Favourable tax regime gives edge to business

Dubai: Tax advisory firm Ernst & Young has published its annual corporate tax report for the Middle East, once again highlighting the favourable tax environment in the UAE.

Although the UAE Federal Government does not designate any specific tax laws, each emirate is responsible for setting its own service charges and fees.

In Dubai, for example, all companies are required to pay tax on earnings, but as the report highlights, this decree is only really enforced on foreign oil and gas companies (around 50 per cent from a maximum of 55 per cent), and on branches of foreign banks, set at 20 per cent.

A liberal economic policy, and attractive incentives have placed the UAE at the forefront for attracting foreign direct investment (FDI) in the region.

For example, foreign companies are afforded 100 per cent ownership, and no customs duties, for locating in one of the country's free zones.

However, incentives for more inshore foreign investment have been less forthcoming: businesses in the UAE are governed by the Commercial Companies Law No. 8 of 1984, which limits foreign ownership to 49 per cent in most cases.

“One of the hurdles (for FDI) in the UAE is the 51 per cent local ownership'' says Howard Hull, Partner International Tax Services, Middle East, with Ernst & Young.

There is some speculation that authorities may consider increasing this figure but Hull notes that this is more a medium term issue rather than a short term one.

Another issue within the UAE is the possible introduction of VAT - a measure with both economic as well as political implications, and again, unlikely to progress in the short term.

Changes to corporate tax structures are already afoot within the region however, with Hull speaking of “unprecedented fiscal reform across the GCC''.