Plans to introduce a value added tax (VAT) and corporation tax in the UAE is unlikely to deter foreign investors from establishing a commercial presence in the country, according to a firm which helps foreign companies set up in the region.
The Links Group, a UAE-based provider of commercial facilitation and advisory services, said the move is a sign of a maturing market, adding that a low tax environment is unlikely to result in an exodus of expatriates.
John Martin St Valery, founding partner of The Links Group said: "Plans to introduce a federal tax system have been mooted for some time now as the UAE steps up efforts to consolidate non-oil revenues.
"Although a major shift in fiscal policy from a country widely recognised for its low tax status, we consider this a sign of a maturing market, with a diminishing natural resource, taking the long term seriously.
"The introduction of a sales tax and broadening of the corporation tax are obvious steps forward and, although they will necessitate changes to the administration of locally-registered companies, the anticipated low rate of taxation applied is unlikely to impact foreign investors who are typically familiar with these types of taxes."
He added: "These taxes are also an indication to foreign investors that the UAE government recognises offering and implementing world-class infrastructure services comes at a cost. The benefits of existing infrastructure, geographical location and ease of travel, communication, and safety and security of the country more than outweigh any perceived costs.
"An efficient low tax environment is unlikely to see an exodus of expatriates or deter foreign investors from entering the market. Both Singapore and Hong Kong are testament to this. The UAE enjoys a similar geographical advantage as these markets, in terms of being a gateway to the fast-growth economies of the Middle East, the Indian sub continent and Africa.
"We are following closely the updates from the Ministry of Finance in order to best prepare our clients for the possible financial consequences of sales and corporation taxes in the UAE."
The six oil exporting states of the Gulf Cooperation Council have been studying the introduction of VAT for years. The plunge of oil prices since last year has slashed governments' income, making it more urgent for them to find new revenue; the UAE is expected this year to post its first budget deficit since 2009.
But VAT has been delayed partly because it is politically sensitive, and partly because GCC governments have been unable to agree on details. Analysts believe that to limit smuggling and damage to the competitiveness of economies, the tax would probably have to be introduced regionally rather than by individual countries at different times.For all the latest banking and finance 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.
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