UAE corporate tax: Airlines will be hoping for industry-specific benefits in crucial year

Dubai: UAE’s airlines could benefit from tax deductions and other incentives to help the industry stage a full recovery from the COVID-19 created impact. In 2019 – the year before the pandemic - UAE’s aviation sector supported nearly 800,000 direct and indirect jobs and contributed around $47 billion to the economy, or around 13.3 per cent to GDP.

“Due to certain incentives and deductions, companies normally end up being taxed at lower rates than the official corporate tax rate of a particular jurisdiction,” said Orkun Altintas, Director Consulting - Aerospace & Defense, EMEASA. “We may see these being implemented for industry stakeholders, and particularly the airlines of the UAE which are key in providing the passenger and cargo logistics that fuel the UAE economy.

“This would make sense keeping in mind that airlines and airports locally, in line with their counterparts globally, suffered tremendously as a result of the pandemic.”

Last week, the UAE Minister of Finance confirmed that the country would implement a 9 per cent tax rate - among the lowest in the world – on annual corporate profits from June 2023.

Incidentally, airline executives expect 2023 to be the year when air travel demand will begin to recover in full from COVID-19 and its variants. Although the Omicron variant shut down borders once again in December and January, things are swiftly getting back to normal for the airline industry.

According to Willie Walsh, Director-General of the International Air Transport Association (IATA), “More governments are reviewing those restrictions, and we’re pleased to see that some if not all are beginning to be relaxed or removed.”

Effect of taxes

Airlines, whether in the US, the EU or India, are urging governments to reduce taxes and ease their pathway to full recovery. It is crucial for a sector that operates on thin margins.

In India, the country’s aviation sector, which was expecting some form of support in terms of reduction in excise duty in last week’s federal budget, will have to continue to pay more for aviation turbine fuel.

This adds on to airlines’ cost burden as fuel, which represents the single biggest element of a carrier’s cost base, has become pricier as signs of an economic rebound support global crude oil prices. Average fuel prices in January stood at around $100, much higher than the $78 predicted by the airline body.

Airport operators, regarded as business entities by most governments, are also required to pay taxes on their income in most jurisdictions. While a significant percentage of airports are public entities that operate under different administrative structures than corporate entities, they still generate tax revenue for their respective countries.

In 2020, the Airports Council International (ACI) - an industry body - called for an end to “economically inefficient and discriminatory” taxation of aviation, which is hampering the industry’s recovery from COVID-19. "Tax relief, efficient and transparent tax regimes will support industry recovery and, in parallel, the recovery of the economies we serve," said ACI World Director-General Luis Felipe de Oliveira, in a recent statement.