The taxman commeth: Regional FDI and the new global corporate tax standards
There will be an impact on international companies doing business here, as well as those planning on coming to the GCC, and there are still a number of questions to be answered
Joe Hepworth, director, OCO Middle East, and founder of the British Centres for Business (BCB)
One hundred and thirty six countries have subscribed to the new 15 percent corporate tax rate threshold for multi-national companies. Amid all the fanfare surrounding the OECD’s recent global tax agreement, it’s surprising how little attention was paid to the fact that the UAE and the rest of the GCC (with the exception of Kuwait), were co-signatories to the coming regime.
Tax. The T word. For many years the unspeakable Voldermort of doing business in the region… It’s coming… Actually, it’s already here. Banks and energy companies are taxed throughout the GCC; Qatar has a corporate income tax, as does Saudi Arabia. Countries across the region levy social security payments for national workers, and VAT is of course well established in the UAE, Saudi Arabia and Bahrain, and is coming to Oman. Perhaps this is why the news elicited so little response.
From the perspective of FDI, however, these developments do merit further analysis. There will be an impact on international companies doing business here, as well as those planning on coming to the GCC, and there are still a number of questions to be answered.
Foremost amongst these is how free zones in the region will respond, given that many market themselves on the basis of having zero percent corporate income tax, and in some cases offer multi-year guarantees of this status.
It’s inconceivable that they would be able to opt out, so, similar to the recent 100 percent mainland company ownership provisions, it’s likely we’ll see further blurring of the lines between onshore and offshore jurisdictions, with drivers to the latter becoming less pronounced.
Businesses in the region are used to paying government fees – most commonly through the annual trade license process – and it’s widely accepted that this is taxation by another name. Adding taxation to the existing fee structure would be a significant burden on companies, so does that mean these fees will be phased out?
As almost the whole region has signed up to the new regime, there would appear to be limited room for local tax arbitrage opportunities, although it is likely that the GCC will be at the lower end of the scale internationally, nearer the 15 percent minimum, and will therefore probably still retain some competitive advantage in this area from a global standpoint.
VAT is well established in Saudi Arabia (above), UAE and Bahrain, and is coming to Oman.
With tax negated as a primary pull for international investors to the region, focus will fall on other key areas for FDI attraction. This will mean that infrastructure, talent, connectivity, lifestyle, access to capital, supply-chains and other vital components become even more important for global companies.
In this regard, Ireland stands as perhaps the best example. Low corporate taxation has undoubtedly helped the country to attract multinationals but now its well-trained, dynamic workforce, open society, business-friendly laws, regional access and established hub status amongst international firms are what make it such a successful FDI magnet for Europe.
The UAE already has a significant advantage over its peer competitors in the region across many of these areas and, like Ireland, should be in the best position to lever its non-tax advantages in the years ahead.
Joe Hepworth, director, OCO Middle East, and founder of the British Centres for Business (BCB).
Follow us on
For all the latest business news from the UAE and Gulf countries, follow us on Twitter and LinkedIn, like us on Facebook and subscribe to our YouTube page, which is updated daily.
By Joe Hepworth
More of this topic
The taxman commeth: Regional FDI and the new global corporate tax standards
There will be an impact on international companies doing business here, as well as those planning on coming to the GCC, and there are still a number of questions to be answered
One hundred and thirty six countries have subscribed to the new 15 percent corporate tax rate threshold for multi-national companies. Amid all the fanfare surrounding the OECD’s recent global tax agreement, it’s surprising how little attention was paid to the fact that the UAE and the rest of the GCC (with the exception of Kuwait), were co-signatories to the coming regime.
Tax. The T word. For many years the unspeakable Voldermort of doing business in the region… It’s coming… Actually, it’s already here. Banks and energy companies are taxed throughout the GCC; Qatar has a corporate income tax, as does Saudi Arabia. Countries across the region levy social security payments for national workers, and VAT is of course well established in the UAE, Saudi Arabia and Bahrain, and is coming to Oman. Perhaps this is why the news elicited so little response.
From the perspective of FDI, however, these developments do merit further analysis. There will be an impact on international companies doing business here, as well as those planning on coming to the GCC, and there are still a number of questions to be answered.
Foremost amongst these is how free zones in the region will respond, given that many market themselves on the basis of having zero percent corporate income tax, and in some cases offer multi-year guarantees of this status.
It’s inconceivable that they would be able to opt out, so, similar to the recent 100 percent mainland company ownership provisions, it’s likely we’ll see further blurring of the lines between onshore and offshore jurisdictions, with drivers to the latter becoming less pronounced.
Businesses in the region are used to paying government fees – most commonly through the annual trade license process – and it’s widely accepted that this is taxation by another name. Adding taxation to the existing fee structure would be a significant burden on companies, so does that mean these fees will be phased out?
As almost the whole region has signed up to the new regime, there would appear to be limited room for local tax arbitrage opportunities, although it is likely that the GCC will be at the lower end of the scale internationally, nearer the 15 percent minimum, and will therefore probably still retain some competitive advantage in this area from a global standpoint.
With tax negated as a primary pull for international investors to the region, focus will fall on other key areas for FDI attraction. This will mean that infrastructure, talent, connectivity, lifestyle, access to capital, supply-chains and other vital components become even more important for global companies.
In this regard, Ireland stands as perhaps the best example. Low corporate taxation has undoubtedly helped the country to attract multinationals but now its well-trained, dynamic workforce, open society, business-friendly laws, regional access and established hub status amongst international firms are what make it such a successful FDI magnet for Europe.
The UAE already has a significant advantage over its peer competitors in the region across many of these areas and, like Ireland, should be in the best position to lever its non-tax advantages in the years ahead.
Joe Hepworth, director, OCO Middle East, and founder of the British Centres for Business (BCB).
Follow us on
Latest News