Dubai has achieved exponential growth over the last two decades. It has emerged as a globally preferred investment and expansion destination across sectors. Its flourishing freezones like JAFZA and DIFC have played a pivotal role. They attract thousands of enterprises through business-friendly regulations. They also offer administrative ease, plug-and-play infrastructure, and tax incentives.
Recent countrywide tax policies, such as the 2018 VAT introduction, also created some information gaps. Upcoming corporate tax mandates are also a factor. Entrepreneurs are unaware of the generous geographical exemptions in special economic zones.
This blog helps debunk 5 widely mistaken assumptions. It uses simple language that is best for young students. The blog is for students who want to set up and grow businesses in their region.
Misconception 1: All Freezones Firms Now Must Pay 9% Corporate Tax
Some people wrongly believe that the new corporate tax will make all businesses pay 9% of their annual profits to the government. This will take effect from June 2023. It’s not true for all enterprises, regardless of jurisdiction.
Reality: Dynamic freezone regions continue to enjoy 0% corporate and income tax benefits. This is still true in the new paradigm. As long as they meet localization and compliance requirements. Such zones’ sustainability is strategically important for Dubai. It is necessary to keep attracting foreign capital and prioritize skills upgrading in key sectors.
Entities in JAFZA and DIFC retain full ownership of profits. This allows quick reinvestment into technical upgrades. It also helps adopt the latest software and expand regional teams. They avoid parting with portions as tax. Selective goods/services transactions may still see VAT applications however.
Misconception 2: VAT and Corporate Tax are Interchangeable
Another common misconception is mixing up or using UAE’s Value Added Tax (VAT) and upcoming corporate tax schemes interchangeably. This happens without understanding key structural differences.
VAT is an existing broad-based tax touching all sectors and consumers. A 5% rate applies to goods and services transactions at each point in the supply chain before final delivery. It applies on items exchanged locally and for imports/exports.
The upcoming corporate tax involves a 9% profit sharing requirement. It applies to enterprise entities with sufficient annual turnover and net incomes. It does not apply if business segments operate only within freezones. The freezones cater to domestic consumers.
Hence, VAT and corporate tax remain mutually exclusive levies. They continue to evolve on separate tracks.
Misconception 3: Corporate Tax is Based on Nationality
Some entrepreneurs also have misguided thoughts. They believe the new corporate tax applies more strictly. It’s based on the nationality and ethnic status of business ownership.
Reality: Statutory requirements never discriminate based on nationality. The new tax gets implemented uniformly, based on clearly defined agency guidelines. It does not discriminate based only on owners’ ethnicity or home country status. It determines applicability, compliance, and payment needs.
Misconception 4: Corporate Tax Applies Equally on Local and Overseas Firm Revenue
Another wrong assumption is that the new tax rules apply the same rates to both income earned within Dubai and income earned abroad.
Reality: Even after June 2023, freezone firms can still have income tax exemptions. This is possible if they contain their operations within specific boundaries. They should mainly serve domestic channels.
The blanket 9% tax rate applies mainly to overseas export/import and services. It only applies to income that meets specific revenue criteria.
Misconception 5: Tax-Free Zones Won’t Exist in Near Future
This fear is common but baseless. People worry that freezones, which offer tax advantages, may soon be eliminated in Dubai. This is because a unified focus on revenue growth is increasing. It’s happening through upcoming tax expansion drives.
Reality: Federal authorities have emphasized that Dubai will support key freezones. The freezones cater to priority industries. They have solid existential justification. Such zones remain strategically important. They keep attracting foreign capital, talent, and knowledge transfers across focus sectors.
Dubai International Financial Centre, Dubai Internet City, and Dubai Media City will have strong support for decades to come. They offer long-term tax cuts.
Don’t worry, no one’s taking away your tax breaks right now! The government recently made a long-term plan. It doesn’t say anything about getting rid of tax-free zones completely. Instead, they focus on helping people learn new skills. They also aim to make the country even stronger. So, your favorite tax-free spot is here to stay for now!
In summary, new tax rules in Dubai mean it’s time for businesses to think about how to handle their money. However, there are still ways to save!
Things are changing. You can legally lower your taxes by taking advantage of specific loopholes in the new laws. Do this before expanding your business or moving money around.
Experts in Dubai know the rules. If you get their help, you can figure out the best way to save money and grow your business. Don’t believe rumors, get the facts and make smart plans for the future!
Freezone entities enjoy additional concessions related to transactions contained fully within delineated boundaries. For example, there is no VAT on services shared between peer firms stationed locally.
Yes, the UAE has many double taxation avoidance agreements. These can help minimize your overseas income tax liability while on international secondments. We can assist with filing claims to take advantage of these agreements.