UAE’s Tax System in Free Zones Recognized as World’s Best by OECD

The Ministry of Finance reported that the recent review by the Organization for Economic Cooperation and Development (OECD) regarding preferential tax regimes officially recognized the corporate tax system in the free zones of the United Arab Emirates as being in the “non-harmful” category, which is considered the best among the 322 tax systems worldwide distributed among 8 categories, as reported by Al-Bayan newspaper.

The tax system in the UAE is classified as one of the highest in the world, among 134 systems worldwide. This classification confirms the strength and alignment of the country’s tax legislation with international standards.

This classification was awarded after a comprehensive review conducted by the Organization for Economic Cooperation and Development (OECD) under the Base Erosion and Profit Shifting (BEPS) project.

According to the results, the tax system for companies in the free zone in the UAE was evaluated and ensured its compatibility with the global initiative to combat tax evasion and harmful tax practices. The results of the review were announced during the harmful tax practices forum held in October 2023.

On a separate note, the Organization for Economic Cooperation and Development confirmed the completion of monitoring the realistic economic activity requirements of the United Arab Emirates after implementing the corporate tax system starting from June 1, 2023. According to the organization, the amended local legal framework of the UAE fulfills all the standard aspects, and it has been granted a “non-harmful” status.

HE Mohammed bin Hadi Al-Husseini, Minister of State for Financial Affairs, said: The “non-harmful” classification from the Organization for Economic Cooperation and Development is a testament to the UAE’s commitment to high standards of transparency and non-harmful taxation, as well as the implementation of best practices in tax policy.

This new classification is a significant milestone in the UAE’s journey towards establishing itself as a leading global business and investment hub, as it enhances our competitiveness in the international arena and confirms the international community’s confidence in our corporate tax system and reliance on it by investors.

He added: Our commitment to international tax standards, in addition to recognition from the Organization for Economic Cooperation and Development, strengthens our commitment to creating a sustainable and dynamic economic environment.

The Ministry of Finance is committed to continuing to enhance the tax framework in the country, ensuring its support for the state’s vision of economic diversification and development.

It is mentioned that the UAE has begun implementing a corporate tax system in the year 2023. This is a strategic step towards accelerating the country’s development and transformation, in line with its long-term strategic goals to diversify its economy.

The corporate tax is designed to enhance the country’s position as a global business and investment hub, accelerate its development, and achieve its strategic goals, while also affirming its commitment to meet international standards of tax transparency and combat harmful tax practices.

According to the Ministry of Finance, the corporate tax is levied at a rate of 0% on taxable income not exceeding 375,000 dirhams (approximately $100,000), and 9% on taxable income exceeding 375,000 dirhams.

Free zones play a fundamental role in the economic growth of the United Arab Emirates, as they attract direct foreign investments and provide a supportive business environment.

The corporate tax system in the free zone offers a 0% tax rate for eligible companies, highlighting the important role of free zones in the UAE’s economic diversification strategies and compliance with international tax standards.