The United Arab Emirates (UAE) is witnessing a significant evolution in its tax culture, which is crucial for fostering a more sustainable and diversified economy. Analysts and tax experts emphasize that this shift will increase transparency and boost investor confidence. The corporate sector has quickly aligned itself with tax compliance due to effective awareness campaigns led by the Federal Tax Authority (FTA).

Traditionally, the UAE has been known for its low-tax environment, primarily aimed at attracting foreign investment and promoting economic growth. However, with the recent introduction of a nine percent corporate tax, perceptions around taxation are changing significantly. Experts believe that the implementation of Value Added Tax (VAT) and corporate tax is a pivotal moment for the UAE, aligning the nation with global standards and enhancing its credibility as a business hub.

According to analysts, a developed tax culture is essential for encouraging transparency and accountability, which are crucial for attracting a broader range of investors. They noted that companies operating in the UAE must adapt to this new environment by establishing robust compliance mechanisms and financial reporting systems. Additionally, raising awareness and educating businesses and employees about taxation is vital for fostering a community that understands the importance of tax contributions to societal development.

At a recent strategic partners meeting organized by the FTA in Dubai, Director-General Khalid Ali Al Bustani announced that over 450,000 companies have registered for corporate tax, showcasing strong commitment from the business sector to comply with the new tax framework. He reaffirmed the FTA’s dedication to enhancing electronic platforms to streamline processes, reduce bureaucracy, and improve the overall customer experience.

The evolution of the UAE’s tax culture has been recognized by Markus Susilo, Partner at Crowe UAE, who pointed out that while businesses initially viewed VAT and corporate tax as obstacles, these measures align with international standards. This alignment has made it easier for global companies to adapt, and with strong government support, it has become “business as usual,” reinforcing the UAE’s status as a top investment hub.

Atik Munshi, Managing Partner at FinExpertiza UAE, noted that VAT was the first tax exposure for many companies in the UAE. He highlighted that businesses have swiftly adjusted their systems to incorporate this tax, with the FTA effectively implementing and maintaining the VAT system through continuous updates and educational initiatives.

Despite the challenges that come with implementing a corporate tax, such as initial clarity issues, Susilo remarked on the FTA’s strong efforts to provide guidelines and update tax procedures, making it easier for businesses to navigate the system. He emphasized that most UAE businesses have finance executives familiar with corporate taxes from other jurisdictions, which has eased the transition.

He added that the corporate tax law in the UAE aligns with international standards, and with an announcement made in early 2022, businesses have had nearly two years to prepare for their first tax period in 2024. This preparation time and available expertise should enable most companies to comply without significant issues.

Looking ahead, the new corporate tax is expected to play a critical role in creating a sustainable revenue stream for the UAE while supporting long-term economic growth. The introduction of a transparent and fair tax system is anticipated to strengthen investor confidence as the UAE continues to attract Foreign Direct Investment (FDI).

Munshi noted that the implementation of corporate tax has been smooth, crediting the FTA’s comprehensive awareness campaign for simplifying tax matters. He expressed confidence that the timely communication from the government has prepared businesses for an efficient transition.

Although many companies are aware of their corporate tax responsibilities, Munshi cautioned that some remain ill-prepared or do not take compliance seriously, which could lead to penalties and restrictions.

In 2023, the FTA’s corporate tax awareness initiatives attracted over 15,713 participants, a rise of 8.7 percent from the previous year. The FTA has responded to growing demand by increasing the number of sponsored events from 49 in 2023 to 70 in 2024, showcasing its commitment to supporting businesses in understanding their tax responsibilities.

Analysts believe that the introduction of taxes will not only diversify revenue sources but also significantly contribute to the UAE’s economic development. These funds can be reinvested into infrastructure, healthcare, education, and sustainability initiatives, aligning with the UAE’s Vision 2030 goals.

Overall, developing a comprehensive tax culture in the UAE is essential for economic diversification and fostering a sense of shared responsibility among businesses and citizens, ultimately leading to a more resilient economy.