For years, Dubai has established itself as one of the most attractive business destinations in the world, especially for foreign entrepreneurs who want to benefit from the numerous tax advantages and the favorable business climate. With the introduction of the 9% Corporate income tax in 2023 for businesses, however, the question arises as to how this change will affect businesses in the UAE, particularly in Dubai. This article looks at the background, implications and specific benefits of this tax policy and what it means for entrepreneurs looking to invest or start a business in Dubai.

Why was the 9% corporation tax introduced?

The introduction of corporate tax is part of a larger strategy by the UAE to ensure its economic sustainability and international competitiveness. Prior to 2023, companies in the UAE were largely exempt from corporate tax, which attracted many international companies and investors. The 9% tax now serves to diversify government revenues, while the UAE aims to consolidate its position as a business hub for international companies. Despite this new tax, Dubai remains an attractive destination as the tax is significantly lower than in many other countries where corporate tax rates are often above 20%.

Who is affected by the 9% tax?

The 9% corporate income tax in Dubai and the UAE applies to companies that have a Annual profit of over AED 375,000 (approx. USD 100,000). Companies earning less are exempt from the tax, which is particularly beneficial for smaller companies and start-ups. The scheme applies to all business sectors, including trade, services and manufacturing, but with some exceptions, such as companies in free zones and those operating in the extractive sector.

What does the 9% tax mean for freezone companies?

An important point for many entrepreneurs operating or planning to operate a freezone company in Dubai is that the 9% tax does not automatically apply to freezone companies. Companies that operate in the various free zones and conduct their business activities strictly within the respective zone or abroad can continue to benefit from the tax exemption. This means that freezone companies that conduct their business internationally generally do not have to pay corporate income tax as long as they do not generate income domestically (within the UAE).

However, it is important to note that companies in the freezones that operate within the UAE or provide services to the local market could potentially be subject to corporate income tax. Therefore, it is crucial to consider the specific location and structure of the company in order to benefit from the maximum tax relief.

Effects on international companies

The introduction of the 9% tax could bring some changes for international companies using Dubai as their regional or global headquarters. Nevertheless, the tax burden in the UAE remains extremely low compared to other international financial centers. In Europe or the US, corporate taxes can reach up to 30%, so the 9% in the UAE is still an extremely favorable option for many companies. However, companies should adjust their tax planning and ensure that they take full advantage of the tax environment in the UAE.

Tax incentives and benefits despite the new tax

Despite the introduction of corporate tax, Dubai and the UAE continue to offer numerous tax advantages for companies:

1. No income taxIndividuals in Dubai continue to pay no income tax. This continues to make Dubai an attractive location for professionals and entrepreneurs residing in the UAE.
2. Freezone advantagesCompanies in the free zones benefit in many cases from full tax exemption, especially if they do not generate income in the UAE. This means that freezones remain an excellent choice for foreign investors and companies.
3. No capital gains taxThere is also no taxation on capital gains, dividends and other profits in the UAE, which makes the investment climate particularly attractive.
4. Access to international marketsDubai's strategic location allows companies to easily expand their business on a regional and global scale, benefiting from the city's well-developed infrastructure and logistical advantages.

Strategic tax planning in Dubai

Entrepreneurs operating or planning to establish a company in Dubai should include the new corporate tax in their strategic tax planning. This often requires a review of current business operations, market positioning and potential tax implications. This is where an experienced partner such as Setupcowhich specializes in setting up companies in Dubai and offers comprehensive consulting services for tax optimization.

Conclusion: Is Dubai still attractive despite the 9% tax?

The introduction of the 9% Corporate income tax may be a novelty for entrepreneurs in the UAE, but the city remains an extremely attractive location for businesses. Tax rates are still significantly lower than in most countries around the world, and Dubai remains a prime destination for international entrepreneurs and investors thanks to its free zones, tax incentives and excellent infrastructure. Entrepreneurs who make the most of the tax environment and adapt their business strategy accordingly will continue to benefit from the many advantages Dubai offers.

With the support of Setupco entrepreneurs can ensure that they utilize the best tax and legal framework for their specific business needs in order to operate successfully in Dubai in the long term.