UAE's New Economic Laws to Revolutionize Business and Banking
UAE’s Economic Condition
The UAE possesses a high-income developing market economy. Their economy is the fourth largest in the Middle East, and their GDP is $415 billion in 2021-2023. UAE’s economy is largely dependent on oil and petroleum products. However, in recent years, there has been some economic diversification in the UAE, especially in Dubai. Also, the UAE government is encouraging a diversified economic approach and sustainable development. Tourism, logistics, and real estate are some non-oil economic sources of revenue. Another mentionable point is that the UAE is focusing on innovation and digitalization in economic progress. A recent report from ARAB News highlighted that UAE’s economic growth will get fuel from the “Sandbox Dubai” program and technological advancements that promote the commercialization of new technologies.
New Economic Laws and polices and Impacts:
UAE’s New Corporate Tax Law: On January 1, 2025, UAE implements a Domestic Top-up tax (DMTT) of 15% for big Multinational Companies with global revenues exceeding €750 million. Multinational companies need to check out their tax structures and systems. They must make their system as per Global Tax Compliance UAE. This additional revenue generation will develop the public service and infrastructure sectors. So, this will be the driving force for UAE’s non-oil revenue growth.
The implementation of this 15% tax is a great economic strategy for the UAE in 2025. Consequently, this will support sustainable and green development and entrepreneurs. Also, foreign investors will be more encouraged to invest. On the whole, this introduction of tax depicts the modern economical progress that will fulfill the fiscal responsibility and sustainability both.
The imposition of the tax aims to implement the Organization for Economic Co-operation and Developments' Two-pillar solution to set up a transparent tax system that aligns with the global standard. Multinational Enterprises will be liable for this tax with a consolidated global turnover of approximately AED 3.15 billion in the two preceding fiscal years. Furthermore, this tax is applied to qualify income from UAE operations, as long as these entities fulfill the scopes of two pillar frameworks. However, entities that do not meet the threshold will be liable continuously to the existing UAE corporate tax regime.
UAE’s Investment Law for 2024-2025: UAE’s new investment laws were enacted in 2024 to create diversification and encourage and attract direct foreign investment, promoting diversification and technology transfer to ensure sustainability. Key objectives are mentioned below:
1) Promote Sustainable Development and Circular Economy
2) Diversify the Economy
3) Increase Foreign Direct Investment (FDI) inflows
4) Enhance Investment Environment
World Investment Report 2024 says that the value of foreign direct investment inflows to the UAE in 2023 amounted to USD 30.688 billion, compared to USD 22.737 billion in 2022. Moreover, the investment law includes a positive list of projects that are proper for foreign direct investment. The licensing authority and competent authorities in each emirate of UAE will specify the conditions for establishing and licensing foreign direct investment projects listed in the Positive list. Furthermore, Comprehensive Economic Partnership Agreements also make the framework promising for direct investment.
UAE’s Sustainable Economic Policy: The World is heading towards sustainability with the rising consciousness regarding our surroundings. UAE aims to become the leader in green development. They ensure the proper and efficient use of resources to ensure a quality life for both current and future generations. The policy will also ensure to enhance environmental health and encourage the private sectors. To reduce the environmental impacts and to gain significant economic benefits, energy efficiency is crucial. Realizing this, UAE introduced the National Demand Side Management (DSM) Program. Targeting Energy efficiency, the UAE is heading towards sustainability that will result in both resource optimization and economic growth. This Program aims to reduce environmental impacts, wastage, and consumption while being a leader in global energy transition. UAE’s policy emphasizes diversification and collaboration. They have revealed themselves as a Global hub for trade but are maintaining the leadership in low carbon emission and renewable energy use.
We live in a world of awareness and sustainable development. The Global sustainability study published by Simon-Kucher & partners, a consultancy firm, revealed that 85% of consumers and individuals are committed to changing their buying patterns to become sustainable. Real estate and manufacturing sectors are adhering to sustainable standards to achieve net-zero emissions by 2050.
What the Business and Banking System Should Do:
- Businesses should reshape their financial strategies that will be liable for corporate taxes. Specifically, those entities who exceed the AED 375,000 income threshold.
- Entities that benefitted more previously may face higher costs. Moreover, free zone companies must meet some eligibility criteria to be tax-free. They must have substantial operations within the UAE.
- Enterprises have to ensure the transparent reporting of their finance issues and be punctual while filing taxes.
- Re-evaluation of the corporate structure is a must to meet the higher tax for the companies, or they must consider whether restructuring could mitigate tax exposure.
- Businesses must be aware of UAE’s tax treaties and double taxation agreements (DTAs).
- Impacted MNEs must implement vigorous country-by-country reporting (CbCr).
- Companies must manage VAT costs while selling taxable goods and services.
- Companies must restructure budget allocations, pricing of goods, and profit margins to cope with new corporate taxation systems.
- Businesses that are VAT-registered need a robust accounting system to maintain compliance.
- Companies need to focus on sustainable product design and invest in innovation.
- Banks should introduce financial advisory services, as companies may need tax-efficient structures.
- Banks must also implement new tax reporting mechanisms for clients to comply with.
- Financial institutions' demand may increase for planning, accounting, and compliance solutions.
- Companies might need alternative banking services to optimize banking exposure.
- Verification on international transactions will be more analyzed to align with OECD tax regulations.
How Businesses are Reshaping:
1) Investment in Non-oil Industries: UAE’s Vision 2030 is committed to reducing dependency on oil-based industries and investing in non-oil industries. Hence, real estate, tourism, logistics, and fintech industries and other diversified industries will be in focus. To create a diversified economy, they are emphasizing innovation. D33 Agenda (Dubai Economic Agenda) is a strategic and ambitious approach for UAE’s economic expansion aiming for foreign trade worth 25.6 trillion dirhams or $6.97 trillion and FDI inflows of 60 billion dirhams annually by 2033.
2) Sustainability and Green Development: The UAE is committed to achieving Green Economic Development by 2030 through the UAE Green Agenda 2030.
3) Adopting the Fourth Industrial Revolution: UAE is aiming to strengthen the country's position to a global hub for the next industrial revolution. The main target is to harness technologies and tools to serve community members. The strategy includes advanced technologies, increased use of AI, nanotechnology to the internet of things, and 3D printing to support economic growth.
4) Strengthening Foreign Investments: UAE is trying to shift to 100% foreign ownership and restructure business models. So, companies are also restructuring their corporate models.
5) Change in Structural Pattern: To comply with corporate taxation and sustainable production and consumption, companies are remodeling their corporate sectors and corporate environment.
6) Awareness and Education: UAE is introducing a Green Growth Economy, technology innovation, and introduction to circular economy. To fulfill these strategies and meet the development agendas, companies must adequately train their people and employees. Arranging workshops, employing experts in specific sectors can be a good solution.
Conclusion
In the coming years, UAE’s economy will experience many changes in the landscape. The business-friendly approach and innovation will surely open up a new era for the UAE. In addition, economic diversification and increasing investment in renewable capacity should also help mitigate carbon transition risks for the economy and the banking system.
This is for all business owners, financial consultants, brokers, entrepreneurs, legal consultants, or individuals seeking to finance their business or start a new company. Seek professional help, by reaching out to the contact below, you can get in touch with the author of this blog: WASIQ SUHAIL.
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