New UAE tax: What will the impact be on companies?

Bal Krishen, The National, December 11, 2024

The UAE's new 15 per cent tax on large multinational companies didn't come as a shock to many corporates, according to analysts. And despite a short-term impact on profits, experts say it offers businesses the clarity they need to plan for the future.

The Ministry of Finance said that the DMTT will take effect from January 1, 2025 and will apply to multinational enterprises with consolidated global revenue of €750 million ($793 million) or more in at least two of the four financial years immediately preceding the financial year in which the tax applies.

“Those taxpayers effected by the new regulations were aware of these incoming changes following much movement globally in line with the OECD Pillar Two framework and the completion of the UAE’s public consultation around Pillar Two,” said Vishal Sharma, managing director and UAE tax practice leader at Alvarez & Marsal. “Many of these taxpayers have already begun to assess the scope of these rules against their group, identifying the potential future tax and compliance impact.”

Operationally, multinationals must gear up to introduce the tax in the UAE and its overall implementation as applicable, said Nilesh Ashar, senior managing director and head of Middle East Tax at FTI Consulting.

“MNEs need to assess the impact of DMTT on the UAE businesses, on their tax policy and also need to review system capabilities for tax reporting and compliances. Importantly, MNEs should evaluate the availability of any reliefs (like transitional safe harbour) in addition to the potential incentives announced in UAE for R & D and high-value employment activities,” he said.

Impact on profits

In the short term, a higher tax regime will inevitably have an impact on profitability for businesses that were used to enjoying the relatively lower taxes offered by the UAE, said Bal Krishen, chairman of Century Group. “However, corporations in the country’s free zones will maintain their tax-exempt status, and despite a 15 per cent tax rate, the UAE would still be an attractive business destination, relative to countries like the UK and Saudi Arabia, which have a 25 per cent and 20 per cent corporate tax rate, respectively,” he said.

After the 9 per cent corporate tax was introduced in 2023, it was a “major deal”, but companies revised their financial strategies in order to comply with the new regulations, Mr Krishen added. According to Mr Sharma, handling the new tax system will require collaboration and commitment from the finance, IT, legal and HR teams, and not just the tax department.

The announcement gives the qualifying companies “a strong mandate to press on with their Pillar Two implementation plans, obtaining additional budget from their business leads to invest in transformation and technology to support with tackling the extensive Pillar Two compliance burden, which is heavily data dependent”, he added.

Source

The National