STABLE AND ABLE

UAE, Sharjah 2017 | EXECUTIVE GUIDE | REVIEW

VAT is on the horizon, but Sharjah remains an attractive place for business due to steady growth and a proactive government.

All political and economic vitals look good for Sharjah's business check-up. The World Bank Doing Business Report 2017 highlights the UAE as one of 10 most-improved economies for making significant advancements in their business regulations, and the country is ranked 26th out of 190 countries for ease of doing business. Moody's' November 2016 report sustained Sharjah's credit rating at AAA, noting higher stability compared to other Emirates. Standard and Poor's forecasted steady growth in Sharjah through 2020, supported by the construction, tourism, and manufacturing sectors. In Sharjah's significant real estate sector, 1H2017 saw a 46% YoY increase in real estate transactions fueled by both commercial and residential buyers.

Sharjah as a whole has prime real estate in the UAE. With ports on both coasts of the country, the Emirate also claims connections with all the other Emirates. Furthering engagement with Dubai, the expansions to the Sharjah-Dubai commuter corridor as well as the lengthening of Dubai's metro to the center of Sharjah will enhance business activity between the two Emirates. Increasing connections with Dubai will only further set Sharjah's role as a commercial transit center in addition to its contributions as the UAE's manufacturing leader. Sharjah's Chamber of Commerce and Industry posted a 4.8% YoY increase in memberships for the first half of 2017.

VAT Free No More

Business leaders throughout the region are keeping their eyes on the GCC-wide VAT. With falling oil-based revenues, oil-exporting countries throughout the Gulf are looking for ways to increase income. In the past, Sharjah and the UAE in general have been highly attractive for international business because of the tax-friendly environment. But those times are coming to an end: the UAE is further ahead than most other GCC countries in preparing for VAT implementation. In fact, in August 2017, the UAE issued a federal decree regarding VAT ahead of the January 2018 roll out.

Original plans require GCC member states to implement the VAT by January 1, 2018, and most goods and services—save for basic food products, education, education, and healthcare—will be subject to the 5% tax. While business in Sharjah may no longer be tax free, the 5% rate is one of the lowest in the world. Exemptions and zero-rate products and services, including financial services, will differ across GCC countries. Businesses that meet the minimum annual turnover requirement will be required to register for VAT and can register online. The mandatory registration threshold is AED375,000 (USD102,099); businesses with taxable supplies and imports between AED187,500 and 375,000 (USD51,049-102,099) can voluntarily register for VAT.
Sharjah's position as the UAE's manufacturing hub is a double-edge sword. In the short run, added costs to implementing VAT, including decreased demand due to higher prices and increased bureaucratic and accounting expenses, will disproportionately affect Sharjah compared to more oil-dependent Emirates. However, the long-term economic benefits also will likely be greater in the more diversified economy. In addition to spurring long-term cash flows and creating a more shock-resistant economy, the VAT is intended to enhance business transparency and align accounting practices with international standards.

Finance Transformations

Technology upgrades in the banking sector are also upping Sharjah's status as an investment destination in the UAE and globally. Already boasting over 45,000 SMEs and a start-up-supportive environment, the continued application of fintech could solidify Sharjah's competitive advantage as a prominent place for investment in SMEs. The Securities and Commodities Authority (SCA) is executing new regulations to prioritize innovations in financial markets. Innovations would benefit both the GCC's most progressive market and the investor.
Other developments in finance include the growing influence of Sharjah Islamic Bank (SIB). SIB's most recent sukuk, or Islamic bond, was a USD500-million, five-year sukuk. Interest in the bonds generated 3.2 times that value in orders, generating USD1.6 billion. SIB and Sharjah plan to use sukuks to increase capital and alleviate burdens on lending markets, stabilizing the economy.