Did you hear the news? The United Arab Emirates will start levying corporate tax on UAE businesses. The Ministry of Finance made the announcement on 31 January 2022, saying the 9% federal corporate tax will take effect on 1 June 2023.
If you have ever considered starting a business in Dubai, then you know that one of the country’s biggest draws is the lack of a general corporate tax in UAE. In light of this new corporate tax regime, should you push through or table the idea of starting a business in Dubai?
Corporate Taxation in the UAE
The individual emirates (i.e., Dubai, Abu Dhabi, Sharjah, Ajman, Fujairah, Umm Al-Quwain, and Ras Al Khaimah) have always had the authority to set and collect business taxes. However, they have been selective about corporate taxation for the most part.
Specifically, the emirates have collected corporate taxes only from local branches of foreign banks and enterprises that extract natural resources. Oil and gas companies, for instance, are subject to progressive taxes and can pay up to 55% tax on their income. However, for the rest of the businesses in the emirates, the norm is zero corporate tax.
Meanwhile, the UAE free zones have always been under the jurisdiction of their respective free zone authorities. However, these authorities have refrained mainly from taxing free zone entities. Most free zones have a tax holiday incentive, so businesses in these free zones often have 50-year corporate tax holidays. Typically, such tax holidays are infinitely renewable. Essentially, therefore, free zone companies pay zero corporate taxes.
However, come 1 June 2023 (or 1 January 2024 for those whose fiscal years start in January), all business income greater than AED 375,000 will be subject to a 9% corporate tax. Otherwise, the corporate tax is 0%.
Both free zone and mainland companies are included. However, in the former’s case, any existing tax incentives will be honored as long as the company remains in good standing.
Local branches of foreign banks will also transition to the new general corporate tax. However, oil and gas extraction companies will remain subject to emirate-level progressive corporate tax rates.
In short, the new corporate tax regime will make corporate tax the default or the norm for UAE businesses. In light of this new reality, should you still push through with any plans to set up your business in Dubai?
The short answer is yes. The lack of a general corporate income tax is just one of the things that made Dubai a preferred business location.
The Advantages and Benefits of Setting Up a Business in Dubai
The following are some of Dubai’s critical advantages as a location for business start-ups and multinational corporations. Even the introduction of a federal corporate tax does not dampen the benefits these advantages bring.
- Strategic Geographical Location
Around two and a half billion people live within a four-hour flight radius of Dubai. Likewise, approximately five billion people live eight hours away by plane. In other words, a business in Dubai can reach a significant chunk of the global population within eight hours.
Benefit: Dubai provides convenient access to some of the world’s most important trading markets. Thus, it is more than possible for a high-density polyethylene pipes manufacturing company located in Dubai to get plastic water pipes shipped to and received by its clients in New Delhi within the same business day.
- Advanced Transport Infrastructure
Of course, it is not enough that a place is geographically accessible. Even if Dubai were only three and one-half hours away from New Delhi, this would not matter if Dubai’s transport infrastructures weren’t advanced or sophisticated enough to keep up with logistics demands.
In other words, you must have roads that will efficiently transport merchandise from factories and warehouses to the airport. You also need an airport with the requisite capacity to handle logistics needs.
Fortunately, the Dubai transport network is pretty advanced. The Dubai government continues to be keen on developing the emirate’s transport infrastructure. It even completed the Dubai Metro project in four years and the Dubai Water Canal project in less than three years.
The Roads and Transport Authority also cites the following transport infrastructure achievements between 2006 and 2020.
- The Dubai road network more than doubled, going up from 8.715 km to 18,255 km
- The number of vehicle bridges and tunnels increased by more than five times, from 129 to 844
- The number of pedestrian bridges and tunnels increased by almost four times, from 26 to 125
- The cycling track network increased by more than 50 times, from 9 km to 463 km (expected to increase to 668 km by 2025)
The Dubai International Airport can also capably handle both passenger and freight traffic. Airports Council International named Dubai International Airport (DXB) the world’s number one busiest airport in international passenger traffic. Despite the reduced number of passengers worldwide due to the pandemic, 29,110,609 international passengers embarked and disembarked in DXB in 2021.
DXB also ranked eight in international freight. DXB loaded and unloaded 2,319,185 metric tonnes of international freight in 2021.
Indeed, Dubai has advanced transport infrastructure to support the activities of Dubai-based businesses. In its 2018 Hub Report, property analyst Knight Frank cited the quality of Dubai’s overall transport infrastructure as the third-best globally.
Benefit: The advanced and ever-improving transportation infrastructure in Dubai will let you take full advantage of Dubai’s strategic location. Set up your business base outside the busy business center but still be confident in your ability to ship your products out to around five billion of the world’s population within the same day.
- Ease of Doing Business
The World Bank’s Doing Business project identifies and tracks the business regulations that apply to businesses in 190 economies worldwide. It then ranks these economies according to their business regulation environments. The higher an economy ranks, the more favorable its regulations are to businesses, and the easier it is to do business in that market.
So, how does the UAE fare in the World Bank’s Ease of Doing Business rankings?
The UAE bagged 16th place in the World Bank’s Doing Business rankings for 2020. The following are its specific rankings in certain categories:
- 1st in getting electricity
- 3rd in dealing with construction permits
- 9th in enforcing contracts
- 10th in registering property
- 13th in protecting minority investors
Benefit: You deal with less red tape when you do business in Dubai. Business applications are pretty straightforward processes. You can quickly get up and running, especially if you have expert business set-up help.
Start a Business in Dubai
The new federal corporate income tax in the UAE is undoubtedly a drawback, but it shouldn’t make Dubai less attractive to start-ups and multinational enterprises. Dubai is an excellent location for start-ups and global companies because of its strategic location, robust infrastructure and favorable business regulations.
