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Tuesday, February 01, 2022

Bloomberg - The UAE Is Set to Levy Corporate Tax: Here’s What Analysts Say

By Century Financial in Century in News

Bloomberg - The UAE Is Set to Levy Corporate...
Vijay Valecha, Special to Bloomberg February 1, 2022

The United Arab Emirates plans to introduce a 9% federal tax on corporate earnings for the first time next year, in its latest step toward dismantling a levy-free regime that helped make it a magnet for businesses from across the world.

Mohamed Abu Basha, head of macroeconomic research at investment bank EFG Hermes:

“The implementation comes as UAE aligns itself with the new global standards, in particular the transition to a global minimum tax, as well as the government’s noticeable intentions to prepare for a life beyond oil.”

“In terms of its impact on attracting investment, I don’t think it will much affect UAE’s ability to attract investments. First, companies in free zones will continue to enjoy their tax benefits, hence are shielded from the decision. Second, most other Gulf countries already impose a corporate income tax on multinationals operating in the economy, including 20% in Saudi, 15% in Oman and 10% Qatar.”

Mohammed Ali Yasin, chief strategy officer at Al Dhabi Capital Ltd.:

“The tax will hit some sectors harder than others.”

“Telecoms and companies in the services industry already pay fees, some as high at 20% as in the case of hotels. For some firms, a 9% tax will take them from profitability to loss, reducing investor appetite and lowering the share price. Many will be looking to see whether the royalties or fees might get changed too.”

David Daly, a partner at Gulf Tax Accounting Group:

“This was the logical next step although it came much earlier than many of us had expected.”

There is quite a bit of detail that needs to come out still but for large companies operating in the UAE, corporate taxes were expected and now they know the rate.”

“The issue I see is implementation for SME. What’s to stop business owners from loading up the salaries to avoid paying the tax. Usually many of those businesses are controlled by few shareholders.”

Vijay Valecha, chief investment officer at Dubai-based consultancy Century Financial:

“While the news was a surprise, there is little evidence to suggest that corporate tax rates have any type of meaningful impact on equity markets. Counterintuitive to conventional expectations, a study suggests that the S&P 500 index had higher average returns on every occasion of an increase in corporate taxes in the U.S.”

“Foreign taxes paid will be credited against any payable UAE corporate tax meaning there will be no double taxation. Moreover, since the implications only commence from June 2023, companies do have some time to readjust to the new tax regime.”

Izzat Dajani, chief executive at Dubai-based IMCapital Partners Ltd. and a former senior banker at Goldman Sachs and Citigroup

“It was just a matter of time before the UAE imposed corporate tax in line with some other GCC countries,”

“The levels announced of 9% base are quite reasonable in international standards.”

“I’m glad to see that SMEs and small businesses will most likely be exempt from the corporate-tax burden,”

“Business and financial institutions will have to start accounting for a corporate tax that will touch their net earnings. Hence, a leaner workforce alongside more efficient operations may come into place to compensate for the tax impact on profitability.”

“The challenge for the UAE is to remain competitive, regionally and globally, despite the new corporate-tax regime.”

Aafreen Shah, the chief executive officer at Dubai-based corporate advisory Revive:

“The UAE as a country is attractive for investors because of the favorable tax regime.”

“The upcoming regulatory changes might cause concern for businesses operating here. Even so, with huge investment in infrastructure and changes in immigration policy, this is a natural progression for the growth of the country in line with best practices globally.”

Source:
Bloomberg