G7's Historic Tax Rate Change - A Business-World Earthquake?
The G7 group of high-income countries have decided to make a historic change resulting in a minimum global corporate tax rate, the UK's finance minister said. According to Rishi Sunak, this agreement to reform the global tax system is designed to ensure that multinational companies pay their fair share.
The accord builds on the Biden administration's revival of global tax talks this year by agreeing to a minimum corporation tax rate of at least 15 per cent – below the average in the G7.
Wealthy nations have battled to agree on a way to raise more tax from large multinationals like Google, Amazon and Facebook, which often book profits in jurisdictions where tax is lower or non-existent.
HOW WOULD A GLOBAL MINIMUM WORK?
The global minimum tax rate would affect overseas profits.
Governments could still choose their local corporate tax rate, but if companies pay lower rates in a particular country, their home governments may "top-up" their taxes to the minimum rate, ruling out the advantage of shifting profits.
The OECD said that governments broadly agreed on the basic design of the minimum tax but not the rate. Tax experts see this as the most sensitive aspect of the deal, although the G7 agreement creates strong momentum around the 15%-plus level.
Taxes in UAE
The United Arab Emirates does not have a federal corporate income tax regime. Instead, corporate income tax is dictated on a territorial basis under the respective Tax Decrees provided by the government of each individual Emirate.
It's not news that the Gulf region has used either no or low taxation to bring as many individuals and companies to their countries. This globally imposed taxation prompts questions regarding the ways to go from here.
Emirates NBD chief economist Khatija Haque predicts expects the number of companies initially affected to be relatively small. She said that governments in the region need to be extra careful if they plan to extend this tax to smaller foreign-owned companies, as it might jeopardise their plans by imposing taxes too aggressively.
In addition, free zones across the various Emirates have their own rules and regulations, usually offering “tax holidays” or tax exemptions to businesses set up in the respective free zone for a period between 15 and 50 years.
This implies that most entities registered in the United Arab Emirates do not have to file corporate tax returns in the United Arab Emirates, no matter where the business is registered. It's unclear whether this policy will have to change, as the G7 still needs to convince other countries to adopt their plan, but we'll make sure to keep you informed if the situation evolves further.
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