The United Arab Emirates (UAE) has established itself as a global hub for startups and entrepreneurs, offering a range of tax incentives and exemptions to foster innovation and economic growth. This article provides a detailed overview of the current tax landscape for startups in the UAE, supported by legal data and specific figures.

1. Corporate Tax Overview

As of June 2023, the UAE introduced a federal corporate tax rate of 9% on business profits exceeding AED 375,000. However, to support small businesses and startups, the Ministry of Finance issued Ministerial Decision No. 73 of 2023, which provides relief measures under Article 21 of the Corporate Tax Law.

Key Provisions:

• Revenue Threshold: Startups with revenues not exceeding AED 3 million per tax period are eligible for Small Business Relief.
• Applicable Period: This threshold applies to tax periods starting on or after June 1, 2023, and remains effective for periods ending on or before December 31, 2026.
• Exclusions: The relief does not apply to:
  • Multinational enterprise groups with consolidated revenues exceeding AED 3.15 billion.
  • Qualifying Free Zone Persons.
• Tax Losses: Businesses electing for this relief cannot carry forward tax losses or disallowed net interest expenditures incurred during the relief period.

 

2. Free Zone Incentives

The UAE’s numerous Free Zones offer attractive incentives for startups:

• Tax Exemptions: Many Free Zones provide 100% exemption from corporate taxes for a specified period, often up to 50 years, which can be renewed.
• Customs Duties: Exemption from import and export duties within the Free Zones.
• Foreign Ownership: Full foreign ownership is permitted, allowing startups to retain complete control without local partners.
• Repatriation of Capital and Profits: Businesses can repatriate 100% of their capital and profits.
• Simplified Procedures: Streamlined processes for business setup, licensing, and recruitment.

Notable Free Zones include the Dubai International Financial Centre (DIFC), which operates under a common law framework distinct from the UAE’s civil law system, providing a familiar legal environment for international businesses.

3. Research and Development (R&D) Incentives

To promote innovation, the UAE is considering corporate tax incentives for R&D activities:

• R&D Tax Credit: A refundable tax credit ranging from 30% to 50% of qualifying R&D expenditures, depending on the nature and location of the activities.
• High-Value Employment Credit: A refundable tax credit aimed at companies creating high-value jobs in the UAE.

These incentives are subject to legislative approval and are part of the UAE’s strategy to enhance its economic framework.

4. Compliance and Regulatory Considerations

While the UAE offers numerous incentives, startups must adhere to specific compliance requirements:

• Registration and Filing: Even if eligible for tax relief, businesses are generally required to register for corporate tax and file annual returns.
• Anti-Abuse Rules: The UAE’s General Anti-Abuse Rules (GAAR) prevent businesses from artificially structuring activities to qualify for tax benefits.
• Documentation: Maintaining accurate financial records and documentation is essential to substantiate claims for any tax incentives or exemptions.

 

Conclusion

The UAE’s tax incentives and exemptions create a conducive environment for startups, balancing support with regulatory oversight. By understanding and leveraging these provisions, startups can effectively plan their operations and contribute to the UAE’s dynamic economy.

For personalized advice and assistance with navigating the UAE’s tax landscape, please contact our firm to consult with our team of experts.

 

By-

AnBac Advisors