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UAE among 20 least complex tax jurisdictions in the world

The UAE is among the 20 least complex jurisdictions in the world for accounting and tax compliance, new data revealed on Wednesday.

The UAE came in at 74th, indicating an increase in complexity since its 2017 inaugural ranking of 92, according to TMF Group’s Financial Complexity Index 2018.

The UAE’s rise in complexity this year is largely driven by the introduction of the emirates’ first VAT in January 2018, said TMF Group’s regional director for Middle East and Africa Jonathan Wheeler.

“The VAT is a fundamental change to the way businesses operate locally. The transaction tax is embedded in virtually all functions of a company; from sales contracts to accounting and bookkeeping. So it is an important one for businesses to document and report correctly,” Wheeler said.

Business heads remain bullish about UAE’s economic growth

Despite being cautious about their expectations of the growth in GDP in the coming year, business heads across the UAE are confident about business conditions and the country’s outlook, a recent survey has shown.

According to the latest edition of the ‘Business Barometer: UAE CEO Survey’ carried out by Oxford Business Group (OBG), 77 per cent of respondents described their expectations for local business conditions for the year ahead as positive or very positive.

Speaking at the event, Dr Bernd van Linder, CEO of Commercial Bank of Dubai (CBD), noted that the new year was off to a good start. “Like many of my peers, I am positive about this year. The start of the year was marked by the introduction of the value added tax (VAT), which we can all agree is a very good thing, and which will bring huge economic benefits to the country.”

Aside from generating revenues of an estimated $3.3 billion in 2018, rising to $5.4 billion in 2019, according to IMF estimates, the new tax will also play a key role in further enhancing the UAE’s transparency levels, a key criterion for foreign investors. The results of the survey showed that 90 per cent of business leaders viewed transparency levels in the UAE as high or very high. However, they remained cautious in their expectations for GDP growth in the coming year, with less than one-quarter saying they thought the economy would expand by three per cent or more, below forecasts made by external analysts, which hover around the 3.4 per cent to 3.6 per cent mark.

Oliver Cornock, OBG’s editor-in-chief and managing editor for the Middle East, said that the UAE is particularly well placed to take advantage of various supply chains. “The country benefits from a hugely well defined economic vision; not only does it have the vision, but it is also putting the flesh on it across various sectors. However, some challenges persist, such as translating more stable yet lower oil prices into a new economic model, managing the cost and quality of services and regional political volatility – which two-thirds of participants identified as the top external risk factor – the conclusions are largely, if cautiously, upbeat.”

UAE banks may hike fees to offset additional vat costs

As banks in the UAE grapple with the new value-added tax (VAT) regime and the high compliance costs associated with mandatory tax registration, it is likely that they follow international trends by increasing their fees to compensate for the additional costs, banking analysts said.

“We believe it quite probable that banks will eventually be forced to increase prices to their customers to maintain their current profitability,” Clare McCol, partner, head of Indirect Tax at KPMG, wrote in ‘UAE banking perspectives 2018′, report.

“Where banks suffer significant, irrecoverable VAT costs, and/or treat existing taxable fees as VAT inclusive, there may be incentives to cut costs in other areas. As there is no VAT charge on employee salaries or using own resources, banks that currently outsource services, such as back-office activities or call centres, may elect to bring these services in-house to mitigate potential, irrecoverable VAT costs,” McCol said.

The executive regulation on the UAE VAT law has a detailed definition of financial services and distinguishes products and services on which VAT is applicable. As per the law, most financial services are VAT exempt in the UAE. The Federal Tax Authority (FTA) has said products with an explicit fee, commission, rebate or discount would be subject to the regular 5 per cent VAT, while interests on forms of lending including loans, credit cards and finance leasing would be exempt. In the case of credit card related services, while the interest is not taxable, annual fees on credit cards will be subject to VAT. In the same manner, while foreign exchange spreads are not going to be taxed, 5 per cent VAT will be applicable on remittance fees.

The authority also said the issue, allotment or transfer of an equity or debt security would be exempt as will be the margin-based products that do not have an explicit fee, commission, rebate or discount.

S&P Global Ratings is of the view that banks will pass on some of the VAT increase to their clients to avoid increasing fees and commissions levied by the full VAT amount.

“We also believe banks will incur VAT as part of their general spending. These assumptions lead us to expect a slight negative impact of VAT introduction on banks’ profitability,” said Mohamed Damak, head of global Islamic finance at S&P Global Rating.

According to experts, as a general rule, exempt financial services will include spread-based products and service and margin-based products (those generating interest income). And finance facilities with profit rates in the case of Islamic banking are exempt. Thus products such as loans, mortgages, credit cards etc are in the VAT exempt category.

McCol said as a general rule, margin-based products, such as those generating interest income (loans, mortgages, provision of credit, and operation of bank accounts) are exempt of VAT.

“This will have no direct impact on the end consumer as they will not be charged VAT. However, there could potentially be a substantial impact on the profitability of the banks since banks will not be able to claim credit for any VAT incurred on expenses related to the making of these exempt supplies.”

ATM charges are now subject to VAT. Favourably for the banks, VAT incurred on costs directly related to making these taxable supplies will be recoverable.

UAE investors are young and confident

Trust level among investors in the UAE’s financial services sector is higher than their counterparts globally, a study by the CFA Institute revealed on Tuesday.

When selecting an adviser, global investors place more emphasis on personal trustworthiness and ethical conduct, while investors in the UAE are more concerned with returns, according to the study on trust in the country’s financial services sector.

While 46 per cent of investors in the UAE “completely trust or trust” the financial services sector, slightly higher than investors globally, they tend to be younger than those in many other countries. “This may partially explain higher trust levels, as younger investors globally are also more trusting of financial services,” said the study.

The study finds that investors in the UAE are confident, with 47 per cent claiming they are very confident in their investment decision-making, compared with just 33 per cent of investors globally. However, many still prefer to invest with the help of a financial adviser.

“Although the primary investment goals for global investors are retirement related, investors in the UAE have different reasons for investing. The number one investment goal for investors in the UAE is saving to start a business, followed by saving for a large purchase,” said the report “The Next Generation of Trust: A Global Survey on the State of Investor Trust,” which polled 3,000 retail investors.

Analysts at CFA Institute said the entrepreneurial nature of investors in the UAE means they value advice from many sources. Similar to global investors, 54 per cent of investors surveyed in the UAE have a financial adviser. Only 32 per cent of investors in the UAE, however, assume their advisers are trustworthy. That is compared to 29 per cent that said trust must be proven at least once to give the benefit of the doubt and the 37 per cent that expect advisers to earn and maintain trust continually.

Paul Smith, CFA, president and CEO of CFA Institute, said: “There is work still to be done. Higher trust comes with higher expectations, and we are not there yet until we can consistently prove our value to clients by providing solutions, not simply products. We need universal disclosure of fees and performance to drive home this message.”

“These findings provide a roadmap for how our industry can increase its credibility and address investor concerns. Trust hinges on professionalism. Advisers need to demonstrate a strong commitment to ethics, expertise and transparency to win their clients, and create real value for the fees they charge.

 

Saudi sees oil producers to extend output curbs into 2019

Opec members will need to continue coordinating with Russia and other non-Opec oil-producing countries on supply curbs in 2019 to reduce global oil inventories to desired levels, Saudi Arabian Energy Minister Khalid Al Falih said on Thursday.

Opec and non-Opec countries struck a production supply agreement in January 2017 to remove 1.8 million barrels per day from global markets and end a supply glut.

The cuts helped lift oil prices to current levels of around $65 per barrel. The oil producers will convene in June in Vienna to discuss further cooperation.

US crude oil futures settled on Thursday at $64.30 a barrel and Brent crude settled at $68.91.

“We know for sure that we still have some time to go before we bring inventories down to the level we consider normal and we will identify that by mid-year when we meet in Vienna,” Falih told Reuters in an interview in Washington.

“And then we will hopefully by year-end identify the mechanism by which we will work in 2019.”

It was unclear what oil supplies would need to be in 2019, he said.

Falih has previously said that Opec would do better to leave the oil market slightly short of supplies rather than ending too early the output cut deal.

Falih said on Thursday there is a general acceptance among producers that further coordination “does not necessarily mean maintaining the same level of cuts.

“It just means that the mechanism has worked and they have committed to work within that mechanism for a much longer period,” he said. A new framework “requires agility” and “a willingness to do things differently in terms of what levels of production as the market dictates.”

Adnoc signs DH4.3b concession deals with China oil giant

The Abu Dhabi National Oil Company (Adnoc) announced on Wednesday that it had signed two offshore concession agreements valued at Dh4.3 billion with the China National Petroleum Corporation (CNPC), the world’s third largest oil company.

Under a 40-year agreement, CNPC, through its majority-owned listed subsidiary PetroChina, was granted a 10 per cent interest in the Umm Shaif and Nasr concession and a 10 per cent interest in the Lower Zakum concession.

PetroChina paid a participation fee of Dh2.1 billion for the Umm Shaif and Nasr concession and a fee of Dh2.2 billion for the Lower Zakum concession, Adnoc said in a statement.

Dr Sultan Ahmed Al Jaber, Adnoc Group CEO, and Wang Yilin, CNPC Chairman, signed the agreements that have a term of 40 years and are backdated to March 9, 2018.

In the Umm Shaif and Nasr concession, PetroChina joins France’s Total and Italy’s Eni, which were recently awarded a 20 per cent and 10 per cent stake respectively.

In the Lower Zakum concession, CNPC joins an Indian consortium led by ONGC Videsh, Japan’s INPEX, Total and Eni.

Adnoc retains a 60 per cent majority share in both concessions.

Dr Al Jaber said the expanded collaboration with CNPC further strengthens and deepens the strategic and economic relationship between the UAE and China, the world’s second largest economy.

“Energy cooperation is an increasingly important aspect of the UAE’s relations with China, the number one oil importer globally and a major growth market for our products and petrochemicals. These agreements are new milestones in Adnoc’s thriving partnership with CNPC and also represent an important platform upon which we can explore opportunities further downstream,” he said.

Dubai’s ABB bids for DH2.57b energy projects in the UAE

Dubai-based company ABB, which produces electrification, robotics and motion, industrial automation and power grids, is bidding for nearly $700 million (Dh2.57 billion) worth of power projects in the UAE, a senior official said.

“We are bidding for a 132kv substation of the Dewa [Dubai Electricity and Water Authority]. We are also bidding for all construction projects and developers such as solar plant with Acwa. We are also quoting for Adnoc [Abu Dhabi National Oil Co] oil and gas for their expansion projects. Plus, we are also bidding for different Adwea [Abu Dhabi Water and Electricity Authority] projects. So overall, we are pitching for more than $600 million to $700 million of projects,” said Mostafa Al Guezeri, managing director of ABB.

The company has also been involved in a 400KV substation at the Mohammed bin Rashid Solar Park. Last month, it was also awarded 400KV substations for Shams projects from the Dewa.

Regionally, the company also operates in Bahrain, Oman, Iraq and Pakistan, among others. The company has also installed the region’s largest privately-owned rooftop solar energy system at its premises in Al Quoz, Dubai.

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