Comparing Corporate Tax Systems: UAE Vs Other Middle Eastern Countries

A Corporation Tax Is A Direct Tax

Corporate tax is the amount companies pay to the government on their income. This is usually the last line item on a company’s income statement and is calculated after deducting direct material costs, labor costs, marketing costs, capital under management, research, and development, and interest in sales. For example, many countries have a flat rate of 0%, as shown in the image below. Today, most countries have special rates below 30%.

With the looming issue of tax evasion, Corporate Tax UAE is among the most contentious issues in financial, government, and public debate. Tax evasion differs from tax evasion in that it is not illegal and only involves companies organizing their operations in such a way as to minimize tax expenditures.

A corporation tax is a direct tax on the net income or profits that corporations and other entities derive from their business. The UAE recently announced plans to introduce a 9% federal corporate tax on profits over AED 375,000 (US$102,180) from 1 June 2023. 

The global average statutory corporate tax rate is 23.54%.

The corporate tax rates in other Middle Eastern countries can vary significantly. In Bahrain and Oman, it’s only 10%, while it is much higher in Saudi Arabia and Kuwait, at 50%. However, Qatar has 35%, and the United Arab Emirates has a flat rate of 55% on all profits. Iran also has a high corporate tax rate of 25%. Despite these high rates, many corporations still operate in the Middle East due to its stability and market access. A 0% corporate tax rate on taxable income up to AED 375,000 should help SMEs and start-ups.

Overview of the cooperative tax system in the United Arab Emirates

The UAE’s corporate tax code is a new law that will come into effect from the first financial year commencing on or after 1 June 2023. The law imposes a 9% tax on companies with taxable income above AED 375,000 and taxable income up to AED on taxable income. 375,000, which is 0%. The tax does not apply to wages or other personal employment income. Tax rates are among the lowest in the GCC region.

The introduction of corporate tax aims to help the UAE achieve its strategic goals and accelerate its development and transformation. The certainty of a competitive corporate tax regime in line with international standards and the UAE’s extensive network of double taxation treaties will strengthen the UAE’s position as a leading business and investment jurisdiction. The UAE corporate tax system is based on international best practices and incorporates internationally known and recognized principles.

Comparison of UAE corporate tax system with Middle East countries

The corporate tax regime in the UAE differs from other Middle Eastern countries when it comes to tax rates, tax bases, exemptions, incentives, and compliance requirements. The tax rate is 0%. The tax does not apply to wages or other personal employment income. Tax rates are the lowest in the GCC region and substantially higher in some Middle Eastern countries than in the United Arab Emirates.

Despite these comparatively high rates, the region remains an attractive destination for businesses due to its steady economic growth and access to global markets. Some countries also impose additional taxes on certain sectors or activities, such as oil and gas, banking, insurance, telecommunications, etc. Taxes and accounting standards, depreciation methods, expense deductions, loss treatment, etc.

Some countries provide exemptions and incentives for certain industries or regions, such as free zones, industrial zones, tourist zones, etc. Compliance requirements also vary regarding application deadlines, payment methods, audit procedures, penalties, etc.

Comparison of corporate taxes in UAE around the world.

The UAE will impose a special federal tax of 9 percent from June 2023 to establish itself as a business and investment hub. That compares with a rate of 9% in other major trading centers worldwide.

The global average corporate income tax rate is 23.54%, measured by the American Tax Foundation in 180 jurisdictions. Calculated by domestic products, it rose to 25.44%. The tax rate is:

  •  30% in India and Australia, 
  • 29.9% in Germany, 
  • 29.74% in Japan, 
  • 28.41% in France, 
  • 27.81% in Italy, 
  • 26.47% in Canada, 
  • 25.75% in the United States, 
  • 25% in the United States & China. 
  • 24.94% in Luxembourg,

Major Sections of Corporate Tax Law UAE:

  • Individuals are not taxed. This means that personal income tax will not apply. The UAE will not tax income from salaries, real estate, stock investments, and other personal income unrelated to trade or business.
  • Individuals need not worry about implementing the new tax regime if the income is not derived from trade or business in the UAE.
  • The UAE does not impose special taxes on certain types of transactions.
  • One announcement is that corporate tax does not apply to foreign investors who do not conduct business in the UAE. More clarification is needed regarding what is included for projects outside the UAE. 
  • Another aspect is that corporate tax does not apply to capital gains and dividends UAE companies receive from their shares.
  • For corporate tax purposes, group operations and restructuring are excluded. Conducting business transactions for project financing is common in the UAE.
  • Certain transactions carried out by free zone companies are not subject to tax as long as they meet certain criteria. It’s still being determined what those criteria are, but they could be similar to what falls outside the scope of VAT.
  • There are currently no tax cuts planned. Withholding transactions affect trades in the UAE by suppliers other than Emirates Clearing Corporation.
  • If the company is taxed in a foreign jurisdiction, the tax paid can be deducted from the tax payable in the UAE.
  • Another big advantage of the UAE corporate tax is that there will be some relaxed rules on loss transfer and use. This is especially useful for start-ups whose early years can be overwhelming.

Countries with the Low and High Corporate tax rates

The UAE has the highest corporate tax rate in the world, reaching 55% in 2021. The global average corporate tax rate is 23.64%1.

The other top countries are Suriname (36%), Iraq, Malta, Sint Maarten (Netherlands), Sint Maarten, Sudan, and Zambia, with 35% each. Brazil and Venezuela each have a corporate tax of 34%.

Ten countries do not impose any corporate tax. These include:

  • Anguilla
  • Bahamas
  • Bahrain
  • Bermuda
  • Cayman Islands
  • Guernsey
  • Isle of Man
  • Jersey
  • Turks and Caicos Islands
  • Vanuatu

Less Corporate tax rate

Except for most Caribbean countries that do not impose corporate taxes, many Eastern European countries have below-average corporate tax rates, including:

  • Hungary 9%
  • Montenegro 9%
  • Andorra 10%
  • Bosnia and Herzegovina 10%
  • Bulgaria 10%
  • Gibraltar 10%
  • Macedonia 10%
  • Moldova 12%
  • Cyprus 12.5%
  • Ireland 12.5%
  • Liechtenstein 12.5%1

UAE Corporate tax rates are different from others 

Although the UAE has a high corporate tax rate of 55%, its tax framework is unique. Oil and gas companies and subsidiaries of foreign banks mainly pay high tax rates. This is because the state divides tax brackets based on the income of individuals and companies. This has resulted in a tax structure that includes the following:

The UAE has a strong economy and a relatively high per capita income of US$66,771.

     The once-heavy oil-dependent government has gradually diversified its economy to include tourism, finance, manufacturing, and air transport.

Other countries with high corporate tax rates are less economically viable. Likewise, Suriname corporate tax is at a rate of 36%. The country’s GDP per capita in 2020 was $4,916.

   The country relies on its mining industry, making it highly vulnerable to fluctuations in mineral prices. The country’s economy faces high unemployment, low investment, and high inflationary pressures of 59.1% in 2021.

Final thoughts

Therefore, the UAE is a better place to attract global investment because it has the lowest corporate tax rate compared to other countries. Corporate income tax contributes to the sustainable future of the economies of various countries, which will help improve corporate governance and global best practices by strengthening the economy. Corporate tax regulations worldwide are also changing to better accommodate the changing nature of global business. Larger industrialized countries tend to have higher corporate tax rates than smaller countries.

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