Corporate tax: here is how the UAE compares with other global trading centres

The average statutory corporate tax rate stands at 23.54 per cent worldwide, according to the US-based Tax Foundation

The UAE issued its federal corporate tax law that will levy a headline 9 per cent rate on taxable income exceeding Dh375,000. Silvia Razgova / The National

Taxable income below the aforementioned threshold will be subject to a 0 per cent rate of corporate tax. Chris Whiteoak/ The National

No corporate tax will apply on salaries or other personal income from employment — be it in the government, semi-governmental, or private sector, the Ministry of Finance said. Chris Whiteoak/ The National

Businesses will become subject to the UAE corporate tax from the beginning of their first financial year that starts on or after June 1, 2023. Victor Besa / The National

The UAE corporate tax regime builds from best practices globally and incorporates principles that are internationally known and accepted. Victor Besa / The National

The UAE has announced plans to introduce a federal corporate tax of 9 per cent from June 1, 2023, as it seeks to establish itself as a global centre for business and investment. The tax will be applicable to companies on profits of more than Dh375,000 ($102,180).

“The tax regime will be among the most competitive in the world,” the Ministry of Finance said.

EFG-Hermes said the tax is “clearly beneficial” to the UAE’s “already solid fiscal position”.

“The funds will be collected at the federal level and we assume they will be then, in line with VAT, distributed to the various emirates, taking into account their proportionate contribution,” the investment bank said in a note on Tuesday.

“The tax will, therefore, provide additional resources for the government to re-pump this money back into the economy.”

The corporate tax is another step towards diversifying the UAE’s budget revenue away from the sale of oil and gas and “remains low by global standards,” according to Emirates NBD.

Here is how the 9 per cent tax rate compares with other global trading centres.

The average statutory corporate income tax rate worldwide, as measured by the US-based Tax Foundation across 180 jurisdictions, is 23.54 per cent. When weighted by gross domestic product, it increases to 25.44 per cent.

Asia has the lowest regional average rate, at 19.62 per cent, while Africa has the highest, at 27.97 per cent, according to the foundation. However, when weighted by GDP, Europe has the lowest rate, at 23.97 per cent, while South America has the highest, at 31.03 per cent.

The tax rate stands at 30 per cent in India and Australia, 29.9 per cent in Germany, 29.74 per cent in Japan, 28.41 per cent in France, 27.81 per cent in Italy, 26.47 per cent in Canada, 25.75 per cent in the US and 25 per cent in China, according to 2021 data from the foundation.

Luxembourg has a tax rate of 24.94 per cent, followed by Turkey (20 per cent), Switzerland (19.7 per cent), the UK (19 per cent), Singapore (17 per cent) and Hong Kong (16.5 per cent).

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Changing global tax policies

The regulations surrounding corporate tax worldwide are also being modified to better align with the evolving global nature of business.

In October 2021, 136 nations signed a major global agreement to ensure big companies pay a minimum corporate tax rate of 15 per cent from 2023. The new minimum tax rate will apply to companies with revenue above €750 million ($868m).

Under the deal, which was orchestrated by the Organisation for Economic Co-operation and Development (OECD), countries will collect about $150 billion in new tax revenue annually, while $125bn in multinational profits will be reallocated to the countries in which they operate.

The OECD said the deal will ensure a “fairer distribution” of profits and taxing rights among countries for the largest and most profitable multinationals.