UAE’s tax regime: The need of the hour

Creating of a Federal Tax Authority is the logical next step in seeing it through

Within the span of month the UAE took two bold steps with the aim to develop a proper legislative and legal structure for the post-oil period. The first was to launch the Bankruptcy Law and the other was founding a Federal Tax Authority (FTA). The Bankruptcy Law will help stimulate investments while the FTA will have importance with regard to regulating public finance.

Days before issuing the FTA’s founding decree, the International Monetary Fund (IMF) made a statement praising the UAE for efforts made to develop financial performance indicators. It is a fact that the tax regime represents the main source of income for state budgets. These will not be complete without this element — economies in Europe and North America would certainly face multiple difficulties without resorting to taxes.

These countries have a long history of developing its tax system. Some of these trace their origins to more than 200 years and have witnessed a lot of changes according to the economic conditions prevailing at any given time.

Tax regimes are defined as an effective financial measure that controls and harnesses many aspects to serve developmental needs, control economic conditions and surmount numerous complications that may arise in the interim.

Absorbing changes

The creation of the tax authority in the UAE comes in response to future growth requirements, particularly after the changes in oil market and of prices. This makes it necessary to establish a legislative and legal structure capable of absorbing changes and overpowering any accompanying negatives.

The UAE’s tax law provided for the implementation of regulations and also prescribed the payment of financial obligations. It also provides for the application of double taxation avoidance pacts with other countries and stipulates the fight against tax evasion in collaboration with relevant local and foreign authorities.

The law further highlights the importance of collecting, managing and distributing federal tax and fines in coordination with various ministries. As the law’s application will result in far-reaching technical changes, it has listed the mandate of the FTA with regard to collecting federal tax data as well as creating and maintaining taxpayers’ records, while taking heed of the experiences of international tax systems.

The law does provide the FTA with an impressive administrative structure. A special council will be set up to manage it and issue complementary regulations with high standards of transparency and accountability. The responsibilities of the Authority’s director-general have been also defined.

Considerable clout

Obviously, the law has been issued to reflect the UAE’s intention to develop a legislative framework on the one hand and economic development on the other. It is fairly common that such data represent the linchpin for identifying the development model and the approaches to support it.

Since so many indicators cannot be amassed without a comprehensive tax system, the newly issued law will add considerable clout in developing the needed database. It will also enhance credibility and boost confidence, making the UAE one of the most attractive destinations in terms of investments.