Gulf’S Tax Hike Fails To Deter Multinational Investments

(MENAFN- The Arabian Post) Arabian Post -

Despite the Gulf Cooperation Council (GCC) countries' plans to implement a 15% corporate tax on large multinational enterprises (MNEs) by January 1, 2025, foreign direct investment (FDI) in the region continues to surge. This tax aligns with the Organisation for Economic Co-operation and Development's (OECD) global minimum tax framework, aiming to ensure that MNEs pay a minimum effective tax rate on profits in every country where they operate.

The United Arab Emirates (UAE) announced the introduction of a Domestic Minimum Top-up Tax (DMTT) of 15% on MNEs with consolidated global revenues exceeding €750 million, effective from January 1, 2025. This move follows the UAE's earlier implementation of a 9% corporate tax in 2023, applicable to companies with profits exceeding AED 375,000. The UAE's Ministry of Finance stated that this strategic step reflects the country's commitment to the OECD's two-pillar solution, aimed at establishing a fair and transparent tax system aligned with global standards.

Similarly, Bahrain has introduced a DMTT of 15% for large MNEs, set to take effect on January 1, 2025. This initiative is part of Bahrain's efforts to broaden its tax system and enhance non-oil revenue. The Bahrain News Agency reported that under the DMTT, multinational companies will pay a minimum 15% tax on profits generated in the country.

Despite these impending tax changes, the GCC region has witnessed a significant increase in FDI. From 2018 to 2023, FDI projects in the GCC's business services, and software and IT services sectors surged by 512% and 373%, respectively, becoming the main investment areas. In 2023 alone, international firms announced a record 1,889 projects in the GCC countries, valued at US$47 billion. The United States and the United Kingdom are the two leading sources of these FDI projects.

Experts suggest that the GCC's strategic location, robust infrastructure, and business-friendly environment continue to attract MNEs, despite the upcoming tax reforms. The region's commitment to aligning with global tax standards is seen as a positive step towards enhancing transparency and fairness in the business environment, potentially boosting investor confidence.

However, some analysts caution that the new tax measures could impact profit margins for MNEs operating in the region. Companies may need to reassess their financial strategies to accommodate the increased tax obligations. Nonetheless, the overall investment climate in the GCC remains favorable, with governments actively seeking to diversify their economies and reduce dependence on oil revenues.

In addition to tax reforms, GCC countries have been implementing various economic policies to attract foreign investment. For instance, the UAE introduced a 5% value-added tax (VAT) on goods and services in 2018 and has been offering corporate tax incentives, including a refundable tax credit for research and development (R&D) and high-value employment activities, set to commence in 2026.

Similarly, Bahrain has been broadening its tax system, with the subsequent doubling of the VAT rate to 10% in 2022, as part of its efforts to enhance non-oil revenue.

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