Lower than Ireland: why UAE corporate tax may prove a boon for foreign investment

Corporate tax rate of 9% means the country is well placed to attract corporates, chartered accountant says

The UAE is set to attract more foreign direct investment and multinational corporations when it rolls out one of the lowest corporate tax rates in the world in June 2023.

“Corporate tax, whenever it comes to a country, really brings a lot of transparency, it brings a trust,” Anurag Chaturvedi, chief executive of tax accounting firm Chartered House, an Andersen Global collaborating firm, told The National.

It may appear counterintuitive that levying a tax on corporate profits would spur investment or attract multinationals. But if a country adopts a competitive tax regime, then it stands to become an attractive destination for corporates looking for “open and agile” jurisdictions, Mr Chaturvedi said.

This phenomenon is most visible in Ireland, which currently has one of the lowest corporate tax rates in the world at 12.5 per cent. As a result, Dublin has become a tech hub, attracting Amazon, Facebook, Google, LinkedIn and TikTok to set up their European headquarters there.

With the UAE adopting a competitive rate of 9 per cent, “now, those people will have significant opportunities to make UAE their headquarters”, Mr Chaturvedi said, and added that the country is a well-placed gateway to the rest of the Arabian Gulf, as well as Africa and Asia.

The UAE's new tax will come into effect right as the global corporate tax environment is set to change.

In October last year, the Organisation for Economic Co-operation and Development announced a global deal to ensure big companies pay a minimum tax rate of 15 per cent from 2023, marking a major reform of the international tax system that makes it tougher for multinationals to avoid taxation.

Under the global accord, signed by 136 nations (including Ireland), countries will collect about $150 billion in new tax revenue annually, while $125bn in multinationals' profits will be reallocated to the countries in which they operate, the OECD said.

The UAE has set provisions that entities operating in the country cannot be double taxed, meaning foreign taxes paid by a multinational will be credited against any payable UAE tax. Companies also will not be taxed on earnings on investments made outside the UAE.

The UAE's corporate tax will also provide a revenue stream for the government to pour into infrastructure, Mr Chaturvedi said.

In the short term, he predicted the corporate tax will cause a rise in inflation, increasing the cost of living for consumers.

“This is a very, very decent and unique model proposition that the UAE has put together,” Mr Chaturvedi said. “In [the] short term, we will all be having teething issues in terms of adopting this regulation. But long run, it is very efficient for economic outlook.”