According to experts at Ernst & Young’s MENA Tax Conference 2012 in London, MENA countries have introduced a number of measures since 2010, to increase trade and investment and counter the effects of the global financial crisis on the region. A key measure has been the significant increase in tax treaties signed with other countries. Qatar alone has negotiated over 44 treaties, and the UAE and KSA have negotiated over 28 and 22 treaties, respectively.
More than 120 business leaders and tax professionals from Europe and MENA attended the conference, which showcased fiscal consequences of the financial crisis and the changing tax landscape in the MENA region. Tax authorities in a number of countries, in the MENA region are actively implementing or considering changes in tax compliance requirements and tax policy that are likely to have a significant effect on the local taxation environments.
Addressing the delegates at the conference, Sherif El-Kilany, MENA Tax Leader, Ernst & Young said: “The need for MENA countries to fund economic and social programmes is creating commensurate fiscal pressures to increase effective tax collection, in order to boost public finances depleted by economic disruption and the need to provide social subsidies. The local tax regimes are currently limited by relatively simple legislation that also, generally do not include indirect taxes such as VAT.”
In addition to addressing taxation policies in the MENA region, the conference also hosted construction industry workshops to highlight and discuss industry specific tax and related fiscal matters in Qatar and Saudi Arabia. These sessions were driven by the demand from an increasing number of international companies investigating opportunities in construction and engineering in Qatar and Saudi Arabia, looking to support major investments planned in infrastructure projects, over the next few years.
Corporate tax considerations defining the tax landscape
The factors defining the fiscal landscape in MENA include low corporate tax rates, prevalent in many countries, with the effective corporate tax rate in Qatar at 10%, Oman 12%, Iraq and Kuwait 15%, and Saudi at 20%. However, the need for effective taxation compliance and enforcement is creating an increasingly challenging tax environment in many countries, with more stringent tax compliance measures being introduced by the tax authorities.
Tax authorities in Kuwait and Oman have started issuing tax assessments applying higher deemed profit margins ranging from 25% to 40%, in order to ensure that companies submit tax declarations on an actual basis, while other countries such as Bahrain and UAE, remain neutral in their taxation plans.
Generally, countries in the GCC pursue different strategies. Qatar has recently simplified its taxation by eliminating the 0% to 35% corporate tax rates dependent upon income, and replacing it with a flat rate of 10% on taxable profit, excluding agreements with the Government or other Governmental bodies and all petroleum operations where a 35% taxation rate still applies. Outside the GCC, Egypt has recently increased its corporate tax rate by 5%, raising the tax rate to 25%. In addition, it has amended its Real Estate Tax Law, whilst effectively imposing a sales tax. These measures are part of an ongoing process to maintain long-term economic growth and fiscal stability within the region.
“In 2013, it is expected that most MENA countries will be further enhancing their tax assessment processes, by increasing the level of scrutiny relating to cross border and related party transactions. In addition, there will be a continuation of the trend for further tightening of compliance measures, by tax authorities in MENA countries. The authorities are also taking much broader interpretations of current tax law provisions, to introduce taxation measures into their respective markets, “concluded Sherif El-Kilany, MENA Tax Leader, Ernst & Young.