The fiscal benefits of United Arab Emirates’ new corporate tax will be constrained by the large role of free zones, which are exempt from the tax, on its non-oil economy, rating agency Moody’s Investors Service said on Tuesday.
The UAE will introduce its first tax on business profits, a levy of 9 percent, in June 2023, and Tuesday’s reaction was the first by a major ratingagencies on the country’s biggest fiscal reform since 2018, when it introduced value-added tax.
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It and other Gulf oil-producing countries are seeking ways to make their economies less reliant on oil.
Moody’s said that, while broadly credit negative for domestic UAE companies, the tax’s overall impact on large corporates would be muted because of the free zones as well other potential offsetting levers such as increasing prices, optimizing cost structures, and cutting dividends.
The UAE is a magnet for the globe’s ultra-rich, and its share markets fell on Tuesday on the tax announcement.
In the UAE’s free zones, foreign companies can operate under light regulation and foreign investors take 100 percent ownership in companies.
Most other Gulf nations levy corporate taxes on foreign companies but only Oman taxes domestic ones too.
Read more: UAE introduces federal tax on business profits from June 2023: Statement
