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What does the global minimum corporate tax mean for GCC countries?

CorporateTax
The G7 nations’ recent agreement to go ahead with a global minimum corporate tax rate will have reverberations for low-tax GCC countries such as UAE and Bahrain.

G7 nations recently arrived at a landmark decision to impose a global minimum corporate tax rate of 15%. The tax is aimed at discouraging corporations from shifting profits to countries that have low-tax regimes.

The global minimum corporate tax rate will act as a “top up” over existing local corporate taxes. This means that for any multinational company from a G7 nation holding profits overseas, they will pay corporate tax at a rate adjusted to the global minimum corporate tax rate to negate any benefits of keeping profits outside their home country.

G20 nations will be deliberating on how much support the G7 accords will receive at a meeting in Venice next month. Moreover, OECD and G20 nations are also expected to soon reach a decision on taxing cross-border digital services (which would drastically affect big tech companies such as Amazon and Facebook), and reining in tax erosion. 

The average OECD corporate tax rate is 21.5%, but can range anywhere from 32% to as low as 8.5%. 

The global minimum corporate tax rate will also have an effect on Saudi Arabia and the UAE, both of which are business and financial destinations in the MENA region. Saudi Arabia is also a G20 member nation. While Saudi Arabia has a corporate tax of 20%, the UAE only taxes oil companies and foreign banks as of now. 

GCC COUNTRIES EXPECTED TO COMPLY WITH GLOBAL MINIMUM CORPORATE TAX

GCC countries are likely to act in accordance with the global minimum corporate tax rate, a Dubai-based economist told Arabian Business. For corporations in GCC countries, this would mean an increase in taxes payable.

“The G20, which Saudi Arabia is part of, will be expected to endorse the agreement. And countries like UAE and Qatar will also want to be seen to be complying with global regulations,” economic advisor at Institute of Chartered Accountants in England and Wales, and chief economist at Oxford Economics, Scott Livermore, said.

He added that the global minimum corporate tax could diversify the tax base in GCC countries, and also allow them to increase their tax revenues. The drop in tax benefits would also bring added focus on ease of doing business as a competitive advantage.

A Reuters report also suggests that rather than opposing the global minimum corporate tax, low-tax countries (including the UAE and Bahrain) are likely to lobby for a lower tax rate, or seek out exemptions. 

 

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