< PreviousAB / MONEY 50 Vol. 23/08, August 2022 While taxes may feel unwelcome, it’s important to examine the long-term impact, writes private investor, coach and mentor Mark Schofi eld Corporate tax in the UAE – A blessing or a curse? accelerated over the last few years with, most recently, the introduction of excise duty in 2017 and VAT in 2018. So, it should not come as a shock that there was a January announcement of the planned introduction of corporate tax for accounting periods starting after 1 June 2023. Whilst the new tax is no surprise, it raises important questions of why now and what it means both for both the wider economy and the taxpaying community. The UAE economy has seen rapid development over the last decade as it diversifies its asset and revenue base away from hydrocarbons, which continues to be a critical component of the country’s success. This can u Powering the economy A well-executed corporate tax will have long-term benefi ts for the UAE and the wider business community The original use of the phrase “Tis impossible to be sure of anything but death and taxes” is a quote often attributed to Mark Twain but in fact originates from the English playwright, Christopher Bullock, in his 1716 play The Cobbler of Preston. It is a sign of the world that we live in that it has been much repeated throughout history and amended since, not least by Benjamin Franklin, immediately after the signing of the US Constitution. As with every sovereign country, the UAE has had its own journey in relation to the tax agenda, which has arabianbusiness.com 51 AB / MONEY q TAX WILL PLAY A BIGGER ROLE IN THE WIDER ECONOMY, THE MANAGEMENT OF PUBLIC SECTOR FINANCES AND A MORE DIRECT FINANCIAL CONTRIBUTION FROM BUSINESSES OPERATING IN THE COUNTRY” be seen through the success of the country’s sovereign wealth funds, the development of both Abu Dhabi and Dubai as hubs of financial services activities, the role of the country’s airlines, increased foreign direct investment and the burgeoning tourist sector, enhanced by the UAE’s pragmatic and resilient approach to the management of the pandemic crisis. With this increasing broadening and diversification of the economy, tax will play a bigger role in the wider economy, the management of public sector finances and a more direct financial contribution from businesses operating in the country. The introduction of corporate tax is an important further step in that direction. As part of the wider global agenda of increasing pressure to ensure a fairer tax system and the management of harmful tax competition, a set of principles to which the UAE is committed, the introduction of the new corporate tax underpins the position of the UAE as a developed and mature economy. Will the new corporate tax harm the investment agenda and the attractiveness of the UAE economy? I believe not – the rate has been set at a highly competitive 9 percent, which is substantially below the average of OECD country rates, the larger economies of the G20 and lower than those of other GCC countries, with the exception of Bahrain which does not impose a broad corporate tax. We have seen extensive other policy developments recently, for example the 50 initiatives for the next 50 years and the increasing range of visas to attract talent. Alongside the well-developed tax treaty network, the new tax helps secure the position of a modern, forward thinking and progressive economy. So, what does this mean for individuals and businesses? Many will welcome the clarification of the scope of the tax, and, in particular, that it will not apply to individual employment, investment or real estate income or other income earned in a personal capacity not connected with a UAE business. On the other hand, those operating in free zones will be impacted if they do business with the mainland and larger MNC businesses may be subject to a higher rate to ensure compliance with the UAE’s international obligations. The recent consultation document was a valuable opportunity for those impacted, and their advisors, to u Positive action The UAE’s 9 percent corporate tax positions the country as a highly competitive tax regime globally and regionally u Effect The new tax helps the UAE secure the position of a modern, forward thinking and progressive economy, Schofi eld says comment on the proposals and now the detailed legislation is eagerly awaited so businesses can plan for its’ introduction. As is the case with any announcement of a new tax, there are many questions of detail that cannot be answered until the final rules and detailed guidance have been published. To help businesses prepare, more detail will be provided in the middle of the year, which will give plenty of time to prepare for the new regime. In the meantime, businesses will be waiting to see what the administrative burden will be, although, the original announcement and the consultation document were clear that this will be streamlined and digital. Many potential taxpayers will also be asking if the quid pro quo for the corporate tax will be a reduction in other business fees and levies. Time will tell. I started this piece with the question as to whether the new tax is a blessing or a curse. From my comments above, you will see that I am landing on the side of the former and not the latter. Notwithstanding the very short term uncertainties that the current lack of detail creates, the introduction of a well thought through and executed tax will have long-term benefits for the UAE economy and its businesses, citizens, and residents – both present and future. $102,000 Businesses with taxable income of less than the amount will be exempted from paying the corporate tax52 Vol. 23/08, August 2022 Remember, don’t just have fi gures in a vacuum – show your reasoning, because investors are going to press you on your research, believes Lorenzo Jooris, CEO of Creative Zone How to raise capital in the UAE and the stronger and wider a network you build the better your chances of success are in almost any field. Being connected with smart people, particularly with knowledge and skills that you don’t have, is such a powerful thing for you and your business. There’s no excuse not to network these days, as it’s made so much easier with the instant connections provided by platforms like LinkedIn. When you network, you’re making an investment in your future. Get your info in order No matter what type of investment you’re looking for, there are going to be common requirements for everyone you speak with. Investment applications will always require information on the nature of your business, who is involved, and what capital you require – all the basics. Having all of this information ready, and in a single document, will make any applications you make far less time-consuming and error-free. First, you need to compile a complete business strategy that holds all the detailed information on your business. Leading on from your complete business information, you need to put together an executive summary and a pitch deck. These two things will go together and form part of how you market to investors or how you approach lenders. It needs to include the key headlines about your product or service, as well as financial information on your business today, and the predictions for its future success. Remember, don’t just have figures in a vacuum – show your reasoning, because investors are going to press you on your research. Capital sources Here’s a snapshot of some of the most popular ways people bring investment into their business: Bank lending: Let’s start with a way of raising capital that is often overlooked – taking out a loan. The reason this often gets ignored is that there are big hurdles that SMEs have to vault in order to prove to banks that they are a legitimate business and that Arabian Business shines a light on the all-important SME sector in the region, from success stories and VC news to expert insights This guide will show you everything you need to know to get started finding investment for your business in the UAE. This will be a quick reference you can use to find different sources of capital, what to show the people you speak to, and where to find support and programmes that will help your business succeed. Let’s not waste any time, and get straight into it. The importance of networking Before we go any further we wanted to highlight the most important part of raising capital – no matter where you are or what your business does. Networking is a currency all of its own u Vital contributor The UAE is a global hub for startup enterprisesarabianbusiness.com 53 q SMES REPRESENT MORE THAN 94 PERCENT OF ALL COMPANIES IN THE UAE SO IT’S CLEARLY A GOOD PLACE TO BUILD YOUR BUSINESS” 50% The SME sector’s estimated contribution to the UAE GDP they are going to be able to pay back what they borrow. This is always difficult in the early stages of a business because there is little financial information outside of forecasts. That being said, banks often compete with one another to offer the lowest interest rate to entice new customers. You might be able to use this to your advantage if the other options on our list don’t look viable. Crowdfunding: Crowdfunding has taken off in popularity in the last five years and right now is a great way to raise capital if you aren’t looking for a massive investment. There are many online platforms available, such as Kickstarter, that offer individuals and businesses a space where they can show off their ideas and get financially backed by any groups of, often anonymous, contributors. If your product or service has a small serviceable niche then crowdfunding offers a unique space where groups of people who are passionate about certain projects can support the ideas they want to see develop further. Venture capital: Venture capital (VC) is built around businesses that invest in other businesses. This is the method of fundraising that revolves around your company receiving capital for an agreed level of equity that the VC company then holds. Because of the restrictions within the UAE on private equity, most VCs are based offshore so you may need to look further afield than your local network. Depending on the type of agreement that you have, further down the line you can either buy that equity share back or the VC company will look to sell it on their own terms. VC is built around speculation and very often it focuses more on the financials of a business rather than how good its products or services might be. Angel investment: Last on our list is angel investors. These are typically individuals behaving as solo venture capitalists. They’re likely to start by focusing on your relationship with them rather than the cold hard facts and this lower level of formality can help to put new businesses at ease when they’re briefly here and if you want to find out more about them all the links are provided for you. Mohammed Bin Rashid Fund for SME The goal of the Mohammed Bin Rashid Fund for SME is to help Emirati investors finance innovative pilot projects for small and medium-sized businesses. This is done by putting in a lot of time and effort to study the projects presented to the fund and then working with them to find the best ways for you to start and also grow your business. Khalifa Fund for Enterprise Development (KFED) The Khalifa Fund was set up in June 2007 as an independent, non-profit agency of the Government of Abu Dhabi to help develop SMEs. The goal of creating the fund was to help develop local businesses in Abu Dhabi by making UAE citizens more interested in investing in them. The fund now helps to support and grow small to medium- sized investments in the wider emirate. The Khalifa Fund began with a capital of AED300m, which has grown over time to AED2bn and now covers the whole UAE. Right now is the best time to start and if you do you’ll be joining a large group great people and businesses. In fact, SMEs represent more than 94 percent of all companies in the UAE so it’s clearly a good place to build your business. u Consultant Lorenzo Jooris, CEO of Creative Zone u Funding The Khalifa Fund for Enterprise Development (KFED) aims at encouraging entrepreneurship, inculcating the culture of innovation and supporting SMEs / STARTUP under pressure to raise capital. There are a number of angel investment networks, such as Emirates Angels, that you can also tap into so that you can make the right connections with investors who are more likely to have an interest in what you’re building. Support from the UAE The UAE is a global hub for startup enterprises and because of this, there are a number of government funds as well as guidance and support available for entrepreneurs. We’ll touch on them 54 Vol. 23/08, August 2022 The two-day Arabian Business event placed the spotlight fi rmly on key issues for the technology industry, featuring thought leaders and experts to address the topics of technology and mental health In review: Arabian Business UAE Forum 2022 E VENT S / AB FOR UM R O UND UP u Gathering of minds The fi reside segment was hosted by ITP Media Group Editor Carla Sertin with Baz Nijjar, principal advisor of education technology at GEMS Educationarabianbusiness.com 55 $678.7bn The projected value of the global metaverse market by 2030, according to data from Statista Q WEB2 IS FLAT, IT’S TRANSACTIONAL, IT’S PRODUCER-CONSUMER. WEB3 IS IMMERSIVE AND IT’S CHANGING THAT DYNAMIC TO A MULTI- STAKEHOLDER SITUATION” The AB UAE Forum 2022 dived into two key issues, with technology and talent attraction put in the spotlight. When it comes to talent retention, and attraction, leaders now face the world of the Great Resignation, with workforces increasingly attuned to their mental health, and how the world of employment impacts them. The event, which featured KPMG Lower Gulf as our knowledge partners and Tata Consulting Services as a Gold Partner, spent day one focusing on which technology will win in 2022, while day two opened up the discussion around what remains a highly- stigmatised subject in many offices. On the first day, one panel discussion focused on the “endless” possibilities of how Web3 and metaverse technologies could impact industries and communities in the UAE. According to David Zennie, CEO of Disruptive, the metaverse could allow us to create new worlds and redefine how business is done – a major pivot from the “transactional” nature of Web 2, or the internet as we know it now. “Web2 is flat, it’s transactional, it’s producer-consumer. Web3 is immersive and it’s changing that dynamic to a multi-stakeholder situation,” Zennie explained, and added that the metaverse will “allow for an exciting new world to exist and a new way of doing business.” Since Web3 has proven to be industry-agnostic, Shadman Sakib, founder and CEO of Vurse, an AI-powered short video platform, demonstrated how the metaverse is used in many different sectors – from fashion to education. He emphasised the use of data in creating “more immersive” customer experiences, whether in retail, tourism or in schools. He explained how the more we “commercialise the space,” the better we can capture more user elements. Innovators are getting better at advancing the mainstream adoption of Web3 and the metaverse, Sakib implied, talking about how a better consolidation of software and hardware knowledge, currently most visible within the gaming industry. Both experts agree that technology leaders are going to play a crucial role in how the metaverse could be widely used. Meanwhile, a fireside chat with Baz Nijjar, who heads edtech efforts at UAE-based GEMS Education told a packed floor that collaboration among private companies and schools could play a key role in accelerating the adoption of education technology. / AB FOR UM R O UND UP u View The metaverse would redefi ne how business is done, said Zennie u Guru Innovators are getting better at advancing the mainstream adoption of Web3 and the metaverse, Sakib explained56 Vol. 23/08, August 2022 E VENT S / AB FO R UM R O UND UP ADOPTING TECH According to a recent survey by American cloud-based software Salesforce, demand for automation has increased globally for roles in research and development, administrative and operations, customer service, and marketing. The challenge, however, is that existing IT infrastructure in many companies are impacting the speed of adoption, the research showed. u Gaining traction Experts said companies in the UAE are starting to recognise the role they play in employees’ mental wellbeing “There are a number of different ways (for businesses) to partner with schools,” he said, and explained how businesses should demonstrate creating value for students’ learning journey, instead of expecting traditional tangible returns. Already, big tech companies such as Google, Microsoft, and Siemens have been entering key partnerships with schools and regulators to provide enhanced learning experiences for students – with an initial focus on integrating tech products into school networks. The emergence of edtech, Nijjar explained, has presented an opportunity for schools to rethink budget allocation – especially as most funds go to staffing, with technology usually taking a small chunk. He said although budget exists, schools would need a strong business case to ensure money is used well.arabianbusiness.com 57 Q SOME SCHOOLS ARE ALLOCATING MORE BUDGET TO TECHNOLOGY THAN THEY WOULD HAVE PREVIOUSLY BECAUSE THEY HAVE SEEN THE POTENTIAL OF EDTECH TO STUDENTS’ LEARNING OUTCOMES” / AB FO R UM R O UND UP u Education The emergence of edtech has presented an opportunity for schools to rethink budget allocation, Nijjar explained u Interaction Experts answered whether or not big tech is at risk of being disrupted u Resilience Championing mental wellbeing boils down to promoting open communication between people, Haill said “Some schools are allocating more budget to technology than they would have previously because they have seen the potential of edtech to students’ learning outcomes,” he said, and added that schools are more likely to invest “if it’s the right technology, and you can showcase to the school that it will have tangible outcomes either in improving operational efficiency or adding value to students beyond of the curriculum.” Mental health in focus Conversations around mental health have increasingly gained traction in the UAE, and the key to fully unlocking the potential of these talks is in breaking the stigma associated with personal wellbeing, Chris Haill, founder and CEO of Mindforce, a joint venture between Dubai Police and consultant Omnia, said during day two of the Arabian Business UAE Forum. “The difficulty is talking about it,” he said, and explained how trust is important to encourage more people to speak out and talk about their emotions. Fortunately, Haill said companies in the UAE are already starting to recognise the role they play in people’s mental wellbeing. “Before there was nowhere to go or talk to, but companies are making efforts to make it okay for people to speak out at any stage,” he said, amid recent UAE studies about how employees in the country are more likely dealing with stress. A recent survey showed 68 percent of employees have reported increased levels of stress at work over the past 12 months – with more people feeling more fatigue and burnout. The Mindforce founder said although such reports show concerning the stigma. It is still difficult for certain people to come forward,” he said, and emphasised individual people’s role. “As individuals we have a lot to play into that – we have to start asking other people what they’re feeling,” he added. Creating a community that is built on trust is crucial to further destigmatised mental health, the mental health leader said, and leaders will play a huge role in this regard. Haill said “mental health champions” within companies are important to push the agenda further, and explained how technology can also help, referring to digital products including mental health chatbots. figures, they represent a positive development in the way mental health is viewed by people in the country. “At least we know there are more people we can help rather than being quiet,” Haill said. “It’s going to take time to break down $319.65bn The projected value of the global edtech and smart classroom market in 2029, according to a report from Fortune Business Insights58 Vol. 23/08, August 2022 FEATURE / EMPLOYMENT The reforms to the UAE’s visa system will likely represent a positive long-term shift in expat spending and investment Putting down roots BY SOPHIA BHATTI, FINANCE AND INVESTMENT EXPERT AND CHARTERED WEALTH MANAGER The forthcoming reforms to the UAE visa system are designed to make it easier for expats to live, work and build a future in the country. With this, we’re likely to see an evolution in the spending and investment habits of expats in the UAE, as they start to plan their finances around longer-term residency. Alongside the extended investor and entrepreneur visas, the new regulations are likely to encourage expats to commit more financial resources within the UAE, whether it be buying property, building an investment portfolio locally, or spending more disposable income in-country. Long-term stability The new long-term residency schemes will promote a high sense of stability among qualifying UAE expats. It will also provide an important buffer to foreign residents living in the UAE who were previously reliant on short-term renewable visas linked to their employment. The confidence that comes with secure residency will encourage more special visa- holders and their families to put down roots. With an extended visibility on the future, expats can now build and oversee investment and savings plans over the longer-term, as well as exploring new opportunities within the UAE. Greater investment potential The visa system overhaul will lead to a reduction in the cost of renewing residency permits, which should in turn lead to more savings and investments taking place as a result. Attracting more knowledge workers to the country will help to build and retain a highly-skilled workforce, with more investment potential and greater spending power. The lifestyle opportunities the UAE offers, combined with the prospect of LONG-TERM STAY The UAE Golden Visa will grant 10-year residence to investors, entrepreneurs, exceptional talents, scientists, humanitarians and professionals who meet certain eligibility parameters. u Retaining talent The new long-term residency schemes will promote a high sense of stability among qualifying UAE expatsarabianbusiness.com 59 commit to the long-term and more new ventures set themselves up in the UAE. Planning for an uncertain future Overall, the UAE’s forthcoming long-term visa plans will raise residents’ savings and investment goals and encourage increased spending locally. Combined with the introduction of the retirement visa last year, many long-term residents may also decide that the UAE is the best place to accumulate their wealth. Yet with the volatility in markets and the uncertainty that lies ahead, good financial advice remains critical for any expat aiming to secure their financial future, whether that be in the UAE, or in their home country. working towards a clear savings goal, mean that the investor visa option is likely to attract not only high-net-worth individuals but also the mass affluent expats. New investment mindset The opportunity to reside in the UAE long-term is likely to change the investment mindset, particularly when it comes to property. Where expats might previously have invested in a residence in their home country, the option to build a future in the UAE means long-term visa holders will be more likely to explore residential property in the Emirates. Furthermore, the current supply and demand equation has made investment property an attractive proposition. With the implementation of longer-term residency options, more expats will come to the UAE, and push rental prices up in the process. Impact for individuals For any expat that secures a long-term visa, a range of opportunities will open up on the investment landscape, but how to approach them will depend on a number of factors. Individual investors will have different requirements and expectations based on planning periods, risk appetite, and market conditions. Younger investors might choose to focus on gross planning investment vehicles, while older investors closer to retirement need to explore income-producing investments that will pay out enough to meet their financial commitments. Impact for business The new regulations will naturally have a positive impact on the local banking industry as more investment is retained in the UAE. We can also expect an evolution in the broader business landscape as companies start to plan differently for their future. Security of residence for employees will help to build more certainty around business continuity. Growing investment in commercial property is likely as existing businesses look to u Benefi ts The UAE’s forthcoming long-term visa plans will raise residents’ savings and investment goals and encourage increased spending locally u Securing the future Long-term residents may decide that the UAE is the best place to accumulate their wealth, Bhatti believes 83% The percentage of respondents who said they welcome the UAE’s visa regulation, according to a survey by Expat Insider 2022 / EMPLOYMENT q THE NEW REGULATIONS WILL NATURALLY HAVE A POSITIVE IMPACT ON THE LOCAL BANKING INDUSTRY AS MORE INVESTMENT IS RETAINED IN THE UAE”Next >