UAE Business Tax Will Help Support Smaller Emirates, S&P Says

A new tax on corporate profits will help the United Arab Emirates diversify away from oil and support the smaller sheikhdoms that make up the Gulf nation, S&P Global Ratings said. 

If the federal government uses tax receipts for UAE-wide capital investment, that would indirectly support economic activity in individual emirates, S&P said in a report on Monday. “The broadening of the government’s revenue base should support smaller emirates’ economies,” said Trevor Cullinan, credit analyst at S&P, “however, the full impact is unclear because it is not yet known how the tax will be distributed.” 

The tax could pressure banks, corporate, and insurers, “but this will be manageable and not significantly affect their creditworthiness,” he said.

The UAE plans to levy a 9% corporate tax from June 2023. Dubai Islamic Bank, one of the city’s biggest lenders, expects the country to remain competitive after the tax comes into effect.

Last week, Fitch Ratings said the tax could have “uneven credit implications” on companies. The company predicted increased attraction in the UAE’s free zones, areas that operate under special rules and will remain exempt from the new tax. 

Dubai, the UAE’s business capital and one of its seven sheikhdoms, is home to the country’s largest number of free zones, which include the airport and an international financial center. 

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News Courtesy:bloomberg.com