UAE’s Corporate Tax Is A Step Towards The Future & Global Business Credibility




The United Arab Emirates (UAE) for long had been trapped in the conventional image of an oil-lubricated economy. However, Dubai worked over the years very systematically and helped the nation unshackle to position itself as a modern state with massive investments in the areas of innovation and technology. 

The gulf nation since has been in the limelight, kicking in a series of reforms aligning itself with the global community – the latest one being the 9% federal corporate tax thus complying with the international tax standards template set by the Organization for Economic Cooperation and Development (OECD). 

Industry experts and financial analysts hail the introduction of corporate tax, and they argue that the move would further add impetus in the UAE – the undisputed economic engine of the Middle East and North Africa (MENA) region – which has been gradually reducing its dependence on the traditional revenue earned from fossil fuel.

“I have seen some arguments that the corporate tax would be a deterrent for investors.  They are totally senseless.  Instead, I can say the move would strengthen the UAE’s economy manifold as the country would become a fertile soil for well-meaning businesses and corporate behemoths,” former geopolitical and economic advisor, K.V.Mohan Menon told the Economic Times. 

An investment banker by profession, Menon who is now the chairman of Kerala-based SDF Industries Ltd had lived and worked in many countries, in particular the gulf region. He says everyone thought Singapore, once a tax haven, was finished when it embraced 17% tax.  “But where is Singapore now?  So, I don’t see much merit in these doomsday predictions,” Menon gets candid.

A businessman with global connections and a keen observer of the Middle East region, Menon is not at all surprised by the UAE’s latest move.  “The country was a signatory to the global pact last year which set a minimum tax rate of 15% for large corporates and multinationals.  So, it is only in anticipated lines.  The only surprise, if you call it a surprise, is the UAE fixing the tax at 9%,” he opines.   

The new corporate tax introduced by the UAE, experts have pointed out, would bring additional $ 13 billion revenue to the government exchequer. Even so, Menon argues, it would not affect the startups negatively since only businesses outside free zones making more than Dh.375,000 in profits come under the tax net. 

“I see this as a thoughtful action since Dubai Startup Hub, its key contributions to GDP, and the nation’s thrust on building a knowledge-based economy would continue to remain relevant and unaffected, Menon asserts, adding that the UAE still has the lowest corporate tax, next to Bahrain which still has no corporate tax.  This makes the gulf nation still an attractive investment destination.

“At the same time, it also wants to send a strong message to the market that it does not want to be the home for fly-by-night operators.  So, I see this as a cautious, calibrated approach.  But beyond the tax and compliance structure what will keep Dubai an all-time attraction for investors is its ease of doing business culture,” affirms Menon.

The UAE and Dubai are flexible and pragmatic in their approach and they have always been the first to see the writing on the wall particularly when it comes to diversifying their revenues away from hydrocarbons. “Dubai in particular has taken an early and interesting lead in positioning itself as an innovation hub, be it IoT, Blockchain or AI,” points out Menon.

The future is all about transparency and the UAE knows that it would lose its competitive edge if it remains out of the compliance club.  “This is more so at a time when Saudi Arabia is doing everything to attract multinationals to its soil,” says Menon who sees the corporate tax move as a ‘clean-up’ operation that would weed out organisations that do not share the UAE Government’s social vision.

In other words, it means in the long run, the country would be home only to those organisations that even while working for profits would not forget or neglect their social responsibilities raising the economic and global status of the UAE by making meaningful contributions, aligning themselves with the globally accepted best practices and norms.  That is what people like Menon argue.

Disclaimer: This article is a part of featured content series on Business in Dubai

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