Tax standardisation for UAE banks still a non-starter
Even as more GCC countries are going in for restructuring of their tax regimes, especially with a view to bringing down the impact of taxation on foreign companies, the UAE's move to standardise corporate tax for banks still remains a non-starter.
The UAE charges tax on foreign banks and oil companies. While local banks do not pay taxes, there has been talk that tax for foreign banks and local banks would be standardised.
While Kuwait has cut tax imposed on foreign companies from 55 per cent to 15 per cent with effect from February 3, Qatar and Oman are said to have finalised plans to bring down taxes on foreign companies substantially. Local companies in Kuwait pay a zakat at the rate of one per cent on the capital employed.
Talking to The Business Weekly, Farooq Mohammad Ladha, head of taxation for Middle East, Ernst & Young, said while Qatar is all set to cut the taxes charged on foreign companies from 35 per cent to 12 per cent, Oman is in the process of bringing down tax on foreign companies from the existing 30 per cent to as low as 12 per cent. "This will in effect standardise the tax regime for foreign and local companies in the Sultanate," said Ladha.
Three years
He said though lots of reports are coming out on value added tax (VAT) in the GCC, it will take at least three years to implement the VAT system. "A study on this has already been undertaken by the GCC Secretariat. A lot of work needs to be done before this complex tax system could be implemented.
Lots of price data needs to be collected and collated, a full-fledged government tax mechanism has to be in place before VAT can be in place," said Ladha.
He said the UAE is likely to stay more or less tax-free for some time more though the Government makes money through indirect taxes such as different types of fees.
In Saudi Arabia, while foreign companies pay a tax of 25 per cent on the income generated by them, national companies pay zakat at two per cent. Ladha said Saudi has a strict system of withholding tax which is being charged between five per cent and 15 per cent.
Bahrain is the only country in the GCC where business entities do not pay tax at all. Though the GCC is moving towards a more standardised system on all fronts in view of the common market and currency, the tax systems remain disparate.
By CL Jose
© The Business Weekly 2008
