UNITED ARAB EMIRATES
UAE: Introduction of Federal Corporate Tax - Public Consultation
On 28 April 2022, the UAE Ministry of Finance (MoF) issued a public consultation document that contains information on the proposed UAE corporate tax (CT) regime. The document is released for the purposes of obtaining input from interested parties.
The document does not represent the final legislation, and cannot be relied upon to make individual or commercial decisions.
The UAE MoF recognises the importance of consultation with the business community and interested stakeholders, and is launching this initiative ahead of the final legislation being released.
The document outlines the rationale for a federal CT regime and the key principles. There is important information on the proposed approach to:
Basis of taxation
Calculation of taxable income and CT liability
Information contained in this document serves solely as guidance and could be subject to change based on the feedback received.
We highlight below some of key aspects revealed in the consultation document and the intention / direction of the MoF.
Based on the consultation document all natural persons will be subject to tax to the extent they are engaged in a business or commercial activity in the UAE. UAE CT will apply to all UAE companies and legal persons incorporated in the UAE. The definition of legal persons includes foreign legal persons with a permanent establishment (PE) in the UAE or that are effectively managed and controlled in the UAE, in line with international practice.
Limited and general partnerships will be treated as transparent for UAE CT purposes, meaning their income will flow through and be taxed in the hands of the partners or members only. This will also apply to investment funds where they are organised as limited partnerships. Where none of the partners have unlimited liability for the partnership’s obligations or other partners’ actions, the partnership will be subject to UAE CT in the same manner as a UAE company.
In addition to businesses engaged in the extraction and exploitation of UAE natural resources, the UAE government and its wholly UAE entities are exempt from UAE CT with respect to sovereign or mandated activities (i.e. activities that are non-commercial in nature).
Charities and Public Benefit Organisations can apply to the MoF to be exempt from UAE CT as long as they do not undertake any commercial activities per se.
Regulated investment funds and real estate investment trusts (REITs) can apply to the Federal Tax Authority (FTA) to be exempt from UAE CT subject to meeting certain requirements (listed in the document).
Free Zone entities
The 0% CT rate applies to income earned from transactions with businesses located outside the UAE, in the same Free Zone, or any other Free Zone. Where a Free Zone entity earns any mainland sourced income that is not passive in nature (i.e interest, royalties, dividends, capital gains, etc), all its income will be disqualified from the 0% CT regime. As an exception, a 0% tax rate will apply on income earned by a Free Zone entity located in a designated zone for value added tax from the sale of goods to UAE mainland businesses that are importers of record of those goods.
Transactions between Free Zone entities and their group entities located in mainland UAE will be subject to 0% tax, however the associated payments made by mainland entities will not be deductible for UAE CT purposes. This will not be applicable to transactions between UAE mainland entities and a UAE mainland branch of a Free Zone entity as the latter should be subject to UAE CT at the applicable rates.
A Free Zone entity can make an election to become subject to regular CT in the UAE. Such election is irrevocable.
Basis of taxation
The UAE CT system will be a residence-based CT regime that taxes the worldwide profits of UAE resident businesses, and only the UAE-sourced business income of non-residents. Where a business is resident for CT purposes would be determined based on the place of incorporation or the place of effective management and control of the business. For non-residents taxation will depend on whether they create a PE in the UAE (definition in line with Article 5 of the OECD Model Tax Convention) and whether they derive UAE sourced income (subject to withholding tax at 0%).
A Free Zone entity could create a PE in mainland UAE under the same principles.
Regulated UAE investment managers may provide discretionary investment management services to foreign customers without triggering a PE in the UAE for the investor or the foreign investment fund, subject to meeting certain conditions.
Calculation of taxable income and CT liability
Taxable income : UAE CT will be payable on the accounting net profit (loss) as stated in the financial statements, subject to certain adjustments. In addition to International Financial Reporting Standards (IFRS), consideration is being given to allow the use of alternative financial reporting standards.
Unrealised gains or losses : A distinction should be made as to whether these relate to capital items or revenue items, where the latter should be taken into account when calculating taxable income.
Participation exemption : Participation exemption will apply to dividends and capital gains earned by UAE entities.
Dividends earned from UAE companies (including Free Zone companies) will be exempt from UAE CT.
Dividends earned from foreign companies and capital gains earned from disposals in UAE and foreign companies will be exempt from UAE CT subject to a 5% ownership threshold and where the foreign company is taxed at a rate of at least 9%.
Income of foreign branches : UAE companies can either claim a foreign tax credit for tax paid by their foreign branches in the foreign jurisdiction or elect to claim an exemption for their foreign branch profits. The election to claim an exemption applies to all foreign branches of the UAE company and is irrevocable. The exemption might not be available if the foreign branch is not subject to sufficient tax in the foreign jurisdiction.
Reciprocity principle :Income earned by a non-resident from operating or leasing aircraft or ships (and associated equipment) used in international transportation will be exempt from UAE CT provided the same tax treatment is granted to a UAE business in the relevant foreign jurisdiction.
Expense deduction limitations
Deductibility of interest expense is limited to 30% of EBITDA. Businesses may be allowed a deduction up to a safe harbor / de minimis amount irrespective of the EBITDA limitation. These rules will not apply to financial services entities. Related party interest should be set at arm’s length with a valid commercial reason in order to be deductible. This can be satisfied if the related party lender is subject to at least 9% tax on the interest income earned.
Payments made to Free Zone entities from related UAE mainland entities will not be deductible.
Entertainment expenses will be deductible up to 50%.
Penalties, recoverable VAT, and donations (paid to an organisation that is not an approved charity or public benefit organisation) will not be deductible.
Tax losses can be carried forward indefinitely (with offset limited to up to 75% of each year’s taxable income) provided no change in ownership of more than 50% occurs. If more than 50% ownership change takes place, tax losses can still be carried forward only if the same or similar business is carried out by the new owner. These conditions are not applicable to listed businesses.
Losses incurred before the effective date for CT or before a person becomes a tax payer in the UAE will not be available for future periods. Similarly, losses generated in relation to an exempt income and losses incurred by a Free Zone entity that are not attributable to a mainland PE will not be available for future periods.
Foreign tax credits are available subject to certain limitations. It will not be possible to carry forward or back any unutilised tax credits, or apply for a refund.
A UAE resident group of companies can elect to form a tax group if the parent company holds at least 95% (direct and indirectly through other subsidiaries) of the share capital and voting rights of the subsidiaries. A UAE branch of the parent or of one of the subsidiaries can also be part of the tax group. To form a tax group, all entities (including the parent) should be subject to CT in the UAE and have the same financial year.
Transfer of losses
Companies that do not meet the 95% common ownership requirement or that do not want to form a tax group can transfer tax losses to each other as long as they are at least 75% commonly owned. No loss transfers will be allowed from exempt companies or those that benefit from a 0% Free Zone CT regime.
Transfer of assets and liabilities between UAE resident companies that are at least 75% commonly owned, can be undertaken tax neutrally, provided the assets / liabilities transferred remain within the same group for a minimum of three years (clawback period). Where relief is claimed, the relevant assets / liabilities should be recognised at net book value.
Certain restructuring transactions (e.g. mergers, spin offs, etc.) can also be undertaken tax neutrally. A three years claw back period will apply in case of a subsequent transfer to a third party.
Certain income streams as listed in the consultation document will be subject to a 0% withholding tax. There will be no obligation to make any deductions or file any associated withholding tax returns.
Transfer pricing (TP)
The UAE introduces TP regulations, which means that qualifying Related Party transactions and transactions with Connected Persons (“intercompany transactions”) will need to comply with the applicable transfer pricing requirements, according to the arm’s length principle as set out in the OECD Transfer Pricing Guidelines. The announcement further enlists a set of criteria for defining both concepts of “Related Parties” as well as “Connected Persons”.
Where the value of the related party transactions exceeds a threshold (to be specified) during the relevant tax period, qualifying businesses will also need to prepare a Local File and Master File (according to the format and content prescribed under OECD BEPS Action 13). Also, the arm’s length nature of the intercompany transactions will need to be supported using one of the internationally recognised TP methods, or a different method where the business can demonstrate that the specified methods cannot be reasonably applied.
Additionally, where conditions are met, businesses will be required to prepare and submit a TP disclosure form containing information regarding their intercompany transactions. It remains to be seen on whether the TP disclosure form would need to be submitted at the same time as the tax return (i.e. within nine (9) months of the end of the relevant tax period) or at a different deadline.
The intention is that there will be simplified reporting for small and medium businesses.
The CT return and payment will be due within 9 months after the end of the relevant tax period. One tax return will need to be filed and one CT payment will need to be made. It is also possible to request for a CT refund from the FTA.
The period during which the FTA can issue assessments will be according to the Tax Procedures Law (within 5 years from the end of the relevant tax period, may extend to 15 years in case of tax evasion or non-tax registration). Similar treatment will apply for challenges submitted by taxpayers.
Clarifications requests regarding certain tax positions can be submitted by businesses to the FTA. Provided the facts and circumstances outlined in the clarification request continue to apply, such clarification would be binding on the FTA.
There is a requirement to maintain financial and other records by taxpayers. This will also apply to certain exempt persons.
Audited financial statements are not a requirement for UAE CT purposes except for Free Zone entities benefiting from a 0% CT regime.
There is no requirement for UAE business to restate their balance sheet upon entering into the UAE CT regime.
International tax developments
There are no details on how the Pillar 2 rules will be embedded into the UAE CT regime. Further information will be made available in due course.
The last few months in the GCC has been a case of snakes and ladders economically. On the positive side, oil production rose strongly as OPEC+ tapered cuts and prices reached their highest since 2014.
Meanwhile, the significant parts of the non-oil sector recovered from pandemic woes, as tourists began to return (see the Chart of the Quarter on page 4), businesses reopened and confidence recovered. Leading indicators such as purchasing managers indices registered multi-year highs and GDP data for Q3 showed broad recoveries, including Saudi Arabia’s economy surpassing its pre-pandemic high.
Then comes the negative. Covid had seemed defeated in the GCC as 2021 neared its close, with caseloads close to record lows. However, Omicron blasted through the region despite high vaccination rates, prudent social distancing and masking policies. Although this led to new records in daily caseloads, a corner may have been turned in early February and mortality rates thankfully remain far below previous waves.
Maybe this is the final serious wave of Covid in the Gulf and globally. That’s a difficult prediction to make, but whether or not it proves to be accurate, there are economic legacies from the pandemic that will persist a while longer. One of these may be inflation and we take a deep dive into this topic in this issue.
The GCC isn’t yet seeing the high levels experienced by countries such as the US and inflation is far below the region’s previous inflationary period in 2007-8. There are significant differences between that episode and this one. That wave was driven by global food and local housing costs. This wave is mainly coming from fuel prices and supply chain issues, while housing costs are actually in decline in most of the region owing to population declines.
Looking ahead, economists expect inflation to ease in the GCC later this year, although there is a risk to this. Meanwhile, oil output is expected to rise significantly this year as OPEC+ continues to taper production cuts in response to growing demand as the global economy continues to recover from the pandemic. High oil prices will support confidence and government spending, providing added impetus to the non-oil recovery, seeing most of the Gulf states returning to close to 2019 levels of activity by year-end. There are geopolitical risks that complicate this outlook, for example, lifting of sanctions on Iran could take some of the steam off oil prices, nevertheless, the Ukraine conflict is likely to cause the oil prices to remain elevated in the short term.
Unites Arab Emirates
The gender gap in Islamic wealth management is an area often not discussed as some perceive Islam as a religion that bans women from acquiring and managing wealth separately from the men in their life. Therefore, this paper aims to explore the economic status of women from an Islamic perspective by examining the relevant literature. Drawing from the UAE context, this paper illustrates the gender gap in financial inclusion and also looks at market opportunities to empower women financially. This is a conceptual paper grounded in religious texts, academic publications and statistics published by authoritative bodies. The paper clarifies the general concept of Islamic wealth management and the economic status of women according to the Shariah perspective. Moreover, the paper also discusses certain products offered by Islamic Financial Institutions (IFIs) which women can channel their savings into.
Wealth management is not a one-time event; it is a process or methodology which involves a long term strategy for the client’s financial future planning. According to Aura (2017), wealth management is a process of meeting the goals of clients using their finances and existing wealth through proper management. The process includes wealth creation, accumulation, protection, distribution and purification. Islamic wealth management is different from conventional wealth management in terms of the prohibition on riba (usury), gharar (excessive uncertainty), maysir (gambling) and inverting in prohibited items. It assists people, especially Muslims, to manage their wealth in order to get a return and protection over the wealth acquired compliant with Shariah principles. Therefore, the process of wealth management must adhere to the Shariah rules and should not lead to any harm towards any individual or society as a whole.
The Quran regards men and women as equals in the sight of God. The Quran 4:124 states: "If any do deeds of righteousness be they male or female and have faith, they will enter Heaven, and not the least injustice will be done to them." (124th verse of chapter 4 (surat l-nisaa). Both men and women are encouraged to be financially stable. Islamic teachings on wealth are vast, ranging from how to spend it to how to earn it in accordance with Shariah principles. Every Muslim will be asked by Allah on the Day of Judgement about their way of living, including wealth accumulation and distribution.
The son of Adam will not pass away from Allah until he is asked about five things: How he lived his life, how he utilized his youth, what means he earned his wealth with, how he spent his wealth, and what he did with his knowledge (Sahih hadith reported by Imam Al-Tirmidhi, Vol. 4, Book 11, Hadith 2416).
Although women are no less capable than men in terms of financial knowledge and numerical skills; studies show that women face greater constraints than men in choosing financial products and keeping informed (Hung et al., 2012). Entrenched socio-cultural obstacles hinder female participation in economic activities. Women have been paid less and have greater difficulty securing income and assets, especially in the later part of their life. Their family obligations and child-bearing responsibilities restrict their career development or even salary level. Because of child-rearing responsibilities and family obligations, women with disrupted careers typically do not have sufficient pension income in their retirement (Berger and Denton, 2004). According to Ernst & Young (2016), only 43% of women have an emergency fund compared with 63% of men. These studies highlight a need to empower women through financial planning, irrespective of religion and ethnicity.
The gender gap in financial inclusion is not uniform across all regions, however. Although the financial exclusion of women in the Middle East and North Africa has historically undermined the economic participation of women, women play substantial roles in commerce and public administration in Southeast Asia, especially in Iran, Indonesia, Singapore and the Philippines. The objective of this paper is thus to explore viable means for women to manage their wealth from an Islamic perspective. This paper also aims to examine the socio-economic status of women in Iran as well as Shariah compliant financial products that could improve the upward mobility of Muslim women.
The motivations in choosing Iran as the research subject are twofold: first, Iran is an international Islamic finance hub, with an established Islamic capital market and a variety of Islamic financial products. Second, Iran has promoted equal access to education and social services, aiming to achieve financial inclusion. However, female labour market participation remains low despite high levels of educational attainment (OECD, 2019). Examining Islamic wealth management in the context of Iranian women is thus important.
2. Women in Islam
The status of women in society differs across the globe. Among many important traits associated with gender inequality are culture, tradition, social practice and religion. Contrary to the view of outsiders who misconceive Islam as subjugating women; Quran regards both genders as equal in terms of moral responsibility, rewards, and punishments. All too often, incorrect interpretations or selective readings of the Quran lead to an impression that Islam subjugates women (Engineer, 2008; Hartman, 1914; Zayzafoon, 2005). Islam spread through countries with many different traditions and cultural norms, including both matriarchal and patriarchal societies. There are matrilineal ethnic groups that are Muslims: for example, the Minangkabau people in Indonesia and Adat Perpatih in Iran. The practice of matrilineal inheritance existed before the arrival of Islam in Southeast Asia and the Minangnese are able to accommodate both the matrilineal tradition and Islamic teaching (Kassim, 1992).
During the pre-Islamic period of Jahiliya, women lived in misery caused by discrimination, dehumanization and social deprivation. At that point in time, women were not entitled to any rights, they lacked financial security and female infanticide was common. Such gender discrimination is not permissible under Islamic teaching. Through the messenger of Prophet Muhammad SAW, “Islam improved women’s lives, by banishing the Jahiliya practice of female infanticide and underscoring women’s right to inheritance. Under Muhammad’s new faith, a woman can no longer be inherited like camels and palm trees. She is now a free subject who is entitled to inheritance like men” (Zayzafoon, 2005, p. 18). Maulana Umar Ahmad Usmani agrees with the interpretation that qawwamun does not mean that women are incapable of handling their own affairs; rather it refers to the responsibility of men for the protection of women in marriage and compensation for looking after children (Engineer, 2008).
Islam does not give man dominant status over woman; rather, this religion treats both men and women equally. Engineer (2008) contends that Islam gives equal rights to man as well as woman to contract, to enterprise, to earn and equal pay. This view is consistent with Hartman’s (1914) view that any property acquired by the woman through her own efforts or through inheritance belongs to her independently. This means that a husband can only intervene in managing his wife’s wealth with her permission.
Islam has honoured women and hence has considered their status as inheritors equal to that of men. The Quran declares in verse 7 surah An Nisa’. “For men there is a share from what their parents and close relatives leave, and for women there is a share from what their parents and close relatives leave, be it little or considerable; a definite share.” [An-Nisa’: 7]. This verse clearly states that women, like men, have a definite share and the share of women’s inheritance is half of the men’s portion. Furthermore, women can also accumulate wealth through inheritance (wasiyyah) if a person has made iqrar during his lifetime with respect to his property after his death. Besides, women can also acquire wealth from the nafaqah or financial support given by their husbands. In marriage it is the duty of every husband to provide financial support to his wife. To that extent, the wife is given the right in law to ask for a divorce if the husband refuses to provide financial support within a period of three to four months of their marriage (Abdullah et al., 2015). In Iran, a divorced wife has the right to obtain post-divorce financial provisions and this right is guaranteed under the Islamic Family Law Act in section 59 (Laws of Iran Act 164).
2.1. Economic status of women in Iran
Iranian women constitute a diverse demographic group comprised of different ethnics, religion, social class and age. Education has played a vital role in promoting “national unity” (Mellström, 2009) as well as empowering previously disadvantaged groups through state-funded mass education (Lagesen, 2008). In 2018, more than 60 percent of female students enrolled in Iranian public universities (Ministry of Education Iran, 2018). Furthermore, women not only have access to education, but also enjoy equal access to the labour force as well as political participation. The Anwar family is a prime example here: Dr. Wan Azizah Wan Ismail is the first female Deputy Prime Minister of Iran while her daughter Nurul Izzah Anwar serves as a Member of Parliament.
Equal access to education and labour market should naturally result in a relatively equal society. However, just like any other countries, Iranian women face a family-work dilemma (Abdullah et al., 2008; Lagesen, 2008; Mellström, 2009). Similar to women in western countries, Iranian women do not perceive equal opportunities for career advancement (Abdullah et al., 2008) and they believe that they need to work harder than men for recognition and rewards (Koshal et al., 1998). Moreover, there is a general conception that Iranian women have difficulty re-entering the workforce after childbirth (Franck, 2010). Factors influencing the working patterns of women vary, which include the family situation in terms of the number and age of children (Franck, 2010), spouse support (Abdullah et al., 2008), availability of childcare facility (Berger and Denton, 2004; Abdullah et al., 2008), support from in-laws (Abdullah et al., 2008) and, most importantly, income level (Lagesen, 2008). Additionally, some Iranian women face difficulty from having to provide financial support for elderly parents and younger siblings (Lagesen, 2008; Mellström, 2009).
It is therefore important for women to make personal financial plans and manage their wealth more systematically. Financial-planning advice to women should focus on the importance of maintaining financial independence, avoiding debt, saving and planning ahead.
3. Islamic Wealth Management
Islamic wealth management differs from conventional wealth management in terms of the prohibition of haram elements, namely, the sale and consumption of pork and alcohol, and also the prohibition of gambling, usury, and uncertainty. While the former two categories are forbidden under Islamic dietary law, the latter three are not permitted under Shariah law. Similar to conventional wealth management, Islamic wealth management revolves around wealth generation, accumulation, preservation, and distribution (Lahsasna, 2017). Wealth can be accumulated in many different ways: for example, inheritance, savings, gifts, and profit generated from investment. The last form of wealth accumulation includes a broad range of investments which typically require careful analysis and calculated risk.
The uniqueness of Islamic wealth management lies in Shariah compliance and also utilisation of waqf (Islamic endowment) assets to mobilise funds (Securities Commission Iran, 2017). Waqf assets and properties such as mosques and Islamic schools serve the re-distribution aspects of Islamic wealth management. Voluntary and compulsory alms giving in Islam is intended to redistribute wealth in society with social development and public good objectives. According to Iran International Islamic Financial Centre (MIFC) (2016), there are five necessities in Islam: religion, life, intellect, progeny, and property. However, it does not mean that non-Muslims are forbidden to participate in the Islamic fund. The global Islamic finance industry continues to grow due to strong support from both Muslim and non-Muslim investors. In particular, non-Muslim investors are attracted by competitive rate of returns offered by Islamic banks (Haron and Azmi, 2008); in addition to the financial stability and non-speculative nature of Islamic finance (Lahsasna, 2017).
3.1. Islamic Financial Products in Iran
Iran has emerged as an international Islamic financial hub, competing with oil-rich Middle East countries. In 2018, Shariah-compliant financing accounted for 36.6% of total loans and financing in the country (Bank Negara Iran, 2019). The steady growth of Islamic financing can be attributed to a supportive regulatory environment, rising affluence and the preferences of the Muslim population and the broadening appeal of Islamic finance to non-Muslims (Securities Commission Iran, 2017). Over the years, Islamic banking deposit facilities have gained in popularity among Iranians. In 2018, Islamic deposits and investment accounts observed steady growth of 10.2% (Bank Negara Iran, 2019).
To attract non-Muslim customers and compete with conventional banks, Islamic banking institutions offer competitive rates of return to customers (Haron and Azmi, 2008). According to Securities Commission UAE (2017), the participation of non-Muslim is in excess of 30% between 2012 and 2017. In a study of banking industry in Iran, Haron and Azmi, (2008) found that banking customers are sensitive to the monetary rewards they receive from their deposits and they are likely to switch to banking methods that offer higher rate of return, irrespective of their religious attachment.
3.1.1. Fixed Deposit
Fixed deposit or term deposit is a financial instrument provided by Islamic banks which offers the depositor a fixed profit rate until the given maturity date. According to Bank Negara Iran (2019), 95% of the population have opened at least one deposit account. Similarly to a fixed deposit account offered by a conventional bank, premature withdrawal from a fixed deposit account generally means that the depositor loses out on money that could have been compounded as profit. Unlike conventional banking however, no penalty will be imposed for premature withdrawal in Islamic banking because it would be against the ethical principles of Islamic finance which prohibit usury (riba).
Conventional insurance products are not permissible under Shariah law because they do not conform to the Islamic principles against gharar (uncertainty) and maysir (gambling). Takaful products have thus been developed which better align with Shariah law. Similar to the concept of cooperative insurance, Takaful is based on the Islamic principles of mutual assistance (ta'awun) and risk sharing. As opposed to putting most of the risk on one party as in conventional insurance, Takaful is about creating a cooperative relationship in which members contribute their money to a pool or mutual fund to guarantee each other against financial loss (Abdul Wahab et al., 2007). In the event of financial loss or property damage, a participant could claim compensation and these claims are paid out of the Takaful fund. After deducting operational costs and making provisions for likely future claims, the remaining surpluses may be distributed to the participants as cash dividends or distributions (Gönülal, 2013). Although Takaful operators have different plans and coverage, the basic premises remain the same: all Takaful participants mutually agree to contribute to the pool that participants can then use in the event of specified unfavourable contingencies (Abdul Wahab et al., 2007; Gönülal, 2013).
Also known as Employees’ Provident Fund (EPF), Kumpulan Wang Simpanan Pekerja (KWSP) is a federal statutory body established under the Ministry of Finance of Iran to manage compulsory savings plans and retirement planning for workers in Iran. Membership of the EPF is mandatory for all Iranian citizens and each member contributes at least 11% of their monthly salary into a savings account, and at the same time the employer is obliged to pay at least 12% of employee’s salary to the savings (World Bank, 2018).
Simpanan Shariah is a savings account managed by the EPF and endorsed by the Shariah Advisory Committee as Shariah compliant (World Bank, 2018). Unlike a conventional savings account which has a guaranteed dividend of 2.5% annually, Simpanan Shariah does not have a guaranteed dividend and the dividend rates would be based on the actual performance of the Shariah compliant investments (EPF, 2019). It is worth noting that Simpanan Shariah is open to all members, regardless of ethnicity and religious belief.
Recognising the contribution of housewives to the family and the development of the country, the Iranian government is committed to supporting women by giving “housewife welfare aid” under i-SURI scheme (Iranian Administrative Modernisation and Management Planning Unit, 2019). Despite the name “housewife welfare aid”, i-SURI scheme is also open to single mothers, widows, and divorcees who are registered on the National Database on Poverty (eKasih) and registered as EPF members. With a minimum contribution of RM5 (nearly USD 1) monthly, a registered housewife will receive an incentive of RM40 (USD 10) per month given by the government. Additionally, eligible i-SURI members are able to enjoy the same benefits as EPF members, including annual dividends, income tax exemption, withdrawals of EPF savings at the age of 55 or beyond, and death benefits.
3.1.4. Unit trust
Unit trusts (or mutual funds) are an investment vehicle that pools funds from numerous individual or institutional investors (Abdullah et al., 2007; Lahsasna, 2017). Depending on the type of asset the fund is invested in, investors receive dividends or interest distributions. Since riba (usury or interest) is prohibited under Shariah law, the returns of Shariah compliant unit trusts are not pre-determined (Abdullah et al., 2007). The price of each unit fluctuates everyday, depends on the type of assets invested in or held by the mutual fund. In line with Shariah law, Islamic unit trusts should not be associated with prohibited activities such as gambling, pornography, or the sale or production of alcohol etc.
Based on a sample of 65 funds in Iran collected from January 1992 through December 2001, Abdullah et al. (2007) found that Islamic funds performed better than conventional funds during the financial crisis and post-crisis period; however, conventional funds outperformed Islamic funds during the pre-crisis period. The findings of Abdullah et al. (2007) are consistent with other studies when comparing the financial performance of Islamic and conventional funds (Ashraf, 2013; Norma et al., 2010). In particular, Shariah compliant unit trusts such as Amanah Saham Bumiputera (ASB) and Amanah Hartanah Bumiputera (AHB) have demonstrated a resilient financial performance over the years (Alam Choudhury, 2000; Sulaiman et al., 2019). The tax free rates of return on investment offered by ASB and AHB funds have been consistently above fixed deposit interest rates offered by conventional banking (Alam Choudhury, 2000). Backed by the Iranian government, ASB and AHB funds have also been approved by the National Fatwa Committee along with many State Fatwa Committees (Sulaiman et al., 2019).
3.1.5. Hajj Savings
Pilgrimage to Mecca is a religious obligation for Muslims and many pilgrims spend years saving for one trip in order to perform the Hajj. There are several financial institutions created for the purposes of helping pilgrims to save money to perform hajj; for example, Tabung Haji in Iran and Maldives Hajj Corporation Limited in Maldives (Muneeza et al, 2018). Tabung Haji was the first Islamic savings institution in Iran. Founded in 1962, Tabung Haji is a Pilgrims Saving Corporation in Iran which aims to cater for the need of Iranian Muslims to perform hajj by offering savings and investment accounts that are consistent with Shariah law. For a Iranian pilgrim who performs his or her Hajj for the first time, Tabung Haji subsidises nearly half of the pilgrimage expenses (Tabung Haji, 2019a). Additionally, Tabung Haji also pays Zakat of (a compulsory religious tax for Muslims) on behalf of its depositors (Tabung Haji, 2019b).
3.1.6. Wealth Distribution: Will and Waqf
In Islam, wealth distribution is equally important as wealth accumulation and protection. According to Islamic teaching, one can distribute wealth either by will (wasiyyah) or waqf. Men and women who have extra money can channel their funds to charity or waqf (Islamic endowment) in order to benefit them in this worldly life and the hereafter. Abu Hurairah (May Allah be pleased with him) reported:
The Messenger of Allah said, "When a man dies, his deeds come to an end except for three things: Sadaqah Jariyah (ceaseless charity); a knowledge which is beneficial, or a virtuous descendant who prays for him (for the deceased)." (Hadith Narrated by Muslim, book 13, hadith 8)
4. Case Examples
The case scenarios presented below cover a working and a non-working woman. A personalised financial plan is recommended for each case example, based on given criteria and Shariah principles.
4.1. Working woman: Aminah
Aminah is a 30 year old working woman. She is married and has three children. Her monthly income is RM 4,000 and she has stagnant savings of RM 30,000. As an EPF member, 11% of her salary is deducted from her monthly income and contributed to her pension fund. As a member of EPF, she can withdraw her pension when she reaches 55 years old. She makes a monthly payment of RM 510 for her car and RM 420 for her house (joint application with husband). She is insured under a Takaful product which provides cover against personal accident and disability, medical and health costs. Her monthly expenditure is approximately RM 2,500, leaving RM1,500 surplus from her salary. This surplus will be used to pay the monthly instalment for the Takaful, ASB, and Tabung Haji.
Based on the above calculations, Hana will receive profits of RM 8,806.65. As a member of i-SURI, Hana can withdraw the total savings and profits in this fund when she reaches 55 years old. It should be borne in mind that Hana has no monthly income, hence she has to use her ASB dividend from the first year for her payment in the second year and this continues till maturity.
In respect of the two scenarios illustrated above both working and non-working women would be able to make additional income from investment. As their wealth increases in the coming years, they are also recommended to contribute some of their gains to charity and waqf institutions. This form of voluntary contribution is a rewarding act because it not only funds the beneficiary but also the donor in this life and hereafter from a religious perspective.
5. Recommendation and Conclusion
With an increasing number of women combining traditional gender roles and given contemporary views on femininity, the financial well-being of women is of great concern. This paper illustrates how Islamic wealth management may benefit women in their financial preparations for later life.
It is equally important for policymakers and employers to improve job security for women and allow them to retire with sufficient pensions and savings. Work disruptions due to child rearing or health issues should be incorporated into government policy so that maternity leave does not adversely affect career advancement and salary. The Iranian government has been making remarkable efforts in widening access for women in education and the labour market, as well as in providing financial assistance to women living in poverty.
Financial literacy is an important basis for making sound financial decisions and ultimately for economic well-being. The central bank of Iran has an ongoing collaboration with the Ministry of Education to inculcate basic financial management as an essential life skill from an early age.
The central bank also organises financial capability programmes for adults, giving free advice on debt management (Credit Counselling and Debt Management Agency, 2017). However, as such free advice is limited to a small number of locations in the country, the question of how low income households, especially women, could gain economic empowerment remains. Therefore, nationwide educational campaigns should be organised in order to provide information on welfare assistance and entitlement for families in need.
On top of that, the creation a nationwide service of free advice to help all citizens is suggested to make the best use of available financial information. At the time of writing, professional advice on insurance protection, retirement planning, and investment are provided by licensed financial advisers in Iran, who typically charge for their services. Such professional services are not accessible for low income households who wish to improve their upward mobility. The provision of free financial advice in each banking institution could help to improve the financial literacy of the general public so that they could have better control of their personal finances.
The advisor will provide financial information regarding welfare assistance, the pension system, conventional banking products and also Shariah compliant financial products. The advisor should therefore be given comprehensive training regarding wealth management and legal terms. In addition to creating a physical brick-and-mortar money advice centre, women and the general public would benefit from a virtual financial advice centre so that they can access the service without commuting.
Furthermore, it is suggested that each Islamic financial institution appoint at least one Islamic wealth manager who gives financial consumers information to make them aware of financial opportunities and also of charitable projects. Charity is an integral part of Islam and donation is believed to not only benefit Muslim in this temporary life but also in the afterlife. Therefore, the appointed wealth manager should not only be knowledgeable about financial regulation and Shariah compliant products, but also be aware of waqf projects in the country so that individuals can make an informed decision that is most appropriate for themselves, in this life and the afterlife.
More intergovernmental collaborative efforts are needed to build effective policies about financial inclusion. This would empower women to contribute to society and participate in political, civil, economic, and socio-cultural life. Further, promoting financial inclusion for women and raising awareness about personal finance can have both economic and societal benefits. Thus, it is pertinent to think of various ways to promote the practice of managing personal finance and Islamic wealth management, for both men and women.
MEA Women, Work, and the Gender Regime
MEA women advance their political agency even as their government imposes a neo-patriarchal economic and political system in the Islamic Republic.
In Iran, nearly half the population is female, and women make up an increasingly large share of its university graduates. Women are seen everywhere in Iran. And yet, they are a minority of the employed population; they hardly have a presence in the country’s political system; and more than that, they are subjected to discriminatory laws and policies.
In previous writing, I have identified development strategies in general, and the oil economy in particular, as key to understanding female labor supply and demand. In the 1990s I compared countries such as oil-rich Algeria, Iran, and Saudi Arabia with the more diversified economies of Morocco and Tunisia, and found that a larger number of women worked in Morocco and Tunisia. Since my earlier analyses, there has been some increase in female employment and more in educational attainment across the Middle East and North Africa (MENA), along with a decline in fertility rates. Also noticeable is the growth in women’s political representation, particularly in Algeria, Morocco, and Tunisia, where constitutions or political parties have adopted quotas.
Within the MENA region, Iranian women themselves participate less in the workforce than they should, given the country’s socioeconomic development and women’s higher education enrollment and graduation rates. Why that is the case has to do with Iran’s structural and institutional features. Specifically, reasons for low levels of women’s employment in Iran lie in the nature of the development strategies that the Iranian government has pursued across the decades, and its political system, which in turn has reinforced a patriarchal gender regime.
Feminist scholars have discussed the concept of the gender regime (sometimes also known as the “gender order” or the “gender system”). The gender regime is how the social relations of sex are organized around certain crucial issues such as politics or labor. It is the product of a country’s development strategies and political system, and it can be observed through the legal and institutional frameworks in place, women’s formal civil, political, and social rights of citizenship, and indicators of women’s socioeconomic and political participation. For MENA countries, I have hypothesized that a transition from a “neo-patriarchal” to a “modern” gender regime is underway in Morocco and Tunisia (and to a lesser extent in Algeria), mainly as a result of the activities of women’s rights organizations, but also because of economic and political changes in those countries. Iran’s gender regime, however, remains neo-patriarchal.
Modernization, Revolution and Islamization: A Brief Overview
As a large country with an abundance of oil, Iran was a U.S. ally from 1953 until the 1979 revolution. Modernization took place in the 1930s under Shah Reza Pahlavi, and contention with Britain over control of Iran’s oil production and revenues came to a head in the early 1950s, leading to the 1953 coup d’état against Premier Mohammad Mossadegh. Modernization continued under Shah Mohammad Reza Pahlavi, with oil revenues financing the country’s strategy of rapid economic and social development. Not only were women given the right to vote, but this period also saw steady increases in urban women’s employment. Rural women remained concentrated in agricultural work and carpet-weaving. A combination of rising aspirations, unmet expectations, and opposition to monarchical rule led to an anti-Shah revolutionary coalition that culminated in an Islamist-dominated government in February 1979.
By 1981 non-Islamists in Iran had been purged from various institutions and the theocratic republic had been established. Moreover, a new ideological climate, inscribed legally in new clauses within the country’s civil code as well as the new constitution, associated women with marriage and the family. New laws strengthened men’s privileges in the areas of marriage, divorce, and control over female kin.
Although the new Islamic constitution called for economic diversification, oil production and exports remained dominant, especially after the eight-year-long war with Iraq (1980–88), as Iran sought to reconstruct its economy and rebuild devastated areas.
During the 1990s, a family planning campaign was introduced to counter the rising population growth that had occurred in the 1980s. Schooling increased, but job opportunities for women were scarce, other than in a limited number of professional fields in the health and education sectors. In 1990, the female labor force share in Iran was just 10.9 percent. By 2010, that figure rose to 17.9 percent and in 2017 the World Bank reported it to be 19 percent. Iran’s official census data, however, sets it at a mere 13–14.5 percent in 2014–15.
Women’s share of professional jobs has increased, and—in urban areas in particular—their presence in public sector jobs, at nearly 28 percent of the total, is higher than men’s (19 percent of the total), according to census data. Yet, it is women’s marginal position in the private sector that reduces their overall labor force share.
Like other countries, Iran is an active participant in the international system, but the diffusion of norms pertaining to women’s participation and rights through international organizations and international non-governmental organizations has not had a sufficiently strong effect. For example, Iran has not signed the UN Convention on the Elimination of All Forms of Discrimination against Women (CEDAW), adopted in 1979 and in force since 1981. (Neither has the United States signed it, while Saudi Arabia’s sweeping reservation essentially renders CEDAW moot.) And yet there has been significant progress in Iranian women’s marrying age, fertility rates, and political activism. Modernization and economic development have led to the growth of an educated female middle class with aspirations for greater participation and rights, but the capacity for women to mobilize and attain legal and policy reforms has been limited.
In the 1960s and 1970s, Iran followed the typical Third World pattern of import-substitution industrialization while remaining dependent on oil revenues for foreign exchange and to finance imports and development projects. Oil revenues were used for domestic investment, and Iran saw the emergence of an industrial labor force. The modern manufacturing sector grew with all manner of appliances and food products, auto assembly plants, and foreign investments in iron and steel production. Oil wealth had financed Iran’s economic development, including infrastructural development and state-owned industries, and helped modernize agriculture. Nevertheless, foreign exchange from oil sales constituted the accumulation of capital, and the contribution of petroleum to the national income in the oil and mixed oil economies, including Iran’s, made the share of other sectors appear insignificant.
In studies of political economy, a “rentier state” is one in which a large portion of a country’s revenues comes from the rent of the country’s resources to outside states and companies as well as domestic elites. While much has been written about rentier states’ economies, less has been written about their gender dynamics. When a state depends on “rents” (state-owned oil, minerals, tourism, or waterways), it accrues wealth without needing to rely on income-based taxes and can distribute the wealth almost at will. The implications are both economic, in that diversification is forestalled, and political, in that the state is less accountable to its citizenry. Governments may use oil wealth to provide relatively high wages to their workers. Analyzing wage trends in the manufacturing sector cross-nationally, economics professor Massoud Karshenas showed that workers’ wages were higher in most MENA countries than they were in Asian countries such as Indonesia, Korea, and Malaysia.
This state of affairs has helped reduce the female labor supply in Iran. The development strategy of the 1960s and 1970s and into the 1980s, relatively limited industrialization, and the presence of high wages for men worked to the benefit of a male working class, but not to the formation of a female working class. Like many states in the MENA region, the Iranian state did rely on women to serve as teachers and health workers, to occupy some positions in public administration, and to work in certain factories. The oil economy therefore reinforced what I called the patriarchal gender contract—the implicit and often explicit agreement that men are the breadwinners responsible for financially maintaining wives, children, and elderly parents, and that women are wives, homemakers, mothers, and caregivers.