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Tue 9 Jun 2020 03:16 PM

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Corporate tax in UAE will turn away investors, says GWS Group chairman

Oliver Wurmbrand-Stuppach warned more taxation will harm entrepreneurs and sectors like real estate and tourism

Corporate tax in UAE will turn away investors, says GWS Group chairman

Both the UAE and Saudi Arabia introduced a 5 percent value added tax (VAT) in January 2018.

The introduction of a corporate tax in the UAE will turn away international investors and wealthy residents, according to the chairman of tax advisory GWS Group, in response to a prediction by Emirati lawyer Habib Al Mulla expecting Covid-19 to accelerate the implementation of the tax across the GCC to replace the current government fee system.

Al Mulla said last week: "This is a common issue for the Gulf countries because they have similar economic structures and face similar economic challenges. From a Gulf perspective, it's a step we have to take. It's unavoidable. The governments need to diversity their sources of income to something which will be steady and not as reliant on one commodity". 

He argued the move would ease the burden of the current fee system for small to medium-sized companies, but Oliver Wurmbrand-Stuppach warned more taxation will harm entrepreneurs who will be forced to pass the extra costs onto consumers. 

Both the UAE and Saudi Arabia introduced a 5 percent value added tax (VAT) in January 2018.

"We believe [corporate tax] will create great uncertainty among international investors and wealthy residents," said Stuppach. "The introduction of corporate taxation... will inevitably lead to price increases as entrepreneurs will be forced to pass on the burden to the end consumers. This will lead to a loss of purchasing power for the entire population and decline in economic growth".

He claimed rising costs related to taxes will impact key industries such as tourism and real estate.

"The tax contribution of small and medium-sized companies and family businesses is not of great relevance for a state budget. International companies, personnel-intensive industries and service providers will give priority to the location that offers the most attractive framework and legal certainty," he said.

"Possible taxation of these companies will inevitably result in cutting back on-site investments or moving business to other attractive countries. As a result, this will lead to the loss of investments, jobs and economic growth. The potential tax revenue will hardly be able to compensate for this loss," he added.

But Joanne Clarke, tax director at international law firm Pinsent Masons, said a corporate income tax (CIT) system has already been applied to the UAE's oil & gas and banking sectors, and agrees with Al Mulla that its expansion into more industries is ultimately inevitable. 

"The tax regime in the UAE has already established the legal, administrative and system foundations for applying additional taxes outside of VAT, Customs Duty and Excise. Therefore, it may not be practically difficult for the authorities to implement CIT. In addition, it’s worth recognising that we do in fact already have a CIT system in the UAE, it is just very limited to the oil & gas and banking sector," she said.

"Therefore, as the region as a whole starts to increase the types of taxes they are applying and the scopes of such taxes, it seems somewhat inevitable that the UAE will implement CIT. However, when and what type of regime, only time will tell," Clarke added.

Stuppach argued, however, that more taxes will lead to higher competition for the UAE as it will follow in the footsteps of competitive business hubs like the UK, Switzerland, Cyprus, Italy, Hong Kong, Singapore and Monaco.

"A theoretical calculation of tax receipts will consequently not be able to prove itself in practice if this leads to an exodus of companies and residents. This would send a wrong signal especially in a time of great challenges and would endanger economic growth and positioning as an international investment location. In order to remain successful in the future and benefit from the crisis, UAE should rather expand the attractive framework and incentives to bring investors into the country,” he said. 

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