Doha: The GCC countries are studying the possibility of introducing Value Added Tax (VAT) by 2015, which may have a huge impact on the tax landscape of the region, according to experts from the international audit firm Ernst & Young.
Qatar has the lowest corporate tax at 10 percent in the GCC and Mena region, followed by Oman (12 percent), Iraq and Kuwait (15 percent), and Saudi Arabia (20 percent), a report posted on forbesmiddleeast.com said.
“One of the factors defining the fiscal landscape in Mena is the low corporate tax rate prevalent in many countries,” Sherif El Kilany, Mena Tax Leader of Ernst & Young, said.
The need for effective taxation is creating a challenging tax environment in many countries, with more stringent tax compliance measures being introduced by authorities.
One of the most important trends noted in the GCC and Mena is the increase in Foreign Direct Investment (FDI) as a result of attractive business opportunities and favourable lower taxation rates.
From 2003 to 2011, GCC countries attracted over 79 percent of FDI projects in Mena, comprising over 62 percent of the value of business projects and over 65 percent of the jobs created.
The UAE, Saudi Arabia and Qatar continue to maintain the lead in terms of numbers and investor expectations.
Saudi Arabia has effectively applied a lower taxation rate and facilitated foreign ownership of business and investment ventures. It is the largest recipient of FDI in the Arab world.
While 100 percent foreign ownership is permitted in the construction sector, direct investment is allowed in resident capital companies and through the establishment of branches of non-resident firms.
Saudi boasts 24 double tax treaties (DTA) to facilitate trade and development.
The UAE is the second largest recipient of FDI in the Arab world after Saudi. It was complemented by the number of DTAs signed between the UAE and other countries, which have surged by more than 40 percent in the past four years, and this trend is expected to continue.
Qatar has witnessed significant changes off late. As of February 2013, it held 53 effective DTAs, with a further 28 not yet in force. There Presently, there are no anticipated amendments to tax laws, whilst the established laws take full effect.
The tax environment in Kuwait is steadily evolving to further facilitate trade in the region. GCC-owned firms are exempt from paying applicable taxation, while foreign firms are liable for a 15 percent tax rate, a significant drop from the previous 55 percent rate.
As Iraq becomes a more established market within Mena, tax rates have been fixed at 15 percent for FDI. Progressive rates ranging from 3 percent to 15 percent are applied for individual employee’s income tax. Iraq imposes indirect taxes on customs, property and sales ranging from 5 percent to 30 percent depending on the nature of the business and investment sectors. As foreign investment opportunities increase, tax exemption has been introduced in Iraq for certain contracts signed after 2010. Contracts exempt from taxation were those financed by the Investment Fund, executed in Iraq’s Free Zone, and or those aiming to encourage investment promotion.
“The region has witnessed fundamental shifts in the direction of taxation laws to accommodate further FDI. This is done by facilitating and easing processes pertaining to application and registration.
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