Home Blog The Impact of Global Minimum Tax on the UAE Economy

The Impact of Global Minimum Tax on the UAE Economy

The Impact of Global Minimum Tax on the UAE Economy

Agreed upon in October 2021 by 137 countries out of the 141 members of the Organization for Economic Co-Operation and Development (OECD), the Global Minimum Tax (GMT) is set to impose a minimum tax rate of 15% in every country of operation against multinational enterprises (MNEs) who are either currently not subject to corporate income tax or are subject to lower rates. This is designed to prevent MNEs from exploiting differing tax mechanisms of various jurisdictions to avoid paying taxes and to put an end to the tax competition between countries. Read along to see how this new mechanism can impact the UAE economy.

Effect of Global Minimum Tax on the UAE Economy

Introduction of Federal Corporate Tax in the UAE

 Supporting the introduction of the GMT, the Ministry of Finance of the UAE announced the introduction of Federal Corporate Tax on January 31, 2022, to take effect on or after June 1, 2023. This will cover all business and commercial activities across all Emirates unless they are for the extraction of natural resources – an activity that will be subject to the taxation mechanisms of each of them.  Under the new system, corporations with an income above AED 375,000 will be subject to a 9% tax rate, while those operating in the free zones will still be able to benefit from the 0% taxation rate so long as they do not conduct business within the mainland. As for MNEs with a consolidated global revenue above EUR 750m, a different tax rate would apply.

No Federal Corporate Tax, however, will be applicable to income from employment, real estate, savings, investments, and all those earned in one’s personal capacity, since they are not in connection with UAE trade. Capital gains, dividends, and investment returns gained by foreign investors will also not be included.

Impacts to the UAE Economy and Businesses in General

 According to Monica Malik, Chief Economist at Abu Dhabi Commercial Bank, this would strengthen the fiscal framework of the UAE as it keeps “a competitive tax rate globally, whilst integrating with the new OECD tax agreement and earning income on business conducted domestically.” Moreover, not only will this new mechanism close loopholes in tax avoidance, but as the undersecretary of the Ministry of Finance noted, this would also encourage transparency in the payment of taxes and avoid harmful practices.

As for businesses, it is crucial for them to conduct an evaluation of the impacts of the new tax and devise methods on how they can implement it smoothly. Identification of future implications must be made, along with new tax mitigation strategies to determine whether changes to corporate structure, contractual agreements, and reporting mechanisms shall be made to ensure compliance.

All in all, the GMT and the new corporate tax framework of the UAE positions it as a country compliant with international standards, allowing the government to generate more profit to make the economy more robust while supporting small companies.

Looking to Invest? Here’s How We Can Help

 If you are looking to make a safe investment in the UAE amidst the changes in corporate tax mechanisms, or have simply not determined yet how this can impact your current investments, reach out to the financial advisors of one of the leading investment companies in the UAE – AIX Investment. For more information, visit https://www.aixinvestment.com.

Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Articles

How to Choose a Bike When you Live in a Big City?

In the hustle and bustle of a big city, finding an efficient...

Top 6 Tips for Choosing the Best Bookkeeping Services

As an entrepreneur and business owner, properly managing your finances is important...

Morpheus8_ Is it Right for Your Skin Type

This non-invasive treatment can help address a variety of skin concerns, but...

How Remote Monitoring is Improving Healthcare Accessibility

Remote monitoring involves using technological advances to collect health data from patients...