A new tax on corporate profits will help the United Arab Emirates to diversify away from oil, according to S&P Global Ratings, as well as provide support for the smaller emirates.
An S&P report out on Monday stated that if the federal government utilises tax receipts for capital investment throughout the UAE, this will provide indirect support for economic activity in individual emirates.
“The broadening of the government’s revenue base should support smaller emirates’ economies,” said Trevor Cullinan, credit analyst at S&P, “however, the full impact is unclear because it is not yet known how the tax will be distributed.”
The tax could pressure banks, corporates, and insurers, “but this will be manageable and not significantly affect their creditworthiness,” he added.
The UAE plans to introduce a 9% corporate tax from June next year. According to the Emirati minister for entrepreneurship, the UAE government will lower fees ahead of introducing the tax on business profit, which will help start-ups and small-medium sized businesses: “The corporate tax, if anything, is entrepreneur-friendly, and our intent is to reduce fees going forward,” Ahmad Belhoul Al Falasi stated.
The minister was speaking at a virtual event focused on ways in which Middle Eastern governments can help entrepreneurship in the region. Bahrain, Egypt and Jordan officials also took part.
Furthermore, Dubai Islamic Bank forecasts the country will remain competitive after the tax comes into force, says a Gulf Business report.
Fitch Ratings last week said the tax may have “uneven credit implications” on businesses. The credit rating agency forecasts an increased attraction in the UAE’s freezones, areas with special rules that will stay exempt from the new tax.
The largest number of freezones is located in Dubai, such as the airport and an international financial centre.