Following the innumerable requests from large economies seeking to close tax avoidance loopholes, the UAE’s have introduced a 9% levy on corporate profits in an attempt to modernise its economy and adapt to international standards. The UAE was one of 136 nations that agreed to try to ensure that large companies undertake to pay at least 15 per cent on profits by corporate entities.

The UAE’s tax-free status has long attracted global multinationals and wealthy individuals, driving the economy’s diversification away from oil and gas revenues, especially in the commercial and tourist hub of Dubai.

With this measure “The UAE reaffirms its commitment to meeting international standards for tax transparency and preventing harmful tax practices,” said Younis Haji Al Khoori, under-secretary at the ministry of finance adding that the new regime would allow the UAE to support efforts to introduce a global minimum tax rate, in an apparent reference to the OECD’s landmark international deal seeking to tackle tax havens.

The move would strengthen the country’s fiscal framework, “it balances keeping a competitive tax rate globally, whilst integrating with the new OECD tax agreement and earning income on business conducted domestically,” Monica Malik, chief economist at Abu Dhabi Commercial Bank, said.

The new regime, is set to be introduced from June 2023 and would interest all business activities in the UAE except the extraction of natural resources, the finance ministry said in a statement. The tax will apply to income exceeded Dh375,000 ($102,000) to support small companies and start-ups.

It is important to highlight though that the tax rate, described by the government as “amongst the most competitive in the world”, would not be imposed on foreign investors not conducting business activities in the UAE (banks already pay corporate tax).

The country’s numerous “free zones”, which have driven growth by guaranteeing tax-free status and allowing foreigners to own their businesses without the need for a local partner, will also be able to offer tax incentives to investors that “do not conduct business with mainland UAE”.

Pressure on public finances sparked by the oil price collapse in 2014 has forced regional governments to explore new revenue streams (the UAE and some other Gulf states introduced value added tax in 2018).

70 per cent of VAT revenue in the UAE is returned to the emirate in which the sales occurred, a fiscal benefit for debt-laden, oil-poor Dubai, where most national consumption occurs. People aware of the government’s thinking said a similar approach would be taken to corporate tax revenues.

The UAE confirmed there would be no tax on personal income from employment or real estate and other investments.

Many companies have called for a corporate tax, saying a levy on their profits is preferable to “stealth” taxes. “What you have today is a lot of hidden expenses, such as visa renewal and annual license costs and other things,” said one executive. “The trick here is to go to a corporate tax but remove these other things — it has to be thought through in a comprehensive package