The cite above references the FAQ’s from the UAE Ministry of Finance for the upcoming corporate tax for the United Arab Emirates.
The tax will be effective for years beginning on, or after, June 1, 2023, so time is available for planning.
Some items to initially note: Allowance for a tax group, 9% rate for passive income to align with BEPS, a graduated tax rate with cognizance of potential adjustment for a OECD Pillar Two minimum tax provision, continuance of some incentives for free trade zone transactions, qualified dividends and capital gains from shareholdings of a UAE business will be exempt, withholding tax will not be applicable on domestic and cross-border payments, foreign tax credits are available, and transfer pricing rules will reference the OECD Transfer Pricing Guidelines.
These new rules highlight the interaction with upcoming OECD Pillar Two rules to ensure those tax receipts are not allocated elsewhere.
KPMG’s Middle East and South Asia (MESA) e-guide was recently published, providing a tax overview of GCC countries, wider Middle East countries and South Asian countries.
The reported countries include:
- Saudi Arabia
- Sri Lanka
The report provides a summary of Direct Taxes, including branches/permanent establishments, Tax Treaties, Indirect/Withholding taxes, Accounting rules including loss carryovers, and details about each country’s tax rules and requirements.
The guide is a handy reference, especially as the included countries are experiencing significant changes in their tax rules and guidance.
Click to access mesa-tax-guide.pdf
The United Arab Emirates (UAE) have enacted new economic substance requirements that entered into force at the end of April 2019.
In response to EU Code of Conduct Group (COCG) initiatives, the governments of Bahamas, Bermuda, British Virgin Islands (BVI), Cayman Islands, Guernsey, Isle of Man, Jersey, Mauritius and Seychelles introduced economic substance rules with effect from 1 January 2019. The rules are based on the guidance and requirements issued by the EU and the OECD, and are designed to ensure that companies operating in a low or no corporate tax jurisdiction have a substantial purpose other than tax reduction and an economic outcome that is aligned with value creation. To align with the international standards, the UAE has now enacted substance rules.
To meet the economic substance requirement, companies will generally need to satisfy the following three tests:
- The company should be directed and managed in the UAE for the specific activity.
- The company’s CIGA should be performed in the UAE.
- The company should have an adequate level of qualified employees, premises and annual operating expenditures.
Companies with UAE operations, especially without adequate substance, should review the new rules or administrative penalties or reregistration.
EY’s Global Tax Alert provides additional details for reference.
Click to access 2019G_003050-19Gbl_UAE%20enacts%20economic%20substance%20rules.pdf
The UAE has made significant changes to the rules re: ownership of foreign companies and visas. A foreign investor may now own 100% of a company established in the UAE, regardless of economic zones, while certain individuals will be able to obtain a 10-year visa.
Both developments are significant for companies operating in the UAE, as it provides operational certainties as well as individual plans by professional expatriates living in the UAE. Companies operating under the former rules may review the impact of these changes going forward.
EY’s Global Tax Alert provides details herein.
Click to access 2018G_03096-181Gbl_UAE%20to%20change%20foreign%20ownership%20and%20visa%20rules.pdf
As UAE’s (and some other GCC States) VAT regime, effective 1/1/2018, becomes closer, it is clear that multinationals (MNEs) need to prepare now re: VAT assessments, information required, system review, etc. to plan effectively for this new indirect tax.
Additionally, India’s new scheme also is in effect starting this year, and a similar exercise should be conducted re: operations conducted in India.
As VAT is an indirect tax, all MNE’s should ensure such local filings are coordinated with regional / global compliance governance controls.
EY’s Global Tax Alert provides additional details re: the GCC’s upcoming rules.
Click to access 2017G_01345-171Gbl_Indirect_UAE%20MoF%20presents%20key%20information%20in%20relation%20to%20proposed%20VAT%20regime.pdf
The long -awaited VAT has become a reality in the GCC, effective 1/1/2018.
This provision will require advance (systems) implementation and training, especially for companies in the region not familiar with VAT reporting. Note the UAE and other GCC countries have nil, or minimal rates of corporate tax and this indirect tax will provide a local economic stimulus without creating additional complexities of corporate tax reforms.
This reform is not unexpected, although now the execution phase is very important to provide a seamless transition for reporting and collection.
EY’s Global Tax Alert provides additional details of this development.
Click to access 2017G_00900-171Gbl_Indirect_Preparation%20for%20GCC%20VAT%20by%201%20Jan%202018%20requires%20immediate%20action.pdf