The landmark introduction of corporate tax in the UAE, which will come into effect from June 1, 2023, will bring more transparency to the market around financial disclosures, according to KPMG’s regional leader Emilio Pera.
Last year, the UAE announced one of its largest tax overhauls in its history, with the introduction of a 9% tax rate for companies and freelancers with taxable profits exceeding AED 375,000 ($102,000). Entities in the UAE previously did not need to pay taxes, instead paying business fees to the Emirati state.
The Emirates have several motivations for introducing the tax, including efforts to raise funds for their ambitious Vision 2030 agenda and economic diversification strategy, as well as increasing financial transparency in the business space.
With the choice for a 9% tax rate, the UAE still will have one of the lowest rates internationally, with experts suggesting that the Emirates will therefore not lose much attractiveness in its taxation appeal and in the area of foreign direct investment.
Emilio Pera, the CEO of KPMG in the Lower Gulf, said that the tax introduction will not only help beef up government coffers, but in fact also benefit the business landscape through added transparency. “Financial transparency is one of the pillars of a good functioning market.. providing confidence to business and investors positions the UAE as a leading financial centre.”
With 2024 the first year the tax will be effective, companies are starting to prepare for the new tax. Emirati authorities have all kinds of communications and interventions planned throughout the year to ready the country for the tax implementation.
Meanwhile, businesses are reaching out to their tax advisors to understand the implications and prepare for compliance. Pera, who leads one of the largest professional services firms in the UAE, said that KPMG is seeing “significant interest” from entities that operate across free zones and mainland jurisdictions, as well as multinationals that have business inside and outside of the UAE.
“As far as readiness, I believe there is sufficient time. Most are preparing, while some companies might wake up a little bit later. That’s inevitable, that there will be some companies that will come forward nearer the time,” Pera said.
While many compare the 9% corporate tax introduction to that of the VAT (introduced in 2018), Pera said there are a number of notable differences. “When VAT was implemented in the UAE, it was largely resolved under companies’ finance functions, whereas now, independent tax functions are being established.”
Further, corporate taxation considerations have a more wide-ranging impact on profit & loss statements and strategic decision-making (for example: tax optimised supply chains), as well as on the taxation footprint of internationally-operating groups.
Sourced from Consultancy-me