OECD’s rating of tax regime will enhance UAE’s competitiveness

The UAE Ministry of Finance said the latest review by the Organisation for Economic Co-operation and Development (OECD) on preferential tax regimes has officially recognised the United Arab Emirates Free Zone Corporate Tax (CT) regime as ‘non-harmful’, underscoring the UAE’s robust tax legislation and its alignment with international standards.

The findings were disclosed in the results of the Forum on Harmful Tax Practices (FHTP) October 2023 meeting.

This rating is part of the OECD’s comprehensive review of 322 taxation regimes worldwide under the Base Erosion and Profit Shifting (BEPS) Project to date. According to the findings, the UAE’s Free Zone Corporate Tax regime was evaluated and confirmed to align with the global initiative to prevent tax avoidance and harmful tax practices.

Mohamed Hadi Al Hussaini, Minister of State for Financial Affairs, said: “The OECD rating of ‘non-harmful’ is a testament to the UAE’s commitment to transparency, non-harmful taxation, and the implementation of best practices in tax policy.”

“This new status marks a significant milestone in the UAE’s journey towards solidifying its position as a leading global hub for business and investment. It not only enhances our competitiveness on the global stage but also affirms the international community’s confidence in our corporate tax system and provides certainty to investors.”

Al Hussaini added: “Our adherence to international tax standards, coupled with the OECD’s recognition, reinforces our dedication to fostering a sustainable and dynamic economic environment. The Ministry of Finance remains dedicated to further refining our nation’s tax framework, ensuring it supports the country’s vision of economic diversification and development.”

The UAE introduced its nationwide corporate tax regime in 2023 as a strategic move designed to accelerate the UAE’s development and transformation, aligning with its long-term strategic objectives to diversify its economy.

The corporate tax was designed to cement the UAE’s position as a leading global hub for business and investment, accelerate its development and transformation to achieve its strategic objectives, reaffirm its commitment to meeting international standards for tax transparency and preventing harmful tax practices. As per the Ministry of Finance, corporate tax rates are 0 per cent for taxable income up to Dhs375,000 (approximately $100,000) and 9 per cent for taxable income above Dhs375,000.

Free zones are central to the UAE’s economic growth, attracting foreign direct investment as well as fostering a favourable business environment.

The Free Zone Corporate Tax regime offers a zero per cent Corporate Tax rate for qualifying businesses and reflects the continued significant role of free zones in the UAE’s economic diversification strategies and commitment to align with international taxation standards.

Meanwhile the global economy is on course to hold up better this year than expected only a few months ago as an improved outlook in the United States offsets eurozone weakness, the OECD said last week.

World economic growth is expected to ease from 3.1 per cent in 2023 to 2.9 per cent this year, better than the 2.7 per cent expected in November in the Organisation for Economic Cooperation and Development’s last outlook.

In an update of its forecasts for major economies, the Paris-based OECD left its 2025 global estimate unchanged at 3.0 per cent, when growth is expected to be boosted by major central banks rate cuts as inflation pressures subside. The United States economy was expected to grow 2.1 per cent in 2024 and 1.7 per cent in 2025 as lower inflation boosted wage growth and triggers interest rate cuts, the OECD said, raising its 2024 forecast from 1.5 per cent previously and leaving 2025 unchanged.

As China contends with real estate market wobbles and weak consumer confidence, its growth was seen slowing from 5.2 per cent in 2023 to 4.7 per cent in 2024 and to 4.2 per cent in 2025, all unchanged from November forecasts.

With a slowdown in Germany weighing on the broader euro area, the shared currency bloc’s outlook had worsened since November, with its economy now expected pick up from 0.5 per cent last year to only to 0.6 per cent this year, down from 0.9 per cent previously. In 2025, it was seen growing 1.3 per cent, revised down from 1.5 per cent. While economic outlooks diverged among the major economies, inflation was cooling faster than expected since November in both the United States and euro area while unchanged in China.

That paved the way for rate cuts with the US Federal Reserve expected to move in the second quarter and the European Central Bank to follow in the third quarter.