The United Arab Emirates has announced plans to impose a new federal corporate tax on business profits, for financial years starting on or after 1 June 2023.
It’s the latest in a series of reforms designed to streamline the country’s tax system, align it with international best practice and diversify state revenue. However, as the UAE has historically lacked a domestic corporate tax regime, its implementation will bring both challenges and opportunities for UAE businesses and the accountancy professionals who support them.
‘Corporate tax is a new concept for the UAE market and many businesses will require education and support’
Knowledge push
One of the biggest hurdles will be education.
Sidra Islam FCCA, co-founder and managing director of Dubai-based accountancy firm Sidra Salman & Co, says: ‘UAE is taking steps to fulfil its commitments to global tax transparency. However, corporate tax is a new concept for the UAE market and many businesses will require education and support.
‘Following the government announcement, companies have started to discuss the strategic impact of the new taxation structure at board level, however successful implementation will require continuing education and effective communication by the authorities. Small and medium sized businesses in particular will need training about their obligations, which accounting firms can provide.’
Skills requirement
Qualified accountants will accordingly need to keep their corporate tax knowledge up to date as more details emerge, and some may need a refresher on how business income taxes work.
Some companies may want to outsource to accountancy practices the work required for the first-time implementation of corporate tax, as well as ongoing administration and compliance; others may decide to rely on or expand their internal resources.
As yet, there may be scant appreciation of the technical and practical accounting skills that implementation and ongoing administration will demand – or its wider impact within businesses. From board-level down to departments such as finance, IT and marketing, people will need educating on what the tax is and how it will affect them.
Some of those in finance or tax-related roles may be expected to initiate and/or lead on the transition, opening dialogue with other departments and stakeholders in the business. They may also be expected to initiate or conduct impact assessments and develop and implement far-reaching change roadmaps.
Wider implications
‘It’s not just about cashflow and compliance,’ says Islam. ‘Business-wide, people need to discuss the corporate tax with their teams, understand its implications and factor it into decision-making, forecasting and planning. They also need to take account of it in future contracts, acquisitions and mergers, and other strategic decisions, such as which people to replace with technology, for example.
‘People must understand the needs, identify the risks and then transform the financial structure and tax system in the company.’
Finding the resources to do this may prove challenging.
‘Businesses should establish in good time where there are skills gaps and work towards minimising these. Human resources departments in corporates have an important value-adding part to play here,’ Islam notes.
Tax-ready
Wassim Chahine, partner and head of corporate tax at KPMG UAE, makes a similar point. ‘As well as being ready for implementation, companies will need to ensure that their organisation, its value chain and business activities are all operating efficiently from a tax perspective,’ he says.
KPMG is already conducting impact assessments, workshops and seminars to help clients assess the implications of the new tax, and has highlighted 10 key questions for the board and executives to consider in a Q&A.
The tax in numbers
The new corporate tax is a federal one that will apply to all UAE businesses and commercial activities, except for the extraction of natural resources, which will remain subject to corporate taxation at the individual emirate level.
The corporation tax rates will be:
- 0% for taxable income up to AED375,000 (US$102,000)
- 9% for taxable income above AED375,000
- minimum 15% for large multinationals (consolidated global revenues in excess of €750m (AED 2.9bn).
Source: UAE finance ministry
‘As a firm we expect to increase our income from tax-related services’
Business model, capital structure, legal structure, internal control systems, governance structures, strategy and technology infrastructure are all matters that may require consideration. Even a high-level impact assessment may reveal changes that are advisable or necessary before June 2023, in areas as diverse as enterprise resource planning and intercompany/related party transactions. Many firms are positioning themselves to deliver the necessary services – and the associated benefits.
Better business
Saad Maniar FCCA, senior partner at Crowe UAE, says: ‘As a firm we expect to increase our income from tax-related services, planning for transfer pricing and other tax advisory services, and consulting in areas such as corporate governance.’
Despite the new tax burden, the increased compliance and the need to enhance company systems and controls, Maniar has found that CEOs are optimistic about corporate tax. ‘They feel that business, the credibility of the UAE and the overall business environment will improve,’ he explains.
By working together, there is an opportunity for UAE firms and companies to build a stronger, more sustainable corporate environment.
Fee booster
Corporate tax opportunities for accounting firms in the UAE include:
- advising on technicalities such as taxable vs exempt income, and utilising losses
- assessing the tax’s impact on people, processes and technology
- change management and project management
- advising on new technology to support the changes
- advising on and implementing changes to legal structure and business model
- communicating with tax authorities on behalf of companies
- advising and supporting companies with tax investigations or appeals.
