The UAE Ministry of Finance said at the end of January that it will introduce its first-ever corporate tax law across all seven emirates, starting on or after June 1, 2023. This column is based on the ministry’s guidance, but more clarity, perhaps including some changes, will emerge when its federal law is published. The move is in line with the Organization for Economic Cooperation and Development’s base erosion and profit shifting plan to end tax avoidance. This plan calls on countries to issue corporate tax legislation in 2022, bringing it into force by the following year. The UAE is one of 141 countries following this program to tackle tax avoidance and ensure a more transparent tax environment. The OECD said that firms shifting their tax liabilities cost countries around the world between $100 billion and $240 billion (SR375 billion to SR900 billion) in lost revenue a year, equivalent to between 4 percent and 10 percent of global corporate income tax revenue. In the UAE, corporate tax will be levied on the adjusted net profit of all firms and commercial activities operating in the country under a commercial license. The only exception is natural resource extraction, which will remain subject to emirate-level corporate taxation. Most businesses in the UAE will be subject to a low corporate tax rate of 9 percent. To help support startups and small firms, those with annual revenue below AED 375,000 ($102,000) will pay no corporate tax. Multinationals and large companies with an annual consolidated turnover of over €750 million ($832 million) will be subject to a higher tax rate, likely to be 15 percent, given the rate recommended by the OECD. This will be the lowest tax rate among GCC countries and one of the lowest worldwide. The new law will also see companies benefit from exemptions to the tax. Corporate tax will not apply to capital gains or dividends income from qualifying shareholdings, such as ownership interests in the UAE, or foreign companies that meet certain criteria. Qualifying intragroup projects and restructuring costs will also be exempt subject to certain conditions. Projects funded through intercompany transactions are very common in the UAE, so these not being subject to corporate tax will be a major benefit. This corporate tax reform will accelerate the UAE’s strategic development and transformation objectives as well as attract foreign investment. Marco De Leo & Nour El Shinnawi The UAE will also remain attractive for foreign investors looking to establish a holding company in the UAE to invest abroad, as no corporate tax will apply to foreign investor’s income from dividends and capital gains. Freezone firms are expected to be able to maintain their attractive structure for business in the UAE, as they should be able to benefit from zero corporate tax if they comply with all regulatory requirements and do not conduct business in mainland UAE. To help with compliance with the upcoming corporate tax law, the UAE plans to operate a streamlined framework, which will require audited financial statements just once each tax year, instead of quarterly as in other countries. UAE companies will also be able to form a tax group that will be treated as a single taxable person, with the group being able to, if it meets certain conditions, file a single tax return, which will allow one entity’s losses to be set off against another’s profits. Another advantage of the corporate tax is avoidance of double taxation — businesses will be able to set off foreign corporate tax paid on UAE taxable income as a tax credit against UAE corporate tax. With the UAE meeting international tax transparency standards and preventing harmful tax practices, the emirate will become a comprehensive taxation jurisdiction and cement its position as a leading global hub for business and investment. This corporate tax reform will accelerate the UAE’s strategic development and transformation objectives as well as attract foreign investment. • Marco De Leo is the managing partner at BonelliErede, Dubai. • Nour El Shinnawi is a Dubai-based trainee at BonelliErede. Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News" point-of-view