More and more Dutch tax experts are exchanging their jobs in the Netherlands for positions in the Middle East. Until recently, countries such as the United Arab Emirates did not tax their citizens, but more and more countries are now choosing to introduce VAT and even corporate income tax. Maarten de Wilde, Professor of International and European Tax Law at Erasmus School of Law, explains these developments and discusses the role the Dutch tax system and recent OECD agreements have played.
For a long time, no taxes were collected in the Middle East, except for "zakat," a voluntary tax paid to Islamic organizations to help the less fortunate. The state was mainly funded with revenue from oil, but since the introduction of VAT in Saudi Arabia and the United Arab Emirates in 2018, more and more countries in the region are opting for a corporate profit tax.
Both governments and companies operating in the Middle East welcome Dutch expertise with open arms. This does not surprise De Wilde: "Dutch tax experts are generally very skilled in their field. For example, the Netherlands offers proper tax law bachelor's and master's courses, which is certainly not the case in all countries. Also, the Netherlands has always had a relevant tax system, as companies traditionally often use our country to establish themselves or invest. Moreover, the Dutch are often naturally entrepreneurial, willing to take risks and speak English well."
Strong incentive
The introduction of taxes in oil-rich countries may result from dwindling oil fields. After all, a country like Qatar still needs state revenues when oil revenues decrease. According to De Wilde, the OECD agreements signed by more than 130 countries may also motivate fiscal developments in the Middle East: "With the global agreement in 2021, it was agreed to introduce a global minimum corporate tax rate, which is pillar 2 of that agreement. More and more countries are now implementing Pillar 2, and the agreement allows a country to levy an additional tax (up to the minimum rate of 15%) on a company if the country where the company earns profits does not comply with the minimum agreements. This is a strong incentive for countries in the Middle East also to impose a corporate profit tax. Otherwise, state revenues in these countries would flow to other countries. Similar developments can be seen in Asia, Africa and South America."
Dutch model
Not only is Dutch tax expertise being used, but two provisions from Dutch tax legislation are also almost entirely adopted into the new tax laws of the United Arab Emirates. De Wilde explains: "The Dutch regime of the fiscal unity allows tax authorities to treat large companies almost as if they are one taxpayer, even though the company consists of several limited companies. It is efficient to introduce such a group regime. The Dutch fiscal unity is old and has been part of the Corporate Income Tax for decades. It is a developed scheme that is also appreciated in practice. The participation exemption, which prevents profits distributed as dividends within a group from being taxed at both the parent and subsidiary company, has been in place for a long time and is an important pillar of the Dutch tax system. There are a lot of doctrines and sophisticated jurisprudence from judges surrounding it. The Dutch system is highly developed and provides a lot of legal certainty, so I imagine it offers interesting provisions to adopt. This is called a legal transplant. Moreover, you can see that other countries have often used Dutch tax legislation as model legislation over the years."
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