Almost 90% of Dubai’s population is made up of foreigners who flocked to the Gulf business hub for its yearlong sunshine, a chance for prosperity and, of course, zero taxes.
But this week, the United Arab Emirates, of which Dubai is part, announced the introduction of a corporate tax for the first time. So, what does this mean for foreign companies and expatriates in the country? Here’s what you need to know.
Why is the UAE doing this, and why now?
A 9% federal corporate tax will be introduced on business profits starting June next year. The UAE says it is coming into line with international taxation standards as large economies try to close tax avoidance loopholes. The country was one of 136 to sign a global pact last year that sets a minimum tax rate of 15% for large multinational companies and requires companies to pay tax in the countries where they do business.
Oil-producing Gulf nations are under pressure to diversify their income away from hydrocarbons. The need to diversify is felt strongest when oil prices are low, but the UAE appears to have opted not to wait for a slump.
The new tax could add as much as $13 billion to government income, according to M.R. Raghu, CEO of Kuwait’s Marmore Mena Intelligence.
What’s changed and who’s affected?
The UAE had previously only imposed a corporate tax on oil companies and banks operating outside free zones – economic areas where duties aren’t levied. Now, all businesses and commercial activities (outside free zones) making more than 375,000 dirhams (about $102,000) in profits will be taxed. This would ensure that small businesses and startups aren’t affected. Businesses engaged in natural resource extraction are also exempt from the tax.
It’s the larger, local businesses, including family businesses, that “will have to pay up,” says Raghu.
Will this discourage foreign companies and expatriates from moving to the UAE?
Unlikely. Most neighboring Gulf states have some form of corporate tax, according to KPMG. The new tax rate will be the second lowest in the Gulf, after Bahrain, which doesn’t impose such a levy.
GCC Statutory Corporate Tax Rates (2021)
Major global economies have much higher corporate taxes, with the United States imposing a 27% rate and the European Union an average of 20.7%. The UAE’s competitive advantage remains intact.
The impact on foreign companies would be limited because many are based in free zones, which remain exempt from tax.
Personal income taxes don’t exist in the UAE and are very unlikely to be introduced anytime soon.
“Given the huge share of expat population and UAE’s efforts to position the country as a retirement destination, personal taxation may not kick in that easily,” Raghu says.
Other top Middle East news
US says it killed ISIS leader in counterterrorism raid
US Special Forces killed ISIS leader Abu Ibrahim al-Hashimi al-Qurayshi in an operation in northwest Syria, President Joe Biden announced Thursday. At least 13 people were killed in clashes during and after the raid – including six children and four women – according to the White Helmets.
- Background: The operation appeared to be the largest of its kind by US forces in the area since the 2019 raid that left ISIS leader Abu Bakr al-Baghdadi dead, according to Charles Lister of the Middle East Institute. Al-Qurayshi was his replacement.
- Why it matters: ISIS has been re-emerging as a deadly threat, aided by the lack of central control in many areas.
Lebanese central bank governor subpoenaed by judge
A Lebanese judge issued a subpoena against central bank governor Riad Salameh Tuesday after he failed to show up for questioning three times.
- Background: The World Bank has dubbed Lebanon’s economic crisis a “deliberate depression.” Salameh, who is facing financial misconduct accusations, was slapped with a travel ban last month.
- Why it matters: Salameh is also facing judicial investigations in European countries and the governor’s banking policies are widely viewed as the main driver behind the financial tailspin. He has repeatedly denied allegations of corruption.
US sends fighter jets to support UAE amid rising Houthi threat
The US will deploy advanced fighter jets to help the UAE as it faces a growing threat from the Iran-backed Houthi rebel movement in Yemen, in a message of “solidarity and common defense.”
- Background: On Wednesday, Emirati forces intercepted and destroyed three drones in an attack that was confirmed by the Houthis. It was the fourth such attack in three weeks.
- Why it matters: The UAE has been lobbying the US to redesignate the Houthis as a foreign terror organization, which Biden said is “under consideration.”
What we’re watching
Fears are growing over the fate of internally displaced Syrians as a winter wave of extremely cold weather sweeps through parts of the country. Two babies froze to death in in a camp in Idlib, northwest of Syria, on Monday, medics told CNN. One was two months and the other one-week old, according to Mazen al-Tellawi, the medical manager of Al Rahman hospital, that received the children.
Watch this report from Arwa Damon on the Syrians struggling to survive in freezing conditions.
Around the region
In the 1990s, Saddam Hussein displaced a centuries-old community of marsh dwellers in Iraq, shrinking their population to a fraction of what it once was. Today, what’s left of them is threatened by climate change, the UN has warned.
The marshlands of southern Iraq are a rare aquatic sight in the arid Middle East. They are home to the Marsh Arabs, who were exploited for agriculture and oil exploration under Saddam’s rule. The leader later drained the marshes and drove out its population to settle political scores. After he was overthrown, the marshlands were partially restored and designated a UNESCO Heritage Site in 2016.
But the marshlands are drying up as temperatures rise and the amount of rain decreases. Poor rural households could face displacement and ill health if action isn’t taken by the government.
“The marshlands are not only magnificent landscapes, they are also essential for Iraq’s biodiversity,” said Jeanine Hennis-Plasschaert, the Special Representative of the UN Secretary-General. “While Iraqi authorities express their commitment to tackling climate change challenges, ownership across the political spectrum will prove essential.”
The news, explained
The US will name Qatar a major non-NATO ally (MNNA). The designation is expected to change the relationship between the Gulf state and the western power’s military. But what exactly is a major non-NATO ally?
The title is enshrined in US law and gives partner countries economic and military advantages, while carrying the symbolism of a close relationship. Qatar could now be eligible for loans of defense materials and can take advantage of bilateral US military training. It can also get funding for counter-terrorism development and enter into cooperative agreements with the US on research. Other regional MNNAs include Bahrain, Israel, Jordan, Kuwait and Morocco.