The UAE continues to implement regulations and laws that bring its accountancy sector in line with the international community. This is leading to an increase in demand for services overall, while the region is enjoying economic growth.
The IMF expects the UAE’s non-oil economy to grow by about 4% in 2023and accelerate over the medium-term as ongoing reforms are implemented. This figure will make the UAE the fastest growing economy in the Arabian Gulf in 2023. But the UAE’s heavy investment in China’s Belt and Road Initiative, a project that now seems to be faltering, could lead to financial pain. The question is, how much?
In a move that represents a significant shift for a country that’s long attracted businesses from around the world thanks to its status as a tax-free commerce hub, the UAE has introduced corporation tax, which will be applied from June 1st, 2023.
The country’s statutory tax rate will be 9% for taxable income exceeding 375,000 UAE dirhams ($102,000), and zero for taxable income up to that amount to support small businesses and startups. Individuals will still not be subject to tax on their incomes from employment. real estate, equity investments or other personal income unrelated to a UAE trade or business. The tax also will not be applied to foreign investors who do not conduct business in the country.
As for what constitutes profit, corporate tax will apply on ‘the adjusted accounting net profit’ of the business. Free zone business, meanwhile – thousands of which exist in the country – can continue to benefit from corporate tax incentives. Companies within the UAE’s many free zones have long enjoyed zero taxes and full foreign ownership, among other benefits.
There were concerns voiced that the new tax laws would make the country less attractive to businesses, with the threshold for being subject to taxation fairly low. Montenegro and Gibraltar have tax rates of 9% and 10% respectively, while Ireland and Lichtenstein both offer a 12.5% corporate tax rate. Ultimately, the move brings the UAE in line with other competitive economies.
The new tax laws are expected to result in a boost in demand for accounting services.
“The accounting industry has been growing stronger over the years since 2017 with the introduction of various regulatory requirements”, said Saju Augustine, Senior Partner at Kreston Menon. “The Excise Tax was introduced in 2017, followed by Value Added Tax (VAT) in 2018, the Economic Substance Regulations (ESR) (2019), Country by County Reporting (CbCr) for large multinational corporates (2019), Beneficial Owner regulations (UBO) (2020), Anti Money laundering regulations (AML) (2021) and recently the Corporate Tax law. The introduction of the above regulations, which are new to the region, made the business houses focus attention on proper accounting and reporting, which led to a demand for accounting professionals.”
However, Augustine pointed out that as the demand grew, more practitioners came into the country from different parts of the world, which led to some negative pressure on the professional fee structures. “Talent sourcing was always a challenge as the expatriates dominate the whole employment landscape,” he said. “India and the Philippines in the east and the UK in the west are the major destinations for recruitment. As the employment opportunities improved in these countries, the inflow of qualified personnel reduced causing a shortage of real talent.”
Accounting and taxation provide a lot more opportunities than in the past. Strict implementation of the anti-money laundering policies provides opportunities for experienced hands in that segment. The Corporate Tax Law requires the taxable person to prepare the financial statements in accordance with accounting standards accepted in the state. “The country does not have its own GAAP and IFRS are most used by businesses in the UAE,” said Augustine. “This provides an opportunity for experts in the field.”
The UAE is also working hard to present the local accounting industry as having the highest ethical code, a move that came months after it removed KPMG from its list of approved auditors. In March 2023, the Abu Dhabi Accountability Authority (ADAA) announced the adoption of ‘Code of Ethics’ based on the standards issued by the International Ethics Standards Board for Accountants. The adoption of the Code will be applicable to accountants and auditors of financial statements from 31 December 2023 onwards. The 2022 Handbook of the International Code of Ethics for Professional Accountants will be fully adopted including all of its provisions and additional requirements. The ADAA is considered the supreme authority that oversees all financial control, accountability, integrity and transparency in the emirate of Abu Dhabi, working directly under the authority of His Highness Sheikh Mohamed bin Zayed Al Nahyan, the President of the United Arab Emirates.
In November of 2022, it removed KPMG from the list of accountants that have permission to sign companies’ financials in the capital of the UAE. The Dubai Financial Services Authority (DFSA) also imposed a fine of $1.S million on KPMG LLP and $500,000 on its former Audit Principal, Milind Navalkar, for their involvement in the Abraaj scandal, stating that the company failed to follow the appropriate international auditing standards.
“Had KPMG LLP performed its audit of ACLD to the expected standard, it would have been reasonable to expect it to have identified that, for more than five years ACLD was concealing the true state of its finances from the firm,H the regulatory agency wrote in its website post.
The ADAA did not publish the reasons for KPMG’s removal from its list of approved statutory auditors, which is updated every three months. KPMG Lower Gulf said its application to renew its license to carry out statutory audits ‘was returned asking for more information’ and that ‘the recent status change does not affect our current statutory audit engagements.’ ‘We are actively engaging with them to address all technical enquiries: the firm said in a statement, adding that it was committed to.
It is vital that the UAE protects the reputation of its auditors, as Augustine predicts that by the year 2024, corporate tax will be effective on all businesses, and this will give rise to more opportunities for the accounting profession both in terms of jobs and fees. “It’s expected that overall revenue growth in the region will accelerate by 25% to reach 30% in the year 2024, and may stabilise to 10-15% thereafter,” he said.
Consulting services in general are set to boom in the GCC region this year. The Gulf Cooperation Council (GCC) is a political and economic alliance of six Middle Eastern countries-Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman. Its consulting market is set to cross USD 4 billion in revenues this year, recording a nearly USD 1 billion increase in two years, as regional economies accelerate major transformational projects to support diversification strategies, according to a report written by London-based Source Global Research. According to the report, the revenue of the regional consulting market rose 15.9% year-on-year to USD 3.87 billion in 2022, with all sectors registering double-digit growth. Financial services and public sector consulting advanced by 15.4% annually in 2022.
While economic forecasts for the region are good, there is one, possibly catastrophic, fly in the ointment. and that is the UAE’s partnership with China. It is heavily involved in China’s Belt and Road Initiative (BRI) and a recent report that showed China has become an international lender of last resort, mostly to ensure BRI projects stay viable. China is now possibly overextended and if it’s creditors cannot cover their loans, the resulting fallout could have a huge effect on global financial stability and China’s biggest partners -like the UAE.
In 2013, China unveiled a Silk Road plan for the 21st century – a strategy that aims to boost trade and productivity between the country and others across East Africa and Europe. In 2019, UAE confirmed its role as a major player in the megaproject after announcing deals worth USD 3.4 billion had been agreed by the two countries. China is the UAE’s second-largest trading partner, with bilateral trade exceeding USD 64 billion during the first eight months of 2022, a Chinese diplomat told the Emirates News Agency in November 2022. It represents a near 28% increase on the same period in 2021 and by 2030 China has set a target of USD 200 billions of bilateral trade between China and the UAE.
But a study published in March 2023 shows China granted USD 104 billion worth of rescue loans to developing countries between 2019 and the end of 2021, as its Belt and Road Initiative (BRI) falters. In just three years, China has lent as much in bailouts as it did over the last two decades. The study, China As An International Lender of Last Resort. conducted by researchers at Aid Data, World Bank, Harvard Kennedy School and Kiel Institute for the World Economy, is the first known attempt to capture total Chinese rescue lending on a global basis. Authors of the study have claimed that this is strategy to rescue China’s own banks. It is a an extremely risky one and if China gets it wrong, global financial stability could suffer as a result.
There have been concerns in the past about China’s own SRI debt levels and China now seems to be overextended as a lender. Back in 2010, only 5% of China’s overseas lending portfolio supported borrowers in financial distress. Today, that figure stands at60%.
As the UAE continues its reforms, it shows itself to be even more welcoming to the international community, a prospect that can only lead to increased demand for its accountants. It can only be hoped that China’s gamble pays off and the BRI does not come crashing down, bringing the UAE and other major partners with it.