The introduction of corporate tax in the UAE in June 2023 marked the start of a new era of taxation in the country. While the UAE corporate tax rates are relatively low compared to other nations at present, taxation experts predict that future changes in corporate tax laws and policies are on the horizon. This article analyzes predictions and trends around the UAE Corporate Tax Future.

UAE Corporate Tax Future

When the UAE first announced corporate tax laws in 2022, it provided temporary relief for small businesses and freelancers. However, experts believe that these carve-outs may be limited or reduced over time. Several economists argue that lower tax rates initially help gain acceptance but gradual increases are inevitable. The following are the predictions and trends related to future changes to UAE corporate tax law:

1. Expected Rate Hikes

While 9% marked a gradual introduction of corporate tax for the UAE, stakeholders widely expect the rate may increase in the medium to long term for the following reasons:

• The worldwide average corporate tax rate currently stands at around 23-25%, with the OECD average at 23.04% and G7 nations averaging 26.7%.
• Neighboring GCC countries like Saudi Arabia have recently implemented baseline corporate tax rates of 15-20%. Regional harmonization pressures may influence UAE policy.
• Higher rates boost public revenues, allowing greater investment in economic diversification programs critical to Vision 2030 goals.
• Moderately higher rates still allow the UAE to position competively relative to other jurisdictions and maintain its appeal as a business hub.
• International standards like the OECD/G20’s Base Erosion and Profit Shifting initiative encourage fair contribution from multinationals globally.

CTU analysts anticipate the UAE may gradually increase its rate in step-wise fashion, such as to 10% within 5-7 years and potentially 12-15% beyond 10 years. This achieves a balance between fiscal needs and sustaining competitiveness. Regular benchmarking will likely inform adjustments aligning the UAE system dynamically with global norms.

Table 1: Predicted Corporate Tax Rate Hikes in the UAE

2. Tax Exemptions

Many experts foresee a narrowing of tax exemptions granted under current laws over the coming years. Extractive natural resource businesses may see stricter qualifying conditions for tax relief. Similarly, small business income thresholds for relief are expected to be lowered from AED 3 million currently. Free zones may lose some special privileges as well to make taxation more uniform. This will generate higher state revenues through an expanding tax base. Alternatively, the UAE could keep headline rates unchanged but broaden the tax base by taxing more sources of income like capital gains which are currently exempt. This would achieve revenue goals with less need for rate hikes.

3. Global Minimum Tax Impacts

The Organization for Economic Co-operation and Development’s (OECD) two-pillar global minimum tax plan came into effect in 2023. This established a corporate tax rate of 15% for large multinationals globally. The UAE was one of the over 130 nations that implemented the new regime. However, challenges remain with regards to complex calculations. Corporate tax UAE advisors anticipate further compliance burden in future as anti-tax avoidance rules strengthen. The minimum rate may also increase marginally in the long run.

4. Trends in corporate taxation UAEÂ

As the new Corporate tax UAE regime matures, it is likely that the UAE tax authorities will strengthen compliance requirements and tax administration structures. Some projected improvements include:

• Mandating detailed transfer pricing documentation according to OECD standards for multinational enterprises with related party transactions to ensure arm’s length pricing.
• Introducing stricter general anti-avoidance rules to curb aggressive tax planning techniques and impose penalties on non-compliant taxpayers.
• Establishing compulsory electronic tax return filing and requiring taxpayers to submit country-by-country reports, especially for large multinationals.
• Setting up dedicated tax courts to efficiently handle tax disputes and litigation as the volume of cases increases over the years. Currently tax appeals go to ordinary courts.
• Expanding the use of data sources and digital tax administration tools by the Federal Tax Authority to identify non-filers, underreporting of income and non-compliant entities for potential tax audits.
• Necessitating audited financial statements from all medium and large taxpayers instead of just qualifying entities; this enables better income verification.
• Potential collaboration with OECD on international standards like Common Reporting Standard for automatic exchange of financial account information with partner countries to combat tax evasion.

Such administration upgrades will subject businesses to greater scrutiny but also enhance transparency and dispute resolution. Advanced preparation will help companies smoothly adapt to increasing regulation.

FAQs

Q: What future changes are expected in UAE corporate tax laws?

A: Potential changes include widening the tax base, rationalizing tax rates, introducing new tax streams like capital gains tax, expanding tax incentives for strategic sectors, increasing international tax cooperation and modernizing policies to address disruptions from digitalization and future industries.

Q: How can businesses in the UAE prepare for future tax challenges?

A: Businesses can prepare by developing a robust tax compliance function, regularly monitoring policy updates, planning strategically based on potential incentive programs, benchmarking transfer pricing practices, investing in digital reporting solutions, and fostering cooperation with tax authorities through regular disclosure and consultation. Engaging specialist tax advisors also helps navigate evolving requirements smoothly.

Conclusion

In conclusion, while the UAE’s current corporate tax regime provides initial relief, taxation experts and advisors foresee significant changes shaping the UAE Corporate Tax Future in the country. Strategic entities like Corporate tax UAE consultants are helpful guides for businesses to navigate this evolving landscape proactively through specialized services and advisory. Continuous engagement with reputed tax consultants will help UAE companies and entrepreneurs prepare effectively for taxation demands ahead while leveraging incentives along the way.