Armin Moradi, Co-founder and CEO at Qashio, speaks to us about financial planning in light of the UAE’s new Corporate Tax and how businesses use technology to manage spending efficiently.
Globally, there has been a shift from basic manual accounting practices to advanced accounting which is empowered by the data and insights generated by spend management systems using technologies like Artificial Intelligence and Machine Learning. With the current economic uncertainty, businesses have become cautious, and are keen to recession-proof themselves and ensure sustainability in the long term. Here, digital technology and sustainability create a virtuous cycle; Gartner’s 2022 Sustainability Opportunities, Risks and Technologies Survey outlined that almost three-quarters (74%) of respondents insist that sustainability is improving their digital maturity and most (90%) agree that implementing digital aspects to their model increases their likelihood of sustainability.
Companies are now investing in financial planning software that is both functional and allows them to issue cards for their employees. We believe that we will see an increased shift from traditional company spending and account practices towards an increased uptake in the benefits provided by spend management software. These solutions offer embedded analytic enhancements designed to speed decisions and turn them into actions. An example of this is how spend management systems are now not only being used to track and manage expenses but are moving towards being used for other parts of a business such as centralising and automating all Accounts Payables, moving towards a more strategic procurement process, enhanced vendor management among other functions.
While globally there has been a shift to use the next generation of spend management software which offers analytics and works towards streamlining expenses of the whole company, MENA will see higher adoption of spend management software spurred in growth due to multiple factors. A global survey recently conducted by Visa highlighted that 71% of SMEs surveyed in the UAE, against 59% globally, indicated being either cashless or planning to become cashless by 2024, in line with the vision of both the UAE and KSA governments.
In addition to a strong push from the government, companies are beginning to realise the multitude of benefits they enjoy from digitising their payments and financial services. Early adopters have almost completely moved away from the use of cash and this is being strongly supported by the changes in the macro-environment. More and more technology-driven companies are now beginning to follow suit. The difficulties and operational hiccups created by the use of cash are now being realised and companies are slowly moving towards being completely cashless.
This government-backed initiative towards a cashless society is driving companies of all sizes are focusing on digitising their spending and minimising the use of cash. The major impact of this entails curbing the use of petty cash which can primarily be tackled by the simplified issuance of virtual and physical cards enabled by corporate cards and spend management SaaS companies.
These methods aim to replace cash and checks for the majority of company spending, including bills and government payments. As these companies begin to evolve, they will move from reactive spending and cash flow management to proactive control, which will enable them to make informed and accurate cash flow decisions and unlock value by tracking their expenses in real-time.
Another trend that companies need to keep in mind is that they are now pressured to function at an unprecedented rate of speed. User needs are constantly evolving and options are increasing, this makes a customer-centric approach one of the key priorities for companies. In addition to this, there’s a strong focus on personalisation and customisation so we will see a big rise in companies that use data and analytics to enhance customer experience.
Every business wants to maximise ROI on each spend, focusing on automation and sustainability instead of purely topline growth. 2023 is going to see an increase in solutions that help companies achieve their goal of sustainable growth.
UAE Corporate Tax introduction and how it will affect business
The UAE is one of the most digitised nations, with nearly 100% Internet penetration. The recent focus in the UAE has been on Digital Transformation across various industries; with the announcement of Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai’s launch of the Dubai Economic Agenda ‘D33’ – with an annual AED100 billion contribution from Digital Transformation.
Data published by the Business Registration and Licensing (BRL) department states that Dubai issued 45,653 new business licenses in the first half of 2022 (25% more than the previous year). However, a number of these businesses face challenges in opening bank accounts or digitising their financial processes. On top of that, there are several obstacles to obtaining credit in a hassle-free manner.
Recent studies show that over 80% of business leaders are prioritising increasing cash management and payment efficiency and maximising cash flow liquidity but only about one in three currently have the capabilities to improve visibility and generate accurate forecasting, and of those, about half are dissatisfied with these capabilities. This is where a platform such as Qashio plays a significant role in a company’s auditing records, especially with the new tax regime.
The 9% UAE Corporate Tax (starting w.e.f June 2023) is still significantly lower than the norm in most other developed countries (usually around 20%). Businesses may have critical questions such as whether an entity is a ‘taxable person’ or what is ‘taxable income’. Other complications include the provisions allowing the taxation of non-resident taxable persons, and that the rate is not limited to income generated in the UAE, it applies to worldwide taxable income. There are exemptions on foreign branch profits, dividend income, capital gains and the applicability of foreign tax credits. All this indicates that businesses will need expert support to ensure compliance with UAE Corporate Tax Law and minimise tax liability.
Corporations can benefit greatly from implementing a spend management platform to ease the process of reporting and auditing. Global Business Travel Association (GBTA) revealed that the average percentage of reports with errors is one out of five – or 20%. Companies process an average of 51,000 expense reports each year meaning companies around the globe spend, on average, approximately half a million dollars and nearly 3,000 hours correcting errors in expense reports annually. An integrated spend management system not only allows for companies to be better prepared for corporate tax by making the whole audit process easier by automating hours of manual work, making it less prone to error but it also helps by enabling companies to utilise staff better. For instance, accountants can now focus more on the critical role of strategic Financial Planning and Analysis as opposed to redundant accounting thanks to a comprehensive spend management solution. One no longer has to spend hours manually scanning thousands of receipts or spend time on transactions without any context. It allows for a shift from retrospective accounting to proactive financial planning.
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