Viewpoint: Emilio Pera
As the capital of the UAE, Abu Dhabi is an economic centre that attracts people and businesses from around the world. The emirate’s strategic location, stable political environment and forward-think-ing policies make it a popular destination for both established and emerging businesses.
The introduction of a federal corporate tax pre-sents challenges and opportunities to businesses operating in Abu Dhabi and to new entrants. To assess the impact of the new tax, it is important to understand what it entails. In brief, the regulation imposes a 9% levy on the taxable profits of compa-nies operating in the UAE, with certain exemptions and deductions available. The rate rises to 15% if the company is subject to a global minimum tax under the G20/OECD Inclusive Framework on Base Ero-sion and Profit Shifting. This applies to foreign and local companies, although there are some variations depending on their legal structure and ownership.
For existing businesses, the new corporate tax will require significant changes to their planning and financial strategies. Companies need to consider this tax when making business decisions, whether that means utilising exemptions and deductions, incorporating taxes into project appraisals and forecasts, updating pricing models, or considering alternative structures and ownership models from a tax perspective. In summary, businesses will need to factor in the corporate tax when evaluating the costs and benefits of conducting business.
The compliance requirements for businesses have increased due to the Economic Substance Regulations, value-added tax and corporate tax. Businesses will need to develop a compliance-man-agement system to ensure that they meet their obligations, which includes identifying their tax liabilities, filing tax returns on time and paying taxes when due. Furthermore, companies should upgrade their IT systems and processes to handle the increased requirements. This includes updat-ing their accounting systems to accommodate the new tax, and ensuring that they can generate the necessary reports and data, including tracking and reporting taxable income and preparing tax returns.
To fulfil these obligations, companies will need to evaluate their human resources to determine whether their staff have the necessary expertise in this area. Abu Dhabi remains a place where peo-ple want to work and is well positioned to attract new talent, but tax considerations will need to be accounted for and factored into business forecasts.
For new entrants to the market, the updated tax regime will be considered in their investment decision. The kinds of investment structures to be used for new companies in Abu Dhabi should include considerations for the new tax. In terms of acquisitions, investors will need to understand tax statuses of investees and conduct enhanced due diligence to evaluate corporate tax positions. The introduction of the new corporate tax is a significant change that is likely to have ripple effects on the wider economy. The tax is expected to provide the government with a new source of revenue, and pro-mote greater transparency and accountability in the business sector, and enhance investor confidence. However, businesses will have to take into account an additional layer of administrative requirements when developing their corporate strategies.
Ultimately, the change in tax status represents a positive development for the country that helps to reinforce the UAE’s position as a leading business destination. Through increased levels of transpar-ency, this attractiveness is further emphasised. The recent changes to the tax regime represent an opportunity for businesses to strengthen their operations and become more resilient. By taking the necessary steps to adapt, businesses can continue to expand and flourish in this dynamic emirate.
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