The United Arab Emirates has rolled out a comprehensive package of legislative amendments targeting its corporate tax regime, Value Added Tax (VAT), and the Commercial Companies Law. This strategic move is designed to streamline business operations, eliminate regulatory grey areas, and fortify the nation's reputation as a business-friendly hub by providing companies with unambiguous guidelines on taxation and corporate governance.
Clarity in Corporate Tax: A New Order of Settling Liabilities
A significant part of the update brings much-needed clarity to the corporate tax framework. The amendments lay down explicit rules for calculating and settling tax dues, especially when tax credits, incentives, or reliefs are involved. The liabilities must now be settled in a strict sequence: first through withholding tax credits, then via foreign tax credits, followed by any other incentives or reliefs approved by the Cabinet. Only after applying all these can the remaining corporate tax liability be determined and paid.
Furthermore, taxpayers are granted the right to claim payments for any unused tax credits, provided they follow newly specified procedures and deadlines. These steps effectively remove previous uncertainties, ensuring the transparent and uniform application of the corporate tax system. It is crucial to note that the standard corporate tax rate remains at 9% for companies with annual profits exceeding Dh375,000 (approximately $102,110), while profits below this threshold continue to enjoy a tax-free status.
VAT Simplification: Easing the Compliance Burden
On the VAT front, the introduction of Federal Decree Law No. 16 of 2025, set to take effect from January 1, 2026, aims to simplify tax procedures while upholding international compliance standards. A key relief for businesses is the elimination of the requirement to issue self-invoices under the reverse charge mechanism, as long as they maintain all necessary supporting documents.
Additionally, the law establishes a clear five-year time limit for businesses to submit claims to recover any excess refundable VAT after completing the reconciliation process. This provides companies with a predictable timeline for managing their tax recoveries and financial planning.
Enhanced Corporate Flexibility: New Structures for Growth
The amendments to the Commercial Companies Law introduce greater flexibility and competitiveness for corporate entities operating in the UAE. A landmark change is the formal introduction of the non-profit company structure. This allows organizations to reinvest their net profits towards achieving their core objectives without the obligation to distribute dividends to shareholders.
The law also paves the way for more sophisticated capital structures. Companies can now create multiple classes of shares, with distinct rights concerning voting, profit distribution, redemption, and liquidation, as detailed in their articles of incorporation or bylaws. This offers founders and investors enhanced tools for structuring ownership and control.
Collectively, these legislative updates underscore the UAE's steadfast commitment to cultivating a transparent, efficient, and predictable regulatory landscape. By clarifying tax procedures, reducing compliance complexity, and enabling more adaptable corporate frameworks, the nation solidifies its standing as a premier global destination for business establishment and investment.
