UAE’s Corporate Tax: A Credible Move for SME Community
The United Arab Emirates has always been at the forefront of innovation and change and one such positive transformation has been the country’s alignment with global community for taxes. In January 2022, the UAE Ministry of Finance announced that it would introduce federal corporate tax on the net profits of businesses.
UAE Corporate tax will apply to all UAE businesses, except for the extraction of natural resources, which will remain subject to Emirate-level corporate taxation. Foreign businesses and individuals will be subjected to corporate tax only if they run a trade or business in the UAE in an ongoing or regular manner.
While industry experts and financial analysts hail the UAE’s move, what does the introduction of this new tax mean for businesses in the region, particularly small and medium businesses (SMBs)?
Reduced Compliance Pressure: The corporate tax regime has been curated in a way to adhere to the best practices around the world and reduce the compliance burden on businesses. The new tax law will strengthen the UAE and GCC economy and attract well-meaning small and startup businesses from across the world
Reduced Tax Serves as a Boon: It is to be noted that the rate proposed is lower than other jurisdictions, which makes it a big boon for the SMEs. To support small and medium size enterprises there will be a zero-tax rate for taxable profits up to Dh375,000 ($102,000).
Robust Business Models: Introduction of corporate tax is an advancement towards building a robust business model, that is not only SME investor-friendly but will augment the growth of the SMEs
Beneficial for Varied Groups: There will be no tax on personal incomes from employment, real estate, and other investments, or on any other income earned by individuals that does not arise from a business or other form of commercial activity licensed or otherwise permitted to be undertaken in the UAE. Businesses involved in the extraction of natural resources will also be exempt.
While there are several apprehensions about the implementation of corporate tax, it is to be noted that most SMEs have adapted to digital transformation with the introduction of VAT a few years ago which will enable them towards a seamless transition to this new tax implementation. For businesses that have not, it is imperative that they now opt for an automated business management software to maintain accuracy of financial data.
For a smooth transition to the corporate tax era, having a powerful integrated software should be the top priority for SMEs in the UAE. This can help generate quick business reports across accounting, inventory, and compliance along with easy management of daily financial transactions.
Overall, the corporate tax announced by the UAE government will be a guided approach for the UAE’s SME community, that will benefit in a higher business valuation, more investors, and increased opportunities.
About the author
Vikas Panchal is the General Manager - Middle East region for Tally Solutions where he is largely responsible for building and leading MENA Strategy.. He holds 20+ years of comprehensive experience in channel development and direct sales in IT Industry. He completed his MBA and did a Management Program from Indian Institute of Management Ahmedabad.