By Staff writer
Links Group says move is sign of maturing market and is unlikey to deter foreign investors from setting up shop in the UAE
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.
I wholeheartedly disagree with John Martin St Valery, there will be a mass exodus of Expats leaving UAE and businesses moving out of the country with places like Bahrain and Kuwait ready to welcome them.
I suggest all UK Expats takes professional financial advice with regards to how this is going to affect them.
It's in the interest of John Martin St Valery to say that... He is surely not an impartial commentator...
Realistically speaking there will be an impact... Taxation coupled with the rising costs of living will ultimately make it unsustainable for expats to work in the UAE.
Investor may still come in to build bases for emerging markets focused business (Afria / India) and take advantage of the great infrastructure such as the port of Jabal Ali. On the other hand young professionals will probably phase out.
Dont worry, no matter what happens, expats are here to stay, they have burned bridges.
There will not be a mass exodus of expats with a lot level of VAT introduced. The same argument was made in the UK when top rate income tax went from 40% to 50% and there was a tiny fraction of departures.
Furthermore, there will be no need for expats to take personal financial advice, especially if, as you suggest, they leave for a personal tax free country like Kuwait that you mention. I think you are mixing up corporate or state tax with personal tax. There is no need for anybody to take financial advice in this situation.
In fact, most expats I have come across are far worse off because of the horrific commissions charged by so-called financial advisers selling endowment savings plans policies for the so-called tax benefits, when there are none for an expat in a GCC country.
I agree with andrew this report is in my opinion not true to reality there are several option and even if one has to pay tax i would prefer somwhere where u will get somthing in return of that tax which is tangible.
With respect you are both wrong. Expatriates have a seemingly endless ability to take whatever is thrown at them and this, a potential marginal threat at best, will not do anything other than marginally bruise the feelings of some. Talk of an expat exodus is nonsense and frankly, if the already high costs of business establishment, housing, schools and services have not yet seen off foreign resdient, I doubt a 2-5% tax will.
I do agree, however, that Links Group is hardly the most appropriate commentator on the subject.
Well that remains to be seen. What I'm interested in is whether retailers here are anticipating an impact. Dubai is an expensive place to shop in without VAT and will become even more expensive with it. Will retailers rein in their seemingly obscene margins so the retail prices (inclusive of VAT) remain unchanged or will they try to maintain those margins, bump up prices and face the risk of customers doing their shopping in other markets where VAT refunds for non-residents can account for significant savings? And if Dubai does become a more expensive place to shop in than it already is, what will the impact be on the tourists? So many unanswered questions.
The general cost of living in the UAE is already very high,fuel prices rising (but rightly so!), rents and house prices, food is mainly imported (heavily tax the ownership of gas guzzler vehicles and build a million green houses with the money, might be a more fruit and vegetable friendly policy). Would the introduction of VAT tip the balance in terms of the eternal expatriate self examination question. "Given what it cost me to live versus what I earn in terms of I am in profit, is it worth my staying here?"
Well if you a middle-income expat couldn't avoid paying VAT on certain essential puchases then that could well make the Q & A completely negative. However were you to be in a position to have complete freedom of choice as to whether you purchased VATable consumer items or not then it would make little difference. Thus VAT applicable to the majority of UAE goods and services on a European model would make a world of difference and gravely affect tourist expectations.
I agree with many comments made already. John St Valery is only making a point when its commercially beneficial for his company (Links).
There will be an impact, more so because we pay tax to get something in return from the state we live in. Just paying tax to fill the coffers of others will not sit nicely with many expats.
Dubai is great at replacing the word 'tax' with 'fee'. Same same, but still a great place for commerce in the middle east.
An Exodus of expats leaving? Anyone who thinks that is not dealing with the changing reality properly. It will have no effect to the expats willingness to live an work here. The odd expat that leaves for the reason of VAT, will have 20 expats queuing to take on its place.