Did you know that the UAE Ministry of Finance has brought considerable changes to the taxation system and consolidated its position in the international economic market?
These changes will be implemented from January 1, 2025, and are aimed at improving the generally accepted accounting principles (GAAP) in tax, improving the rules of corporate taxation, and granting leeway to corporate entities involved in international activities.
In this blog, let’s take a look at these updates, how they impact businesses, and why they further strengthen the UAE’s Business Friendly Framework.
Types of Taxes in the UAE
Before we check out the updates in the tax rules, here are the types of taxes in the UAE:
1. Value Added Tax (VAT)
VAT was implemented in July 2018 at a standard rate of 5 % on most of the goods and services. Some other things are either zero-rated or exempted such as health care, education, and some buildings for human residence.
2. Corporate Tax
From June 2023, corporate income tax of 9% is chargeable in respect of business income which exceeds AED 375,000 per year. Those earning below this amount are excluded, which gives a way forward especially to small businesses and startups.
3. Excise Tax
This is with the intent to enhance healthier living and applies to products like tobacco products, energy-enhancing drinks and those containing high sugar content. Availability-by-product rates are between 50% and 100%.
4. Customs Duty
Currently, there is a customs duty on imported goods that is estimated to be between 2% and 5%. However, there are conditions under which goods originating from among the GCC countries are allowed.
5. Tourism and Municipality Fees
The UAE currently does not have a personal income tax though visitors and residents are faced with indirect taxes in the form of municipality fees, which are charged and recovered alongside utility bills and additional tourism taxes that are charged on all accommodations for tourists and most entertainment activities.
Now, in the next section, let’s explore the key changes to the UAE tax rules.
Key Updates to UAE Tax Rules
1. Ministerial Decision No. (301) of 2024 – Tax Groups
The first is aimed at improving the rules for the establishment of tax groups, under which business can pool their taxable income and minimize taxes.
- Simplified Requirements: This means that, for companies in a tax group to be allowed, 95% or more of the ownership interest has to be present.
- Exclusion of Free Zone Entities: Those operating in Free Zones and those with a zero tax status cannot form these groups.
- Benefits: Assists in optimizing tax planning strategies for companies operating under a single group and administrative convenience.
2. Ministerial Decision No. (302) of 2024 – Participation and Foreign PE Exemption
The second update provides enhanced guidelines for participation exemptions and foreign PEs.
- Participation Exemption: Corporate tax exemption is available to the company if the minimum 10% of its shares are owned by another body which has a tax rate of 9% or more in its jurisdiction of operation in UAE.
- Foreign PE Income: The amendments smooth the rules regarding the tax-exempt status of foreign representative office income.
These provisions mitigate against the risk of double taxation and bring legal certainty where international operations of business are concerned thus making the UAE more appealing to cross-border investors.
Why are these Changes Important?
These updates are intended to solve a number of problems that are typical for a company and make the use of taxes in the UAE legal and more effective.
Key Benefits for Businesses
- Ease of Compliance: Reduced or straightforward rules avoid complications and help businesses work with less effort and spend less on taxes.
- Support for International Growth: It is easier for companies with foreign operations to make use of the exemptions and thus expand internationally.
- Alignment with Global Standards: These updates keep the UAE competitive by following international tax norms and increasing foreign investment.
- Administrative Relief: Businesses avoid fines and mistakes that might have resulted from complicated regulations since simple rules are clear.
Conclusion
So this is what’s happening in the UAE and we are happy to keep you informed about these latest tax updates.
These recent changes are a game-changer for business operations in the United Arab Emirates. All of these changes make taxes easy to understand, promote growth and align the country with other countries in the right way without making anything complicated.
Are you still unsure of how these new changes will impact your business? If yes, no worries! Here is one more suggestion: Visit QuickPlus Business Consultants and let our team handle everything for you. From legal advice to setting up your business, you just have to sit back and relax.
