Insights: How implementing VAT helped UAE’s accounting sector

As the UAE continues to diversify its economy away from oil, the maturity of the business landscape and introduction of new fiscal policy has significantly enhanced the role and responsibilities of accountants.

The introduction of taxation, IFRS (International Financial Reporting Standards) compliance and a higher standard of corporate governance, are putting the accountancy profession at the forefront of driving economic growth.

A real catalysing moment came on January 1, 2018 with the introduction of value added tax (VAT) – the first kind of taxation in the history of the country. The 5 per cent VAT rate was introduced with a UK-style regulatory framework.

Read: UAE’s finance ministry amends some provisions of VAT law

The amendments were based on past experiences, challenges faced by various business sectors and recommendations received from relevant parties.

Suddenly companies needed to have their books in order or risk paying serious fines. It may have been an unintended consequence, but the introduction of tax has put financial reporting in the spotlight and resulted in positive changes for the industry.

With demand for chartered accountants growing, the UAE’s Accountants and Auditors Association (AAA) is also working to develop and support the accountancy profession across the Emirates.

This includes partnering with professional bodies like ICAEW to provide training for young Emiratis. The UAE now has a growing pipeline of talented professionals with the required knowledge and experience to navigate future changes.

A landmark year for taxation

This year, we’ll see another landmark date for taxation in the UAE. Not only does it represent five years of the VAT regime, the UAE will also introduce a 9 per cent federal corporate tax on business profits from the financial year starting on or after June 1, 2023. Companies across the UAE will be needing to nimbly adapt, and this will open further opportunities for employment in the field of accounting and auditing.

We are now at a stage where all companies are progressing and getting the basics of financial reporting right. The sector is evolving with new opportunities – the latest being ESG (environmental, social and governance Reporting). One of the main risks businesses face in securing their long-term future is climate change, and while ESG may seem the ‘buzzword’ of the moment, boardrooms across the globe are making company decisions based on ESG factors.

ESG reporting has significantly increased over the past few years, especially in the UAE. The Dubai government recently announced it is looking to roll out ESG benchmarks for businesses to comply with, rather than wait for businesses to act. This proactive approach shows the nation’s commitment to levelling up ESG reporting.

The evolving landscape will require chartered accountants to steer the ship, bring clarity to the process and ensure compliance with regulations and policies.

 Dr Jeannette Vinke FCA is the COO of American University of Sharjah and an ICAEW member