Mark Schofield, Partner, PwC Middle East Tax & Legal Services Leader: Viewpoint

Viewpoint: Mark Schofield

The UAE continues to be an attractive destination for international investors and a centre for businesses in the MENA region for a number of reasons. In order to remain a competitive environment for businesses and foreign direct investment, the UAE has continued its drive for business-friendly regulatory and legislative framework.

Changes such as the reduction of business registration fees and the relaxation of foreign ownership restrictions should continue to support the UAE’s strategic objective of attracting and retaining businesses, and diversifying its revenue source to reduce reliance on a single industry.

The UAE’s double taxation treaty network continues to expand, with recent developments including the treaty with Saudi Arabia – the first between two GCC member states – which has led to a network of 92 in-force agreements. This network is more extensive than those of more established jurisdictions such as the Netherlands and Singapore.

Furthermore, in recognition that companies require a tax regime that is easy to administer, the UAE Federal Tax Authority is supporting businesses in their compliance with the value-added tax (VAT) and excise tax regimes, through the introduction of an electronic filing portal for both taxes, guidance and decision papers, and awareness sessions for the private sector. These efforts have led to the UAE successfully raising Dh27bn ($7.3bn) in VAT revenue in 2018, without a significant adverse impact on businesses. Although there is currently no available information on the revenue raised through excise tax, the UAE has broadened the scope of this tax to include sugary drinks and electronic smoking devices from January 1, 2020. This is in line with the efforts of other GCC countries to target the consumption of some of these products.

As a member of the OECD’s base erosion and profit shifting (BEPS) inclusive framework, the UAE has made significant legislative efforts to address the OECD and EU’s concerns related to offshore structures and arrangements, and to improve tax transparency. The ratification of the multilateral instrument to implement the tax treaty-related BEPS measures, and the introduction of country-by-country and economic substance regulations are further evidence of the UAE’s commitment to curbing international tax avoidance and improving transparency. These changes helped remove the UAE from the EU’s list of non-cooperative jurisdictions for tax purposes as of October 10, 2019.

The UAE and other GCC countries continue to diversify away from oil and gas revenue and comply with their international commitments, which could indicate further changes to tax systems, tax bases, tax reporting and tax rates in the years ahead.

The continuously developing tax landscape in the UAE – and internationally – demonstrates the need for organisations to have a strong tax function that is in tune with, and well connected to, the broader business landscape. This is critical for the long-term success of companies, to ensure that they are agile and able to respond to any tax developments or requirements imposed upon them.

Adapting internal systems and processes using the most up-to-date tax technology is going to be key to achieving this agility. Now, more than ever, companies will need to be able to quickly access data and models for decision-making and planning for potentially complex and overlapping rules, as well as meeting multiple compliance obligations.

Going forward, tax functions need to be connected with businesses from a governance, legal, strategic and technology perspective. These are critical touch points that demand a collaborative – rather than reactive – approach, so that organisations can achieve an optimal and efficient tax function that is ready to adapt to future requirements.