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Royalty levy change is ‘non-event’ for UAE telcos  

Etisalat HQ, Abu Dhabi Martyn Cornell
Changes to royalty calculations mean e&, formerly Etisalat, will have a combined annual royalty and corporate tax bill of a minimum AED 5.7 billion
  • Simplified new structure
  • Payments will not be higher
  • ‘Minimal’ impact on earnings

Changes to the way royalties are levied on the UAE’s telecom operators will make little difference to their earnings, the companies affected say.  

This week, Emirates Telecommunications Group Co, which rebranded as e& and is widely known as Etisalat, announced that for the three years starting January 1 2024 it will pay a royalty of 38 percent on the sum of regulated and non-regulated profit from its domestic operations.

This amount will then be deducted before e& calculates its corporate tax contribution, which will be 9 percent of its profit. The UAE introduced corporate tax this year and it will apply to e& from January 1 2024.

Regulated profit refers to net income generated from services such as mobile and landline phone subscriptions and pay-as-you-go tariffs, while unregulated profit includes money made on smartphone sales, for example.

Omar Maher, head of telecoms sector research at EFG Hermes in Cairo, said: “The change in royalty calculations will have very minimal impact on earnings for e&. 

“Our analysis indicates that the new royalty regime would lead to a small increase in earnings over the new regime’s period, 2024 to 2026, of no more than 2 percent for e&. It’s pretty much a non-event for the company.

“Regarding corporate tax, this was already taken into account by the market. It will have a negative impact on earnings growth in 2024, but that was already widely expected.”

E&’s profits from its foreign operations, on which it would pay applicable taxes in the relevant countries, is excluded from the royalty calculations. E& operates in 16 countries in the Middle East, Africa and Asia, although its domestic business provided 61 percent of its total third-quarter revenue of AED 13.4 billion.

Royalties levelled

Historically, e& had paid 50 percent of its profits in royalties to the federal government. A more complex methodology that taxed revenue as well as profit was announced in December 2012. This would eventually lead the former monopoly Etisalat and its newer rival du to pay the same level of royalties.

The federal government’s Emirates Investment Authority owns majority stakes in both e& and du.

Under the new royalty regime, e&’s combined annual royalty and corporate tax bill will be a minimum of AED 5.7 billion ($1.55 billion), the company said in a statement to Abu Dhabi’s bourse.

“We believe that the new royalty structure is more simplified and avoids complexity,” it said.

In 2022, e& paid royalties of AED 5.77 billion, up from AED 5.54 billion a year earlier. The most recent previous changes to the royalty fee structure was in 2017, when the finance ministry instructed e& to pay 15 percent fees on the UAE regulated revenue and 30 percent royalty fees on profit generated from regulated services after the initial 15 percent fee on regulated revenue had been deducted.

Du, which provides mobile services only in the UAE, will also pay 38 percent of its “regulated and unregulated UAE profits” in royalties from 2024 to 2026, the company said in a statement.

Du will pay 9 percent corporate tax, the same as Etisalat. Combined, du’s annual royalty and corporate tax will be a minimum AED 1.8 billion.

The company said: “Based on our initial assessment, the aggregate amount of corporate tax and royalty under the new regime will not be higher than the royalty under the old regime.”

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