The UAE is set to levy corporate tax: Here’s what analysts say

The UAE plans to introduce a 9 per cent federal tax on corporate earnings for the first time next year.

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

* “The implementation comes as the UAE aligns itself with the new global standards, in particular the transition to a global minimum tax, as well as the government’s 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 freezones 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 multinational operating in the economy, including 20 per cent in Saudi, 15 per cent in Oman and 10 per cent in Qatar.”

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

* “The tax will hit some sectors harder than others.”
* “Telecoms and companies in the services industry already pay fees, some as high at 20 per cent as in the case of hotels. For some firms, a 9 per cent 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 SMEs. 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 US.”
* “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 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 per cent base are quite reasonable in international standards.”
* “I’m glad to see that SMEs and small business 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, chief executive officer at Dubai-based corporate advisory Revive:

* “The UAE as a country is attractive for investors because of the favourable 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.”