How UAE Corporate Tax Compared Globally: Insights for Multinational Companies

The UAE lives in the future. There is no lie in saying that it has now become a business hub for the smaller and larger-scale businesses to flourish globally. The UAE is known for its approachable work environment, and now to reduce the dependency from oil revenue, it has introduced the 9% corporate tax on the average income of more than AED 375,000, which is below the average of the global tax rate and highly competitive in the business realm. This UAE corporate tax system allows many benefits to not only the small businesses but to investors as well as multinational companies.

Corporate Tax for MNCs:

The introduction of a tax rate in the UAE has significantly shifted the economic landscape for multinational companies that were accustomed to operating in a tax-free environment. The tax rates are highly attractive to MNCs as compared to global standards. UAE offers a substantial advantage in comparison to other companies like the United Kingdom and United States that have a tax of 21%–25%, whereas the tax imposed by UAE’s government is 9%.

Free Zones:

Moreover, the UAE continues to incentivize investment in free zones, which means that the businesses stay tax-free provided they do not violate the law. Even after this low tax rate, MNCs will have to adapt to the operating and documenting systems, which includes transfer pricing regulations. Transfer pricing regulations indicate that the intracompany transactions are the same as the market rate, which prevents the profit from being lower. For MNCs, it is required to have complete tax documentation and strategic planning to align with UAE regulations.

Double Tax Avoidance Agreements (DTAA):

The Double Tax Avoidance Agreements (DTAA) assist the multinational companies dodging being taxed on the same income in different countries. This is the structure of the current taxation system, which provides ease to MNCs. To increase the international footing of the UAE, these taxes are supposed to insinuate.

Extended Effects of Corporate Tax on MNCs:

Anyhow, the tax administration is a plea for the friendly working approach for the businesses by fostering the laws. Administering these corporate taxes will show the extended improvement for MNCs in the zone. Costs will also rise due to the need for better reporting and documentation brought about by the new tax law in the UAE, so more international companies will need to establish good compliance departments to address tax returns and transfer pricing policies.

Challenges for the MNCs:

One of the major challenges is “increased demand for reporting”. The government’s mandate to regularly file tax, financial reports, and detailed booking keeping increases the work load on compliance teams to hold regular meetings and to be updated.

Another challenge that arises is “transfer pricing regulations,” which require the transactions between all the MNCs and associated companies or any other transaction carried out under the company’s name.

MNCs will be needed to study UAE corporate tax integration and balance tax obligations. This will encourage the MNCs to restructure and modify their business operations to maintain tax efficiency. Lastly, MNCs might be required to shift their profit margins and cash flows within the UAE.

Conclusion:

There might be few challenges for the multinational corporation to work in the UAE, but the area of progression is wide to gain benefits from. The UAE corporate tax system allows businesses to work with the most reliable and approachable environment. There is a dire need for multinational corporations to be in regulations with the modifications in the tax rates.