Dubai Corporate Tax from June 2023: Almost Double Malta's Rate – The Facts and Figures

Dinner is served, ladies and gentlemen.

What’s on the menu?

A Dubai salad.

Available from 1 June 2023. That’s when we’re all going to have to eat it.

In Dubai.

The salad comes with a 9% tax dressing, and now we’re going to see how that tastes to everyone.

Long story short: Dubai has lost its complete tax-free status and is now taxing companies at 9%.

Flashback: I have been preaching for 10 years that there is no such thing as sustainable ZERO taxation. Not anywhere. At least not in a country that imports and exports a lot, be it goods or services. Because that country is dependent and can be pressured.

When Malta introduced the "minimum tax" for Non-Doms—that was on 1 January 2018—the outcry was massive.

"Outrageous,"

"I'm leaving,"

"How could they?"

FYI: The tax is EUR 5,000. At the time, the common refrain was:

I'm going to Dubai.

And I told clients and friends:

"Don't go. Dubai won't be able to hold onto 0%. Sooner or later, they will introduce some form of tax."

The answer was usually: "Nonsense, you doom-monger. The Sheikh won't let anyone dictate terms to him."

Right.

Fast forward to June 2023, and it just happened. Dubai is taxing.

So why did the Sheikh let them talk him into it?

The answer: Politics. A lot happens on levels we don't even notice, but again:

Dubai is dependent. Dependent on states and unions with high taxes.

The obvious "shot across the bow" was the FATF Greylisting of Dubai on 4 March 2022. And almost exactly one year later, tax is introduced.

Update: The UAE was removed from the FATF Grey List on 23 February 2024 after extensive AML/CFT reforms. The corporate tax, of course, remains in place.

Pure coincidence?

In your dreams.

"Wait a minute," you might rightly argue.

"FATF, isn't that just a sort of ranking agency for a country's anti-money laundering administration? What does that have to do with tax?"

Fact 1: Why Dubai is taxing

The Greylisting caused Dubai enormous indirect damage. When a country is on such a Greylist, banks sometimes stop touching the following clients entirely.

Or they make life incredibly difficult for existing clients regarding transactions to or from Dubai:

1. Company in Dubai
2. Shareholder in Dubai
3. Director in Dubai
4. Company with an office in Dubai
5. Resident in Dubai
6. Having a client from Dubai
7. Having a supplier from Dubai
8. Cooperating with someone from Dubai
9. Incoming payments from Dubai
10. Outgoing payments to Dubai

"Not touching" or "difficulties" means: The payment flow is slowed down or stopped.

Both are fatal.

Fact 2: Why Dubai is taxing – The FATF. What is it? And more importantly, who is it?

What: A sort of ranking agency for a country's effective anti-money laundering administration.

Who: https://www.fatf-gafi.org/en/countries/fatf.html It is COUNTRIES. And it is primarily the high-tax countries that Dubai depends on. All the major nations, including the USA.

You see where I'm going with this: Politics is everywhere.

And an anti-money laundering audit of a country by the FATF is like a tax audit by the tax office:

If they want to find something, they will find something.

"Dear Sheikh, we found something, but if you meet us halfway with your tax policy, we might overlook it next time."

Metaphorically speaking.

Why I'm explaining this in such detail:

ZERO TAX DOES NOT EXIST SUSTAINABLY. And here, once again, a side note to my favourite topic, Digital Nomads:

Zero tax doesn't exist for you either.

I said it 10 years ago, I said it 5 years ago, and I'm still saying it today:

Malta is the best choice compared to the "usual suspects."

But enough of that, let's look at the new tax rules in Dubai.

Tax in Dubai from 1 June 2023

Below, I interpret the new law directly and draw my conclusions. I've tried to gather the most important facts.

The Legal Basis for Tax in Dubai: Background Information

The "Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses ('Corporate Tax Law')" was signed on 3 October 2022.

A week later, on 10 October, the law was published in the Gazette—essentially their official journal—in its first version.

The final version was published on 12 May 2023 and can be found here: https://mof.gov.ae/wp-content/uploads/2023/05/FINAL-CT-Guide-English-12.5.23.pdf

It's admittedly a bit strange to read over 100 pages of Dubai tax law. But it reads well. Paragraph after paragraph.

Tax Liability in Dubai 2023 – Who gets taxed:

1. UAE Juridical Persons (including Free Zone persons) such as private or public joint stock companies or limited liability companies incorporated or recognised under the applicable laws of the UAE;
2. Non-UAE Juridical Persons with Management in Dubai. So, companies incorporated outside the UAE but effectively managed and controlled within the UAE;
3. Natural Persons (i.e., individuals) conducting a business or business activity in the UAE;
4. Non-Resident Persons who have a Permanent Establishment in the UAE or derive UAE-sourced income falling within the scope of Corporate Tax.

Let that sink in for a moment.

Especially "including Free Zone."

They'll probably have to rename that to just "Zone" soon, because it's certainly not "free" anymore. But the other points are significant too.

Because now we have:

• The source income principle
• The residency question
• CFC rules
• Place of Effective Management
• Permanent Establishments (PE)
• Sole proprietorships

What this means:

It's getting complicated again. Because naturally, Dubai wants to earn a bit of tax revenue too. And from now on, you'll likely have to explain to the gentlemen in Dubai whether and how much is being taxed there—or not.

Taxes in Dubai 2023 – What gets taxed:

1. Income from the sale of goods.
2. Income from services, if the service is performed in the UAE or if the recipient of the service is resident in the UAE.
3. Income from a contract.
4. Income from real estate. For example, rental income from real estate in the UAE (or from an interest in such real estate) is taxed.
5. Income from the disposal of shares or capital rights, if the person is incorporated or resident in the UAE for corporate tax purposes.
6. Income from intellectual or intangible property. Regardless of location and corporate tax residency, income for the use, right to use, or granting of permission for UAE patents, trademarks, trade names, copyrights, goodwill, and other intangible or intellectual property is taxed.
7. Interest income. Interest income from UAE banks. But also: Interest income where the collateral is located in the UAE.
8. Insurance income. If the insured person is a resident person or if the insured asset or activity is located in the UAE.

Dubai and its Tax Rates 2023 – How high is the tax?

Well, almost double what we have in Malta, specifically 9%. For anyone who complained about EUR 5,000 per year back in early 2018, I’m happy to offer some cheese now.

Cheese? Yes. Would you like some cheese with that whine?

Article 3, Clause 1 states it in black and white:

"Article 3: Corporate Tax Rate. This Article specifies the Corporate Tax rates that apply to the Taxable Income of a Taxable Person in each Tax Period.

Clause 1 sets the Corporate Tax rate at 9% for Taxable Income exceeding a threshold amount specified in a Cabinet Decision. Taxable Income below this threshold is subject to Corporate Tax at 0%."

We'll get to the "Threshold" of AED 375,000 later. That's roughly EUR 100,000.

Legally speaking, you can see that the allowance is determined by the "Cabinet" and is therefore not really part of the law itself. What if the Cabinet sets this "Threshold" to AED 0?

A huge political uncertainty.

Dubai taxes from 2023 – Are there exemptions?

Yes, there are. Specifically the aforementioned allowance of roughly EUR 100,000. Below such a profit, the tax remains 0%.

Furthermore:

For the sake of completeness, here are other exemptions:

• Government entities.
• Government-controlled entities.
• Persons engaged in extractive businesses.
• Persons engaged in non-extractive natural resource businesses.
• Qualifying public benefit entities.
• Qualifying investment funds.
• Public pension or social security funds.
• Private pension or social security funds.

Taxation Dubai 2023 – What obligations come with it (e.g., Accounting)?

Take your pick:

• Bookkeeping
• Balance sheets
• Tax returns
• Registrations
• Penalties for late filing and payment
• Penalty interest
• Tax audits
• And oh yes: Suddenly, tax evasion exists in Dubai.

But let's look directly at the source of the "misery."

Accounting and Tax Record-Keeping Duty Dubai 2023:

Article 56 describes it as follows:

Record Keeping

"Maintaining financial records is a vital part of an effective tax system as it gives the Authority access to relevant information to assess whether a Person is meeting their necessary Corporate Tax obligations.

This Article sets out the record-keeping obligations of a Taxable Person under the Corporate Tax Law. Businesses are required to keep records such as:

• a cash book recording daily sales, including credit sales;
• a payroll record if the business has employees;
• records supporting information in the Tax Return or other documents filed with the Authority;
• any other records that allow for the calculation of Taxable Income.

Clause 1 requires a Taxable Person to maintain these records and documents for seven years following the end of the Tax Period to which they relate.

Clause 2 requires an Exempt Person to maintain all information, books, documents, and records that enable the Exempt Person's status to be readily ascertained by the Authority. Any Exempt Person shall also maintain these records for seven years following the end of the Tax Period."

Hold on a second.

It says here that EVERY person must do bookkeeping, etc.

And that both persons who pay tax AND those who do not pay tax must keep all business records for 7 years.

What this conclusively means:

Retroactive tax audits, going back up to 7 years. Actually 8, because the 7 years apply after the end of the year.

Have fun with that.

Tax Returns, Balance Sheets, and Accounting Obligations from 2023 in Dubai

While the general rule is that you only have to submit balance sheets "upon request," they might as well have saved themselves this paragraph.

Here are the reasons:

1. How do you intend to file a correct tax return without a balance sheet? Especially considering that filing an incorrect return can be penalised.
2. If the tax authority suddenly demands balance sheets from you unprompted: Do you want to deliver quickly and correctly, or keep the tax officers waiting? What looks better in the context of "due diligence" or being a "prudent businessperson"?
3. Companies and persons in the Free Zone—sorry, in the "Zone"—must submit audited accounts anyway.

Dubai Tax Return from 2023:

Must be filed by every taxable person, see above. This is INDEPENDENT of whether this "taxable person" is ultimately exempt from tax or not.

This return must be filed no later than 9 months after the end of the financial year. That means: For a calendar financial year, by 30 September of the following year.

CONCLUSION:

I could say: "I told you so."

What is Dubai now?

Since 1 June 2023, it is a country with:

• Full tax administration
• Inexperienced and therefore strict auditors
• Still not (and never will be) a member state of the EU
• 9% tax.
• Apologies, it's not actually double the rate of Malta.

It is, after all, 1% less than double.

Do you want to hear me say it for another 5 years, or are you finally coming to Malta?

I don't recommend Malta because I live here.

I live in Malta because it is so recommendable.

Have a nice day in Dubai, and I'll see you soon in Malta—the country with 44.4% less tax than Dubai.