Will UAE’s corporate tax rate affect creditworthiness of businesses?

Will UAE’s corporate tax rate affect creditworthiness of businesses?

The UAE’s recently announced corporate tax could put pressure on businesses, but the impact will be manageable and will not spoil the creditworthiness of rated corporates, according to a new report.

On the upside, taxing earnings of companies could help the country create another revenue stream as it seeks to diversify its economy from oil, S&P said in its latest analysis.

“We also believe that the broadening of the government’s revenue base should support smaller emirates’ economies. However, the full impact is unclear because it is not yet known how the tax will be distributed,” S&P said.

The UAE announced on January 31 its plans to collect a nine percent federal corporate tax on business profits above 375,000 dirhams ($102,110) effective June 1, 2023.

Personal incomes, including those earned through employment, real estate, investments and business established outside the country, will not be covered by the tax.

Banks, insurers

S&P said the tax could still weigh on banks, corporates and insurers. “But [the pressure] will be manageable and not significantly affect their creditworthiness,” said Trevor Cullinan, S&P Global Ratings credit analyst.

Cullinan said that if the revenues earned through corporate tax are distributed in the same way as value-added tax (VAT) revenues, the emirates’ fiscal positions will