UAE May Reduce Telecoms Royalty

by Mary Swire, Tax-News.com, Hong Kong

19 May 2011

The United Arab Emirates may cut taxes payable by the struggling telecoms company Etisalat, according to the UAE’s deputy director general of the Telecommunications Regulatory Authority, Majed Almesmar.

Almesmar told Reuters that the UAE "will have to reduce [the royalty paid by] Etisalat" at some stage.

Majority-owned by a UAE state fund, Etisalat operates in 18 countries, and pays tax on both domestic and international profit. It formerly had the monopoly on telecoms provision in the UAE, however now faces increasing competition from rival companies.

The sting in the tail is that whilst domestic rival DU.DU paid a 15% royalty in 2010, Etisalat currently pays 50% to the government each year. It is estimated that revenue from the telecoms tax amounted to USD2bn last year.

Analysts don’t believe that the government will reduce Etisalat’s payments to match DU.DU’s, however they think that the percentage will certainly be brought down prior to both companies being opened up to limited foreign ownership.

However, in a statement published in reaction to the speculation about Etisalat's royalties, the UAE Telecoms Regulatory Authority (TRA) said that this is a matter for the government to decide.

"The TRA confirms that the decisions to impose, or alter, the royalty on telecoms licensees, Etisalat and Du, are made by the federal government, as represented by the Ministry of Finance, and is not the TRA," the Authority stated.

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