taxpayer registration, tax collection, processing returns, and ensuring compliance through audits and inspections. The FTA also provides resources and guidance to assist taxpayers in understanding their obligations.
Conclusion
The UAE’s evolving tax landscape reflects its commitment to economic diversification and adherence to international tax standards. While maintaining a relatively low tax environment, the introduction of VAT, excise, and corporate taxes demonstrates a strategic approach to sustainable economic growth. Businesses operating in the UAE should stay informed about these developments to ensure compliance and optimize their financial strategies.
