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[December 26, 2012]


(Pakistan & Gulf Economist Via Acquire Media NewsEdge) The royalty rate paid to the UAE government by Dubai-based Emirates Integrated Telecommunications Co. , or du, is set to dramatically increase over the next five years.

The UAE Ministry of Finance said the federal fee structure is also set to change for Abu Dhabi-based etisalat, the country's number one operator by subscribers, while both royalty profiles will converge in 2016.

This year, du will pay 5 per cent of revenues and 17.5 per cent of net profit earned from its UAE operations. This will increase to 15 per cent and 30 per cent respectively by 2016, according to a statement posted on the Dubai Financial Market website on Monday. Last year, Du paid out 5 per cent of revenues and 15 per cent of net profits as a royalty fee.

Meanwhile, etisalat will this year pay out 15 per cent of its revenues to the government and 35 per cent of net profit, the company said in a separate statement on the Abu Dhabi Securities Exchange. Etisalat, which is majority-owned by the government, paid a flat fee last year of 50 per cent of net profits. The new fee structure will be paid out only on revenues and profits earned from operations licensed by the UAE Telecommunications Regulatory Authority, according to the two statements. The royalty level paid by Du has been consistently less than etisalat since it broke the number one player's monopoly in 2007.

The royalty fee will not be applicable to etisalat's operations overseas, its statement added, unless the tax levied by an overseas country is less than the fee imposed by the UAE In this instance, the difference in the overseas tax rate and the local royalty fee will be paid by etisalat to the UAE government.

Etisalat's royalty fee structure will remain the same until 2016 when it will change slightly to match du's royalty profile of 15 per cent of revenues and 30 per cent of net profit. Du will pay 7.5 per cent of revenues and 20 per cent of net profits in 2013; 10 per cent and 25 per cent in 2014; and 12.5 per cent and 30 per cent in 2015, respectively.

Trading in both du and etisalat shares was suspended on Monday by request of the Securities and Commodities Authority.

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