UAE’s Corporate Tax a catalyst for economic transformation, say experts

Dubai: The UAE’s competitive corporate tax rates -- as low as 0 per cent in free zones and 9 per cent in the mainland -- and its status as an investment and tourism hub make the new tax regime a catalyst for economic transformation.

During the Gulf News event ‘UAE Corporate Tax: Optimising Efficiency and Minimising Risks’, which took place on Wednesday, corporate tax and finance experts said that the new regime could entice investors from high-tax mature markets.

Globally, the average corporate tax rate is 23.37 per cent, rising to 25.43 per cent when considering GDP. Compared to this, UAE’s 9 per cent rate stands out as one of the world’s lowest, ranking third, and the country is among the few OECD members with such rates.

Humane tax regime

Rakesh Nair, Director – Corporate Tax, Crowe UAE, said: “After the UAE signed the BEPS (base erosion and profit shifting) inclusive framework in 2018, everyone expected corporate tax to be introduced in a humane way. MNCs (looking to invest in the UAE) would need a stable environment, rate and policies which would be adopted.” OECD’s BEPS targets companies shifting profits to lower tax regions, aiming to close international taxation gaps by curbing tax avoidance strategies like inversions and relocating intangibles.

Nair added: “Compared to the global tax policy, the rate here pretty competitive. If you see the rate in the UK, it is 25 per cent. If you see the rate in the US, it is 21 per cent. While doing business in the UAE, you benefit from a world-class infrastructure, a strategic location to do the work, and a business-friendly environment.”

Moreover, the compliance burden for small and medium companies is minimal. “If you see the pros and cons, and ultimately with the transparency and stability, you will see FDI inflows into the UAE,” he stated.

Impact on businesses

Commenting on the new tax regime’s impact on businesses, Joe Pacelli, Head of Tax at KPMG, said: “Businesses will continue to do business. They will pass on these costs, if they are costs, and manage them accordingly. I see a world when tax will increase at some point, but it is undoubtedly the lowest CT rates in the developed world in that regard.” However, Pacelli stressed that the business environment in the UAE would remain competitive.

Meanwhile, Syam Panayickal Prabhu, Founder and Managing Director of Aurion FZE, said that the UAE continues to retain its status as a tax haven.

“There is no personal income tax; there is no withholding tax. Even in other GCC countries, where Corporate Tax is as high as 15 to 20 per cent, UAE retains its position as a top investment destination for industries across the globe,” said Prabhu.

Also, the UAE has adopted a straightforward, gradual approach to introducing corporate tax in the country, said Girish Chand, Senior Partner at MCA Management Consultants. “CT will not impact a lot of small businesses. And if you look at the transfer pricing (TP), the limits are very high, so you don’t have to get into detailed documentation. And as far as audits are concerned, it is only mandatory for businesses with a turnover of over Dh50 million,” he said. All these factors make it attractive for large MNCs to set up a base in the country.