Abstract

Sharia-compliant companies differ from other companies in its financing sources and business activities. These differences may affect its ability to protect its financial performance from changes in tax policies. The main queries in this study were whether value-added tax can affect the financial performance of companies and whether sharia-compliance can mitigate that effect. To answer these queries, a quantitative research method was utilized using data about listed companies in Abu Dhabi stock exchange in the United Arab Emirates. Data were collected from the financial reports of the listed companies for two years before the imposing of VAT in UAE (2016, 2017) and for two years after the VAT imposition and before the pandemic of COVID-19 (2018, 2019). Collected data were used to calculate financial ratios for the included companies first and then these ratios were further analyzed using Nonparametric regression. Conclusions of this study indicated that VAT had a negative and insignificant effect on the financial performance of all companies while this effect is positive and insignificant for Sharia-non-compliant companies implying that Sharia-compliance cannot mitigate the negative effect of VAT.

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