Is Dubai still a (tax) paradise after the introduction of corporate tax?

Dubai (one of the seven emirates that make up the United Arab Emirates) is perhaps the most famous tax haven on earth. Will this continue to be the case, now that the Emirates will also introduce profit tax (CIT) after VAT in 2018 (5%)? Is Dubai still a tax-efficient location to establish your business?

PROFIT TAX DUBAI

As of July 1, 2023, or from the beginning of a company’s first financial year after that date, a 9% profit tax will be levied on companies in Dubai and in the other emirates. Until now, no profit tax has been levied in Dubai, so this will take some getting used to for local entrepreneurs. Please note: although this profit tax is called ‘corporate tax’, it is also levied on what we would call freelancers or sole proprietorships. The Emirati government sees profit tax as a necessary step to future-proof public finances. After all, the country’s oil supply is not infinite. In addition, international pressure has been exerted for years on Abu Dhabi (where the government is based) to comply with minimum international tax standards. The Emirates wants to become an all-round paradise, not just a tax haven.

FREE ZONES

What happens to the famous free zones? After all, it is precisely there that many foreign entrepreneurs have established their company, because they do not need a local sponsor for this. The Emirati government has so far indicated that it will continue to respect the benefits of the free zones. This mainly means that free zone companies are not allowed to enter the local market (i.e. no restaurant business, real estate, healthcare, energy, etc). Companies involved in the extraction of oil and gas already had (higher) taxes and will continue to do so.

THRESHOLD AND PARTICIPATION EXEMPTION

The profit tax includes a tax-free threshold of AED 375,000, more than EUR 90,000. For profits on top of that, a rate of 9% profit tax applies. It seems that salary becomes fully deductible, and not taxable for the recipient.

Dividends from qualifying participations will, as in the Netherlands, also not be taxed. So if a company in Dubai has a subsidiary in the Netherlands, it does not have to fear double taxation.

IS DOING BUSINESS IN DUBAI WORTH IT?

Even with a tax rate of 9%, the Emirates are still very competitive by international standards. For example, the Netherlands has a tax rate of 19-25.8%, and even Ireland levies 12.5%. In addition, there are the threshold and a number of exceptions and exemptions.

But most importantly, the Emirates, and especially Dubai, offer a very attractive living, working and investment climate. It is clean, safe, stable, modern, and progressive by Arabic standards, there is excellent care and education, it is very business-oriented, there are many expats living there (more expats than locals!), almost everyone speaks English, fuel is cheap, sun free. There are opportunities for all entrepreneurs in the Emirates. Our Middle East specialist Joost de Leeuw (leeuw@duijntax.com) is happy to help you on your way, together with our local partners in Dubai and Abu Dhabi.

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