Business activity in the UAE’s private sector quickened at its fastest pace last month in at least five years, according to the latest purchasing managers’ index data.
The PMI gauge, which measures monthly output across non-oil manufacturing and services, showed growth reached 58.3 points, the second strongest reading among the emerging markets HSBC covers in its data. Saudi Arabia’s score was marginally higher at 58.5. A reading above 50 indicates expansion.
“The UAE economy is in full swing, led by booming Dubai,” said Simon Williams, chief economist for the Middle East and North Africa at HSBC. “The risks of overheating will come sooner rather than later, but for now the UAE is in the sweet spot of its economic cycle – strong growth, firm employment and inflation that is only starting to rise.”
Signs of faster than expected momentum in the non-oil economy have prompted the IMF to upgrade its 2014 forecast for the UAE. It will be the third revision to its forecast this year.
Harald Finger, the official leading a mission to the UAE, said yesterday the IMF would change its current 4.4 per cent GDP outlook.
“Since we see strength in the economy it certainly looks like we will revise our projection,” said Mr Finger, deputy division chief of the regional studies division at the IMF’s Middle East and Central Asia department.
The IMF in late January lifted its forecast for both last year and this year to 4.5 per cent, before trimming it slightly to 4.4 per cent last month.
Buttressing recent growth in the non-oil sector has been surging visitor numbers to the UAE’s airports and hotels, as well as a run-up in prices within the equity and property markets.
Last month’s PMI reading was the highest in the 57-month survey history. Fuelling the uptick was a rise in output and new orders. New export orders accelerated from the month before, with respondents citing Middle Eastern countries and China as sources of growth.
Companies hired more staff too. The index's employment gauge rose to its highest level since December 2009. Staff costs also picked up, contributing to higher overall input costs.
However, the index showed that the higher costs firms are paying are still only partly being passed on to consumers. Companies lowered their output prices for the first time in five months, with respondents citing competitive market conditions.
In its regional update report, released yesterday, the IMF forecast inflation within the GCC to rise from 2.9 per cent last year to 3 per cent this year.
The Institute of International Finance said on Monday that it expected inflation to reach 3.6 per cent by the end of the year as higher rental costs pushed up inflationary pressures.
tarnold@thenational.ae
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
