The Emirates was once a heaven for businesses because of complete leeway on taxes. It was one among the rare few countries to not impose tax burdens. Times have changed and so has the milieu around tax regulations. As the country gears up for a wave of tax restructuring, what can we do to stay ahead of the curve?
It will not be inaccurate to point out that there is currently an ongoing global tax reset. Introduction of Value Added Tax (VAT) in the UAE was a radical shift in the economy. The revenue from VAT which exceeded all expectations was again seen as a display of UAE’s bureaucratic strength. UAE residents paid Dh27 billion in value-added tax (VAT) last year, surpassing the government’s target of collecting Dh12 billion, an increase of 125 per cent. It even surpassed the goal of Dh20 billion VAT revenue collections for 2019. This accounted for 1.7% of the UAE’s Dh1.59T nominal GDP. The analysts are unanimous that the VAT revenue is set to go up as more and more firms comply with the norms
There are sweeping changes in tax laws in most of the other countries as well. Companies are finding it laborious to keep abreast of the changes. It becomes especially harder when a company has operations or customer base in multiple countries. In taxation, the influences are no longer limited to the immediate governing body. Global economic developments are creating ripples in the world of taxes. It is becoming hard to keep track of the changes in rules, and even harder to comply.
As a result, companies feel increasingly baffled by frequent changes. This has increased the level of uncertainty where more and more business executives are unaware of the newer changes in tax legislation. The digitisation of several processes has made it even more complex for businesses. Ambiguities regarding new trade agreements and disruptions like Brexit has made tax a long fight for many. What is driving these changes?
Organisation for Economic Co-operation and Development (OECD) has been a key player in setting the standard for international tax processes across countries. Their work has been to promote best tax practices, robust standards and the tools required to implement these, especially in a digitalised world. OECD has worked extensively to tie up the loose ends in terms of tax regulations and transparency, globally.
The UAE was put in the OECD’s list of uncooperative tax havens because of the lack of transparency, poor communication, and lapses in tax implementation. The UAE was quick to act and promised continued efforts to rectify the shortfalls. These efforts materialized in the form of participation in the Base Erosion and Profit Shifting (BEPS) framework and implementing Economic Substance Regulations and Country by Country Reporting (CBCR). These measures became fruitful when the EU decided to remove UAE from the bloc’s list of countries deemed to act as tax heavens.
The major goal of CbCR is better transparency regarding economic data. The CbCR framework mandates multinational enterprises to publicly report their revenue by country and make it available to government bodies around the world. It builds transparency and enables sharing of information among key economic players and governments.
The UAE also came up with Economic Substance Regulation Laws which requires companies to meet certain requirements regarding the nature of their revenue, the failure to comply with which would draw sanctions and penalties. The Economic Substance Regulation makes it compulsory for enterprises to disclose the income and expenses corresponding to the local activities and transactions. It was designed in such a way that makes sure that companies will not be able to shift profits generated in the territory.
This shift to a tax-based economy will bring more stability to the economy and the scope of it being better structured in the future. Among the outcomes of these developments are that corporations without proper tax management systems in order are likely to face serious issues in the longer run. Tax discussions have the rare power to put senior executives to sleep yet keep them up at night worrying. Business leaders have traditionally compartmentalized tax management as a compliance function, a complex specialty ceded to the experts.
Using tax data as an integral part of business, Integrating tax data with operations, engaging the tax function with external stakeholders and elevating the tax function to the role of strategic contributor should be the key goals for the business in the region for tackling the transformation of the tax. The key to success is to define organization’s own unique tax strategy and make it part of the overall corporate vision.
Best Regards,
CA. Mohammed Shafeek
Disclaimer: This document has been prepared as a general guide. It is not substitute for professional advice. Neither MSATC nor its partners or employees accept any responsibility for loss or damage incurred as a result of acting or refraining from acting upon anything contained in or omitted from this document.
