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How does the new tax regime spur diversification, boost the SME sector?

By exempting SMEs from the tax, the UAE, the Arab world’s second-largest economy, reaffirms its focus on driving innovation and empowering small businesses and start-ups by improving their access to finance

Hailing the bold move to introduce corporate tax, corporate experts and business analysts said it is a very critical step for the UAE as it seeks to push forward its economic diversification agenda.

The future-ready UAE has already charted the course of its next 50 years of growth journey by encouraging investments in scientific research, logistics, health care, food security, manufacturing and advanced technologies, and renewable energy, among many other areas. With one of the lowest corporate tax slabs, the new tax regime will help the nation’s business ecosystem for globally accountable and transparent, analysts said.

By exempting SMEs from the tax, the UAE, the Arab world’s second-largest economy, reaffirms its focus on driving innovation and empowering small businesses and start-ups by improving their access to finance.

The tax reform is the latest in a string of progressive measures, including overhauled commercial companies law, new Dh133bn industrial strategy and residency reforms, rolled out over the past two years to enhance the nation’s appeal as a sought after business hub, analysts said.

James Mathew, CEO and managing partner, UHY James Chartered Accountants, said the first ever corporate tax in the UAE is symbolic of a paradigm shift from the nation’s positioning as a tax-free commercial hub. The statutory tax rate will be nine per cent for taxable income exceeding Dh375,000 and zero for taxable income up to that amount. This decision reinforces the UAE’s commitment towards guiding small and medium sized businesses towards finding a strong foothold in the economy.

“Through the introduction of corporate taxes, the UAE sends out a loud and clear message about nurturing a transparent and fair financial ecosystem. Nine per cent tax is classified as the lower end of corporate taxes worldwide and the country has reiterated it has no plans to levy personal income tax or capital gains tax from real estate or other investments. The real estate sector continues to be a solid contributor to the UAE’s GDP and the overhauling of key legislations and citizenship laws have significantly enhanced investor confidence in UAE real estate,” said Mathew.

“In recent years, the UAE has continually showcased relentless commitment towards strengthening its business landscape in line with international practices. Positively, the federal corporate taxes are a step forward in turning the spotlight on the UAE’s transparent economic environment while continuing to offer global investors attractive returns on real estate investments and more,” said Mathew.

Sajith Kumar PK, CEO and managing director, IBMC Financial Professionals Group, said the bracket of profit above Dh375,000 will empower SME and startup sectors across the UAE.

“It will attract more SMEs and startups to the UAE. Corporate tax is also supportive for working class and business classes with regards to their personal income compared to income tax practices. Nine per cent tax is also much below average of OECD transfer pricing system.”

Jitendra Gianchandani, managing partner, Jitendra Consulting Group, said the corporate tax is the only solution if the UAE wants to sustain its growth. “Corporates in the UAE have successfully absorbed the VAT, and they will welcome corporate tax as well with both hands.”

Pankaj Mundra, cofounder 360tf Nimai, said the introduction of corporate tax is a much awaited move after introduction of Pillar 1 and pillar 2 OECD inclusive framework. “This will make the UAE more competitive in terms of Global Taxation best practice. Introduction of corporate taxes will make the corporate balance sheet stronger as this will have more transparency, more concrete procedures and policies for maintenance of books of accounts and financials. With global banks and private equity funds getting more confidence on the UAE corporate financials, the country will be drawing more capital.”

— issacjohn@khaleejtimes.com