Introduction
Corporate tax refers to the tax imposed on corporations that have been registered as legal entities within a country or a territory (Shaviro, 2009). In this light, corporations might be companies, countries or subdivisions of the countries. The tax is imposed on various sectors of the corporations including the income, capital, property, and profit among others. The tax imposition is governed by stipulated tax rules that direct on the taxes to be imposed on the corporations. In this light, the rules consider the foreign and national corporations. In most cases, the rates imposed on the foreign corporations are higher than the rates charged on the internal corporations (Bailey and VanDorn, 1986).
This tendency aims at encouraging internal investment and limiting the external investors. As a result, the citizens of the country are prioritized by getting better opportunities for development than the foreign corporations. This paper seeks to touch on the corporate taxation around the world by comparing the corporate taxation system of two countries. In this case, the paper will consider the United Arabs Emirates and Qatar.
Therefore, it will discuss the future and current corporate taxations for the two countries. Particularly, it will discuss the types of taxation practiced in the two countries alongside the comparison. Corporate taxes include the taxes that are imposed on foreign corporations, local taxations, and sales taxes among others. Lastly, the paper will touch on the personal evaluation of the taxation system according to the comparison (Shaviro, 2009).
Definitions
There are various terms that will be used in this paper that need definition in order to ensure that the readers are familiar with them. UAE stands for the United Arabs Emirates. It is a federation that comprises of seven emirates. The emirates include Abu Dhabi, Sharjah, Dubai, Fujairah, umm al-Quwain, Ajman and Ras al-Khaimah. The capital city of this federation is Abu Dhabi (Mostyn, 1982).
Qatar is officially called the state of Qatar. It is a sovereign state for the Arabian region in Western Asia bordering Saudi Arabia. Also, it borders the state of Bahran and they are separated by the Persian Gulf (Peat, 1991).
Corporate Tax in the UAE
Regarding taxation, the United Arabs Emirates does not rely on taxes as a main source of their revenue. In this light, they rely on oil and natural gases for developing their economy. Consequently, corporate taxation is not widespread in their economic setup. This implies that most Emirates do not charge taxes on their corporations, including the companies that exist in their respective jurisdictions (Mostyn, 1982).
In fact, almost all the emirates do not impose the corporate taxes on their corporations. In their perspective, they argue that taking unearned income from somebody is not right. In this light, they consider tax as an unearned income that is taken from the public bodies and individuals. However, they impose taxes on various instances in their economic setup. In this light, UAE implements a policy of free zones within its jurisdiction. The free zones refer to areas that have been exempted from taxation. The companies and corporations that are found on the free zones carry out their businesses without the tax deductions.
This encourages investors and businessmen to carry out business vigorously. As a result, the government manages to empower their citizens financially. For example, Dubai has been extremely vibrant on eliminating tax imposition. In this case, there are eighteen free zones in Dubai which include the Humanitarian city, Dubai Internet City, Dubai Media City, and Dubai Airport Free Area among others. From the list of the free zones, it can be depicted that Dubai seeks to offer a free zone to most business categories including media companies, ICT companies, and transportation companies among others. Considering the tax freedom in UAE, the next paragraphs will focus on the instances and situations that impose taxes in the federation (Mostyn, 1982).
Current Taxation
Foreign Companies’ Taxes
The main taxation that is practiced in UAE is imposing on the foreign companies. These companies seek to invest within the federation in a bid to create businesses. Many of the companies include the oil companies that mine and refine oil. Also, the corporations comprise of the companies that deal with manufacturing by-product that arise from the oil processing plants. It is important to note that most of these companies tend to facilitate cash outflow from the United Arabs Emirates to their mother countries. Moreover, it should be noted that 93 percent of the people living in UAE have migrated from other countries around the world.
Therefore, they tend to invest and return their profits into their mother country. As a result, the federation has imposed taxes on those companies in order to prevent the companies from exploiting the federation of UAE. In this light, it is important to remember that the UAE is made up of seven separate emirates that were mentioned in the introductory part of this paper. These emirates tend to operate independently, and they have separate governance.
Therefore, they have a right to impose taxation rates that they wish to induce on the companies. This has developed a situation in which the tax rates vary from one emirate into another due to the differences of taxation laws and policies. The varying tax rates have been the force behind the difference in economic solvency among the emirates. However, the integrated economy experiences economic imbalances from the national government’s point of view.
Also, the company taxes vary according to the categories of businesses that are being practiced. In this light, the foreign companies that deal with oils are faced with a tax imposition of 55 percent in Dubai while. In the other emirates, they face a tax imposition of 50 percent that is significantly lower than the Dubai’s tax levels. This shows that the tax rates vary across the seven emirates due to the varying taxation policies in the federation (Mostyn, 1982).
Sales Taxes
The United Arab Emirates imposes taxes on some goods that are sold across the federation in order to regulate their sales. These goods include alcohol and cigarettes. For example, Dubai imposes a taxation rate of 30 percent on alcohol sales. This taxation applies for the foreign and local companies that deal with the alcohols. On the other hand, cigarettes have their own separate taxation rates that vary across the Emirates. However, the policy of UAE does not allow the individual emirates to waiver the taxes on alcohol and cigarettes. This ensures that the sales of alcohol and cigarettes are reduced significantly. As a result, the use of these commodities reduces across the federation. This results in low reduced numbers of cancer cases that have handicapped the health of many people across the world (Mostyn, 1982).
Restaurant Taxes
The government imposes taxes on these categories of corporations. The municipality is allowed to impose a tax of 5 percent on the hotel services. The hotel services include the entertainment services, rooms, and food among others. The restaurants are subjected to a tax of 5 percent to 15 percent across the federation. This tax is imposed by the municipal governance that manages the municipalities at the low levels of governance. These taxes help the governance, at low level, to carry out their management (Mostyn, 1982).
Future Taxation
Local Taxation
The economy of UAE is relying on the oil mining and refineries that aim at earning income to the federation. The oil refineries earn the country enough income that results in a stable economy. Consequently, the country has wavered between the corporate and individual taxes for its citizens in accordance with the previous paragraphs. However, various unions and financial advisors have recommended that UAE should redefine its financial systems. In this light, they have recommended that the country should impose taxes on its citizens and the corporations that are found in the country. In this case, they argue that the country should diversify its economy.
One of the ways of diversifying its economy is by imposing taxes that would bring additional income to the country. For example, international bodies have spotted debts from the UAE. This is attributed to the shallow economic scope of the country that limits its financial plans. In this light, it is important to note that the taxation rules have allowed the emirates to impose taxes on the citizens.
However, they do not impose the taxes due to their current stability that do not have a future assurance. As a result, United Arabs Emirate is planning to start imposing taxes on various institutions in their local systems. This will allow them to get additional income that will enable them to cater for their organizational needs. In addition, it will ensure that they have financial security that secures them against the depletion of oil and natural gases (Ricardo, 1911).
Tax Levelling
The United Arabs Emirates is planning to level their taxes and ensure that all the seven emirates are charging the same tax rates across the country. This will allow corporations to incur the same taxation. As a result, the citizens who live in the seven emirates will have equality of taxation. Although it will affect the general financial setup of the emirates, the equality will portray a state of financial cohesion and integration (Ricardo, 1911).
Corporate Tax in Qatar
Qatar does not impose taxes on corporations that are found in the country. The country enjoys a fairly stable economy that attracts investors in the country. In fact, it has been the main reason behind the high number of expatriates in the country. However, the country imposes a tax on all the corporate bodies that are owned by foreigners in order to reduce the rate of migration into the country. Also, it prevents the expatriates from exploiting the country’s resources by sending the profits back to their home countries (Peat, 1991). In addition, the company has secluded some areas and regarded them as tax free areas.
All the businesses that are found on these areas are free from tax. If there are taxes that are imposed on the free zones, they are significantly reduced for the investors. The free zones are developed in order to promote certain governmental projects. This ensures that the projects are monitored and completed at a low cost of operation and construction. In addition, they offer exemptions to companies in a certain segment of the market setup. Lastly, they allow for taxation advantages that attract companies to invest and develop the country (Peat, 1991).
Current Taxation
Progressive Foreign Taxes
The country imposes taxes on the companies that are owned by foreigners in order to monitor them financially. In Qatar, they impose progressive taxes on the companies that vary from one company to another. This implies that the companies are charged taxes in accordance with their income and profits. In this light, the taxes range from 10 percent to 35 percent. Companies that earn a lot of income in the country are charged more tax than those earning low income. This ensures that there is a fair distribution of the taxation. As a result, the country ensures that the proportional taxation allows businesses to survive in the country.
Consequently, they continue investing in the country and expanding their financial investment. This imposition applies for companies and corporations that are permanently centered in Qatar. In other words, they are permanent and foreign to the state of Qatar in accordance with their operations. On the other hand, there are other businesses that are centered in Qatar in a temporary manner. In this light, the country imposes a withholding tax (Peat, 1991).
Withholding Tax
All companies that are temporary in Qatar are faced by withholding. This is an amendment of the old taxation law that is an important development for the previous law. In this light, it seeks to amend the previous law that exempted taxation for the temporary corporation in Qatar. As a result, it imposes a 5 percent tax on the amount of gross that the company gets annually. In addition, it imposes a 7 percent tax on the gross interest that the company earns annually (Peat, 1991).
Professional Foreign Taxes
Similarly, these taxes are imposed on foreigners who originate from other countries and migrate into UAE. In this case, the taxes are imposed on the self-employed foreign professionals in the country. Particularly, the tax is imposed on their income at the end of the year. This tax aims at tapping most of the income that originates from the country and limits exploitation by the expatriates (Pritchard and Murphy, 1987). In addition, it aims at restricting extreme migration that can handicap the economy of the country. Also, it ensures that the native citizens of Qatar are advantaged. They are advantaged because they are served using the taxes that are paid by the expatriates (Pritchard and Murphy, 1987).
Future Taxation
Tax Levelling
The government of Qatar will continue imposing taxes on the companies that are owned by foreigners. However, we said that the current taxes vary from one company to another. In addition, it was clear that they impose the rates according to the income and profit of the company. The government of Qatar is planning to impose leveled taxes on the companies. This implies that they will deviate from the original variance that range from 10 percent to 35 percent. As a result, they will come up with a common rate that will apply for all companies in order to ensure that the system is fair to all corporations. In fact, the country has already designed the taxation plan and tested it in order to examine its workability. In addition, the country is not planning to start imposing taxes on its local companies and citizens.
This can be predicted from the behavior of the neighboring countries that include Saudi Arabia and United Arabs Emirates among others. For example, Saudi Arabia has a long history of tax free economy for its citizen. This culture has remained in that condition for a very long period without any signs of changing. In this light, it can be predicted that the state of Qatar will not change due to financial stability. If a country like Saudi Arabia shifts into a system that charges the taxes, others will follow. This might happen due to an economic crisis which would affect the respective authorities and force them to consider taxes (Pritchard and Murphy, 1987).
Differences
From this study, it is clear that there are very few differences between the taxation system in Qatar and UAE. First, Qatar imposes taxes on the foreign professional who are self-employed in the country. In addition, it imposes scalable taxes that range from 10 percent to 35 percent on the companies. On the other hand, the UAE does not consider the two taxes that are included in the taxation system of Qatar. This is a major difference that is exhibited by the countries. Regarding UAE, it imposes taxes on sales of alcohol from the respective companies. Also, it imposes special taxes on hotels and restaurants. However, Qatar does not take those taxes into account (Bailey, & VanDorn, 1986).
Similarities
Both countries share a lot of similarities on their taxation systems. First, the countries do not impose taxes on their local corporates. Instead, they impose taxes on the foreign companies that are owned by the expatriates. Also, it is clear that the taxes are varying. In Qatar, the companies are taxed according to their gross annual income and interest. On the other hand, the UAE tax rates vary from one emirate to another. In addition, the two countries are determined to impose levelled tax rates in the future. Moreover, the two countries have secluded some zones referred to as the free zones. In these zones, companies enjoy tax exemptions (Bailey, & VanDorn, 1986).
Personal Views
In my point of view, the two countries should start imposing taxes on their local corporations. This will allow the country to diversify their economy in order to provide for financial stability and security. It will help the country to get more income than the current one. It is my opinion that countries should continue pursuing the ideology of levelling their taxes in order to ensure that is equality. However, the levelled taxes should be imposed in a manner that encourages the foreign investors. In this light, they should not be too high to discourage the investors. At the same time, they should not be too low to encourage exploitation by the investors (Shaviro, 2009).
Conclusion
Characteristically, the United Arabs Emirates and Qatar neglect taxation in their respective countries. They rely on natural resources to cater for their economic stability and sustenance. In addition, the taxation systems of the two countries show a lot of similarities. Moreover, they have few differences that characterize their taxation systems. This discussion has shown that there is an insignificant likelihood for the countries to change their taxation behavior. Lastly, the financial future for the countries is threatened by lack of economic diversification. In this light, they should focus on a diversifying the national income through taxation.
References
Bailey, A & VanDorn, W 1986, Taxation, West Group, St. Paul, Minn.
Mostyn, T 1982, UAE, Middle East, Economic Digest London.
Peat, M 1991, Investment in Qatar, Peat Marwick Mitchell & Co, Doha, Qatar.
Pritchard, W & Murphy, D 1987, Taxation, Pitman, London.
Ricardo, D 1911, The principles of political economy & taxation, J.M. Dent & Sons, London.
Shaviro, D, 2009, Decoding the U.S. corporate tax, Urban Institute Press, Washington.