Stock options capital gains tax rate dubai
Whilst I think it is unlikely this proposal will come to fruition, it is worth considering how personal and corporate tax will affect the UAE. There is presently no income tax for individuals and limited tax for companies based in the UAE. Each emirate has its own corporate tax rate and tax is only imposed on the income of oil and gas exploration companies and branches of foreign banks.
For example, the tax policy in the European Union is made up of direct taxation which is administered solely by the Member States and indirect taxation affecting the free movement of goods and the provision of services.
Other countries are implementing specific purpose taxes such as carbon tax to discourage businesses and industries from emitting greenhouse gases. It is reasonable for the government to introduce fees to maintain the capital investments it has made. In my opinion, introducing a low level of tax for local and international companies in the UAE is not a bad idea. Implementing taxation will generate income for local and federal governments.
However, income is not the only driver behind introducing tax. Taxation will require proper corporate governance for all companies operating within the UAE.
Companies will need to implement stock options capital gains tax rate dubai accounting and auditing mechanisms. Many family run businesses do not yet have such practices and they are not standard across the UAE. It will also increase the demand for local accountants and financial controllers and stock options capital gains tax rate dubai people to study and develop their skills in these fields.
Requiring companies to file taxation returns will provide the UAE government with valuable knowledge and insight into the companies operating within the UAE. It will also be detrimental to shell companies operating with ulterior motives so the government can remove them from the economy.
A number of expatriates contribute minimally to the UAE economy because they send the majority of their income to their home country and so introducing taxation will cause a portion of their income to remain in the UAE. A number of countries have double taxation treaties with the UAE. Paying tax locally would not affect companies from these countries because it will be taken into account when they repatriate income to their home countries.
There are a number of negative implications associated with introducing tax and the administrative cost of direct taxation needs to be taken into account.
If the tax is a small amount such as one to two percent, there is a real possibility that the governmental cost of administering the tax may be greater than the income received stock options capital gains tax rate dubai the tax. The administrative cost is therefore likely to dictate the rate of tax payable. One of the main attractions for businesses and individuals to relocate to the UAE is its tax-free status. Imposing a tax would have a significant impact on emirates such as Dubai and Abu Dhabi which have attracted individuals and businesses based on their low tax stock options capital gains tax rate dubai and tax free zones.
If the UAE becomes more expensive for these businesses and individuals, it may cease to be competitive with other Gulf States, resulting in companies relocating and expats moving elsewhere. The UAE economy was originally based largely on oil and there is concern that its income is too reliant on it.
The income has now diversified and the UAE has found other sectors to boost the economy and encourage the growth of the private sector. Dubai and Abu Dhabi consistently rank highly as top investment destinations worldwide. In my opinion, it is unlikely that the UAE will introduce tax on repatriation of capital because it goes against everything that the UAE has developed over the past 20 years.
However, introducing a minimum tax rate of one or two percent is worth evaluating stock options capital gains tax rate dubai it will benefit the UAE economy by sophisticating its corporate structure as well as earning the government additional income to be invested in the UAE infrastructure.