MOVERS & shakers
Any revenue collected through corporate tax and VAT will support the government to sustain the UAE’s development pace and fuel the economic growth agenda in the long run. Nilesh Ashar, Partner, Head of Tax, KPMG in the UAE
exemptions has to be provided to businesses in order to facilitate transitioning to new tax system and preserve the business attractiveness of the UAE. Any revenue collected through corporate tax and VAT will support the government to sustain the UAE’s development pace and fuel the economic growth agenda in the long run.
What do you foresee as some short to medium term implications of VAT and corporate tax implementation in the UAE? Businesses may find the initial transition to a tax system cumbersome as it’s a big status quo change for them. In the short term, businesses will have to make changes to their operating models in order to manage the cost of taxes which will impact their profit margins, or adapt the model to pass on the burden of taxes onto the consumer. Firms will have to internally asses their systems and skill/capabilities to deal with the tax changes. In the medium term, the implementation of VAT will help increase government revenue and therefore help further their infrastructure and economic development goals.
How will this impact business in the UAE – particularly SMEs?
As mentioned earlier, this move will certainly increase the cost of doing business and the cost of compliance for SMEs in the UAE. The incremental cost and requirements associated with taxes needs to be 40
carefully budgeted/factored in the business models. Apart from that, all the above mentioned implications will be applicable to SMEs as well. However, it needs to be seen whether SMEs are indirectly excluded because of a higher threshold value for registration for VAT purposes.
What are some of the earlystage action-points that businesses need to bear in mind to stay ahead of the curve? In other words, what can a business do to be ready?
Taxes could potentially impact all businesses in the UAE, either directly or indirectly. Businesses should carefully review their processes to understand the impact of taxes and to determine what needs to be done to be fully compliant with any new laws. Although we have few details of the intended tax laws, the UAE’s Ministry of Finance recently clarified a number of issues through its website, including confirmation that there would be an 18 month adjustment period for VAT implementation and 12 months adjustment period for corporate tax implementation by the businesses. It’s very difficult to suggest anyone should make radical changes in response to an unpublished law. However, companies may undertake few actions to be ready for the changes, E.g. Continue monitoring tax developments and updates, assess the financial impact of corporate tax at and VAT, internally review financial systems to assess overall tax readiness and map possible changes to accounting systems, map intra-group transactions and dependencies,
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