- Newsletter
- July 10, 2017
The IMD World Competitiveness Center has again ranked Hong Kong as the world’s most competitive economy for 2 years in a row, besting 62 other countries. Hong Kong has been consistently in the top 5 ranking in the published research for the past 4 years. The country’s Financial Secretary Paul Chan Mo-po said that Hong Kong should strive to maintain its prevailing competitive edge, which includes open and free market principle, fine tradition of the rule of law, efficient public sector and robust institutional framework, to stay on top despite of fierce competition.
Mainland China has also made a mark on the list with having the biggest improvement, ranking 18th this year as compared to 25th last year. This big leap is due to the country’s efforts to improve its international trade as well as developments in government and business efficiency.
Other countries in the top 5 are Switzerland, Singapore, the United States and Singapore, in second, third, fourth and fifth place, respectively.
Total 63 companies are ranked this year. The Kingdom of Saudi Arabia and Cyprus making their first appearance in the list.
Digital Competitiveness Ranking
This year, the IMD also ranked countries in digital competitiveness. This intends to measure the different countries capability to adopt and explore digital technologies that lead to transformations in government practices, business models and society in general. Singapore led the rankings in digital competitiveness with Sweden, the USA, Finland and Denmark, in second, third, fourth and fifth place, respectively.
Professor Arturo Bris, Director of the IMD World Competitiveness Centre, said that supportive and inclusive government institutions help mold technological innovation.
IMBD has been publishing these rankings every year since 1989, using 260 indicator including economic performance, government efficiency, business efficiency and infrastructure. Information used includes data from national employment and trade statistics and survey responses.
Please feel free to contact us at [email protected] for setting up your business in top most economies of the world.
- VAT
- June 26, 2017
Introduction
The GCC nations have announced the introduction of VAT from the next year and preparation for the same is in full swing. Kingdom of Saudi Arabia (KSA) already published the draft VAT law on the website of General Authority of Zakat and Tax (GAZT). It is considered to one of the major steps towards implementation of VAT in the country from 1st January 2018.
The GAZT have invited stakeholders and the public to give their feedback on the draft law by 29th June 2017. The draft regulation does not disclose much of details regarding specific VAT requirements as the same are to be issued through separate implanting regulation which is expected to be issued post Ramadan. This article shall highlight major details about the draft VAT law.
Where and How?
All the GCC nations are bound to introduce the VAT by 2018 for the treaty signed by them. KSA is introducing VAT from 1st January 2018.
VAT is an indirect tax and accordingly the burden of payment will be on the end consumer. The business registered in the KSA will be required to register themselves with the authorities for collection of VAT if their turnover exceeds the specified limit which is SAR 375,000. The registered business can also avail the VAT credit on the VAT paid by them and get the benefit of input credit on the VAT invoices issued by them.
The draft law gives extensive powers to the GAZT including obtaining taxpayers’ information, seek details and description of transaction if it suspects any form of tax avoidance and holding two or more persons jointly liable for obligations and payments for VAT law.
Broad Coverage of the Draft Law
The law leaves many provisions to be issued later through implementing regulations and silent on the time frame for issuing the same. The registration requirements for VAT are dealt with in Article 4, 5 and 6 which shall be applicable from the date of its publication in the official gazette of the kingdom.
The law is divided into 12 chapters where chapter 1 deals with important definitions while chapter 2 focus on imposition of tax. Chapter 3 provides the provisions related to taxable persons and rules for registration and deregistration for VAT leaving most details to the implementing regulations. Chapter 4, 5 and 6 is dedicated to supplies and place of supply. Chapter 7 deals with the calculation of taxable value of supplies while chapter 9 provide for calculation of tax liabilities. Chapter 8 deals with provisions related to imports Chapter 10 highlights the administration and procedural part and chapter 11 deals with penalties and fines. It is important to note here that penalty of up to 50% of the tax due can be imposed on default in filing the returns and claims. Chapter 12 is general provisions including the transition and implementing regulations.
What you need to do?
If you are a business registered in the region, ensure you have proper books of accounts and financial records in place. Also, check if your turnover exceeds the specified limit and register for VAT with the regulatory authorities. The authorities are expected to open the registration in a couple of months. Also, ensure that your staff is competent enough to address the new challenges bought in by the introduction of this new law.
Please feel free to contact us at [email protected] for making your company 100% compliant with the VAT regulations in the region.
- Article
- June 23, 2017
Introduction
The United Arab Emirates is a global business hub and continuously striving to maintain its recognition and improving its ranking in ease of doing business. In the today’s global scenario, innovation is the key and many times this innovative economy results in failure of businesses. The borrowers going bankrupt is very common and therefore it was the need of the hour to have incidental bankruptcy laws in place to ensure the interests of stakeholders and fair treatment with creditors.
The recently incorporated UAE Bankruptcy Law (2016) takes a more competent approach towards business insolvency in comparison to precedents. This article shall highlight some of the major highlights of the bankruptcy law.
What does it mean?
This law shall be applicable to all commercial companies registered in the UAE and any person (either natural or legal) recognized as a trader under the UAE law. Civil companies, professional service providers and the entities registered in the UAE free zone will also be covered under this law. The new law allows insolvent companies to secure protection from the court against all types of legal claims, including the proceedings against the company or its officer for defaults in payment and dishonored cheques.
It also makes it a mandatory legal obligation for insolvent companies to file an application for bankruptcy. It a company founds that it has become insolvent and it will not be able to fulfill its payment obligations, the officers of the company should ensure to file a bankruptcy application to protect them from criminal proceedings that may be filed by the creditors.
Creditors of a company can also initiate the proceeding for bankruptcy application, if the total outstanding amount exceeds AED 100,000 and is overdue for more than 30 working days. The court shall then appoint a panel to review the overall financial position of the company in question and provide a report to the court in this regard.
Suggested Pathways
The new law suggests three pathways for afflicted businesses. Viz. Prevention, Restructuring and liquidation. We shall briefly explain each of them in the coming paragraphs.
- Prevention: This pathway can be used only by a business predicting financial difficulties in near future. In other words, the business is not insolvent, but expecting such a situation. This pathway shall give leverage and time to discuss and come to an agreement with its creditors under supervision of the trustee appointed by the court. Processing this application in time, protects companies from facing legal proceeding on the failure of fulfilling financial commitments in time and all the proceedings raised by creditors will be suspended. The law has imposed strict timeline and deadlines for implementing the plan.
- Restructuring: The application for restructuring can be filed by debtor itself or the creditor who has a debt of AED 100,000 and whose payment is overdue for more than 30 working days. It is important to note that, the creditor should have made written demand for this payment before filing the application at the court for restructuring. After receiving the request from a creditor, the court shall appoint a committee to submit the report for restructuring within 10 working days. The court shall consider the report and give a final decision within next 5 business days.
This pathway helps the debtor to come to an agreement with its creditor through a court appointed trustee. The trustee on behalf of the debtor, negotiates with its creditors for preparing a restructuring plan in consent with the creditors. The plan should be approved by two third of the creditors represented by value of outstanding payment. The law has imposed strict timeline and deadlines for implementing the plan. - Liquidation: This is the last pathway. If both above pathways are not viable the court shall appoint a trustee to proceed with the liquidation of distressing business.
Liabilities of the Directors
The new bankruptcy law does not ignore the possibility of the director’s responsibility for distressed circumstances and if any director is guilty for the losses or if the company is not able to pay even 20% of its total debts, the director will be liable to pay full or part of the debts as provided in Article 144 of the law. Further, Article 198 and 201 provides for a list of new criminal offences for which managers and directors of the insolvent companies can be held liable. However, if they act prudently and approach the court to take preventive pathways, they can save themselves from liabilities as the same will be then passed to the trustees appointed by the court.
Bottom Line
The new bankruptcy law aims to provide a more trustworthy environment for investors and motivate businesses to take preventive steps before the things turns worst.
Please feel free to contact us at [email protected] for any further assistance.
- Article
- June 14, 2017
Cross-border mergers and acquisitions are a steady trend in today’s business world. It is all because of globalization, that has brought all the countries in the world closer as a single entity to make their businesses compete in the global markets.
Cross-border mergers and acquisition has now become the fundamental characteristic of a global business landscape. It is an easy way for a business to spread its operations into other countries which would otherwise be difficult due to the market and logistical restrictions of each country.
However, successful implementation of a cross-border Mergers & Acquisition depends on various success factors that are needed to be met to ensure the success of the business in the new market.
But, what happens if you get it wrong?
Cross border M&A is a huge step taken by a business. One wrong decision can create various financial, reputational and regulatory implications for the business. You have entered into an agreement with the company that is being acquired which is detailed in a Transitional Service Agreement as well. Hence, any non-compliance and delays in the terms result in huge financial implications.
Apart from the financial implications, there are various non-financial consequences as well. For instance, if there is any delay in setting up a payroll system for the employees of the acquired company, it can result into resentment from employees to accept the new management.
You also need to understand how to operate from your home country to manage the new business. There can be changes in compliances, taxation systems, local laws and much more. Any error can impact the business and may impact the success of venture itself.
Hence, getting it right is the business’ priority. Here are the factors that you should consider while implementing cross-border M&A.
Proper management:
Like every other business transaction, businesses need to ensure that they undertake the cross-border M&A with proper technique and management in all respects. Some critical management activities that are involved in the implementation of M&A are market analysis, product development and integration and the activities related to human resources.
Every country has a different market with unique demands and structures. Hence, it is essential that the markets of both the countries are analysed in entirety to draw a comparative analysis to assess the apt structure of operation. Each business has its own unique products/services. So, when the two businesses merge, there is a need to integrate both the businesses together.
Human resource is an important aspect in the successful implementation of cross-border M&A. There is always a factor of fear in the mind of the employees when the cross-border M&A comes up. This can affect the productivity of the employees. Hence, it demands that the management understands the concerns of human resource and take corrective action on time.
Cultural integration:
It is the most complex factor in cross-border M&A. Most of the times, both the businesses hold different views on the business culture while ignoring the fact that during M&A a business can have negative consequences for the sustainability of the deal. Different businesses have different market philosophies. Hence, it becomes the responsibility of the management to strategize and integrate both the businesses culturally.
Business policies:
Each country varies in business policies. Hence, when in the case of the cross-border M&A where policies merge, it is possible that any of the businesses may not be compliant to adapt to the business policies of the other business. Consequently, it becomes essential that the businesses consider these factors at initial stages to adjust and cope with the policy together for success of the M&A.
Taxation:
Taxation is a crucial factor involved in a cross-border M&A. Most of the countries have unequal tax rates for the foreign owned business and locally owned business. In case of a cross-border M&A that can defeat the aspiration of acquiring firm. Hence, it becomes important that the taxation aspect of the business is critically reviewed and professional opinion is consulted is before going ahead with the deal.
General business conditions in the country:
Every country has different business conditions in terms of legal and regulatory framework. There can be various laws in respect of security, corporate or completion laws that are likely to diverge from each other. Hence, before going ahead with the deal, it is essential to review the employment regulations, antitrust statute and other contractual requirements needed to be dealt with.
The bottom line:
The cross-border M&As can provide great benefits to the business in terms of expansion of its operations in other countries. But, to have a successful and sustainable cross-border M&A, there are lots of factors that need to be considered along with the thoroughly planned preparation and commitment of time and resources.
For more information on Cross border M & A reach us at [email protected]
- Article
- June 14, 2017
The worldwide regulatory environment commonly referred to as AML (Anti Money Laundering) and KYC (Know your customers) are complex and dynamic regulations. But, they both are becoming an important focus area for all the organizations globally these days owing to the significant cost and risk of non-compliance.
The risk of non-compliance is very real nowadays. Money laundering at international level, investing money in tax havens, Ponzi schemes and sanction violations are creating new grounds for risk exposure. Hence, the companies are increasingly investing more time and effort in KYC.
Reasons why KYC has become critical and inevitable for companies:
Financial penalty:
Any non-compliance with the KYC regulations can attract heavy monetary penalties on the company.
Imprisonment:
As it was mentioned earlier that non-compliance of the regulations go far beyond monetary penalties and in some cases, the CEOs and Directors of the businesses face serious implications. Also, it is noted that the offences that got prison term were smaller in magnitude in comparison to the organizations that faced larger fines but no prison term.
Damage to a company’s reputation:
If there is any proven non-compliance against the business by the regulatory authority it can cause serious damage to the company’s reputation. Even an investigation by the regulatory authority can cause irreparable harm to the brand image.
This may make the stock prices fall drastically and no investor, customer or supplier would like to continue the relationship with the company. This is even a bigger loss than just monetary penalties.
Share holder’s might lose confidence in the business:
The distorted brand image and penalties due to non-compliance of rules and regulations will make the shareholders lose faith in the management of the company. Also, reduce the shareholder’s confidence in the company and it will again many years to build the same level of trust with the shareholders for the management.
Business disruptions:
The business will surely be affected since lot of time and efforts will be spent on identifying the loopholes. Then, a due diligence plan to be formulated to put a system in place ensuring complete compliance. This leads to loss of precious business time as well as disruptions in the workflow.
The bottom line:
In today’s business world around the globe, the companies or organizations need to operate in a highly-regulated environment wherein stricter rules and governing bodies are in place. Also, it is just not the money that is at stake at the times of non-compliance but the losses are much bigger that can leave a lifelong scar on company’s reputation and trustworthiness. Hence, it essential to ensure that the companies comply will all the regulations in all the countries in which your business does the business.
- Newsletter
- June 12, 2017
Introduction
The lawmakers and regulators in Nigeria are making efforts to attract more and more investors. Recent developments in the corporate laws and introduction of new forms by the Corporate Affairs Commission (CAC) is a proof of that. This article shall highlight some important developments and the introduction of new forms.
New Developments
Introduction of new form CAC 1.1 for incorporation of new companies is a key development as it will replace the existing form CAC 2, 2.1, 3, 4 and 7 and facilitate ease of doing business in the country by filling up a single form. It is important to note here that this new form consolidates the information required in all the forms mentioned above except that it is not required to disclose the names of the shareholders which was earlier required in CAC 2. The fraternity is expecting, that this information should be required to be provided in the new company’s memorandum and articles of association.
The new forms along with the memorandum and articles of association, then needs to be submitted online on the website of CAC. This will waive off the new companies from the requirement of filing return of allotment within one month.
Further, the CAC has created a new user interface to facilitate the investor and uploading the scanned incorporation documents online. It shall facilitate and speed up the registration process as the authorities shall print the registration certificate based on documents uploaded on the interface. To ensure the integrity of the data the login details shall be provided to users. Accordingly, only authorized users can access and modify the data.
In another welcome move, CAC is in talks with Federal Inland Revenue Services (FIRS) for collaborating, for integrating the e-stamping module into the CAC company registration portal (CRP). This shall further reduce the cost and time for registration of new companies.
Conclusion
The recent efforts should strengthen the country’s ranking in the ease of doing business and attract prospective investors to register their companies with minimized efforts and time.
- Newsletter
- June 12, 2017
Considering the various steps being taken for enhancing transparency across various jurisdictions the Financial Services and the Treasury Bureau (FSTB), of the Hong Kong Government has also started preparing itself and committed to support the implementation of automatic exchange of financial account information to deal with terrorist financing and money laundering. The country’s Inland Revenue Department has issued ordinance to the financial intuitions instructing to collect the information from the Account holders and thereafter exchange of will start by 2018.
Soon, after the legislative amendment by the Authority in Hong Kong the Multinational enterprises having business in the country would be required to file country by country reports for the accounting periods commencing on or after 1 January 2018. The Authority is in phase of setting out procedures for the same.
With regards to the disclosure and the transparency measures being taken by the Government it is important to take note of the conclusion of the public consultation on corporate beneficial ownership released on 13 April 2017 by the FSTB. Following are the measure being adopted for base erosion and profit shifting (BEPS) and know the details of the Beneficial Ownership Registers:
In Hong Kong, on or after 1 January 2018 all the multinational enterprise group will be required to submit a country by country reports (Cbc) for the accounting period with the Authority.
The time line to file the Cbc for Hong Kong resident ultimate parent company would be within 12 months after the end of the relevant accounting period. However, if the ultimate parent company is having resident in another jurisdiction – it will not require the filing of CbC report.
The Cbc Report will require disclosure of details in relation to the global allocation of the income, tax payment and location of economic activity in the jurisdictions of operation
It would be required to be filed, if the following conditions are met:
- If the preceding accounting period consolidated group revenue is EUR750 million or more.
- Having entities or operations in two or more jurisdictions
As currently the existing laws of the Hong Kong does not require the companies to maintain and disclose information in relation to the ultimate beneficial ownership. However, the listed companies are required to maintain and disclose the same. After the public consultation on the subject in March 2017 it is proposed to maintain a register of individuals with significant controls (PSC register) by all the companies. The register must contain the following details:
- Name of the registrable individual or entity
- Date when the individual or the entity became registrable
- Nature of the control of the individual or the entity.
- Details of Identity card, passport number and issuing country of the individual
- Legal form and company registration number of the entities
- Correspondence details of the individual and entity
Thus, implementation of the above-mentioned transparency and disclosure norms by the Hong Kong Government would be a good step to deal with terrorist financing and money laundering in line with the steps being taken across the world in other jurisdictions.
- VAT
- June 12, 2017
Introduction
The treaty for Value Added Tax signed by GCC nations is finally out in the public domain. The much talked about treaty is being published in the official gazette of the Kingdom of Saudi Arabia (KSA). It is one of the crucial steps in implementation of VAT in the region. The KSA had already announced that VAT shall be implemented in the country from 1 January 2018. This treaty is the base document for the all the member nations to prepare and implement the legislation in their respective jurisdiction. We shall highlight the major point in the treaty in coming paragraphs.
Highlights
- The standard rate of VAT will be 5%.
- The taxable persons can avail input credit for the VAT paid/ incurred for procuring/ manufacturing taxable supplies of goods and services.
- All businesses have annual turnover of Saudi Riyals (SAR) 375,000 or its equivalent in other currency are mandatorily require registering themselves for collection of VAT. The option of voluntary registration is available for business having minimum 50% of above mentioned turnover.
- Treatment of VAT is some specific sectors, namely, education, real estate, health care and local transport shall be decided by each member nation. It is the discretion of the nation to keep it exempt, or charge VAT at any rate between zero to five percent. It is important to note that specified medical equipment and medicines are chargeable at zero rate.
- Each member nation may decide for VAT treatment of financial services sector. The treaty stipulates these services to be exempt with a right to reclaim input tax credit.
- The treaty mentions that the food products shall be chargeable at standard rate of VAT. However, it is left up to the discretion of member nations to define the rate of VAT on food products in their jurisdiction.
- Rate of VAT on Oil and Gas products are left to the discretion of member nations. The member nations shall decide the define the same best suitable for them.
- Export of goods and services outside GCC will be subject to VAT at zero rate.
- The supplier of services outside GCC shall pay VAT based on reverse charge mechanism.
- The transport of goods and passengers shall be chargeable at zero rate.
Final Word
The base of law is already out and the more rules for implementation are expected post Ramadan. Prepare yourself for VAT with experts. Please feel free to write us at [email protected]
- Newsletter
- June 12, 2017
United Arab Emirates is one of the most preferred jurisdiction among the businesses around the world. The GCC economy have witnessed some difficult days in past year due to steep fall in oil prices. But the UAE economy is still going strong because it has successfully managed to divest its source of revenues from non-oil resources.
Sultan Bin Suleyem is the chairman of DP World. It is the holding company of Jabel Ali Free Zone Authority (JAFZA). It is one of the largest and oldest free zone in the UAE. It has attracted more than 470 companies in the UAE to register their business and shown a growth of seven percent is preceding five years. It is also important to note here that fifty eight percent of these companies are from Middle east itself. It is phenomenal growth rate considering the tightening economic situations around the world and falling oil prices. Asia pacific have been the largest contributor from outside the middle east as 21 percent of companies registered in 2016 are from this region. Europe and America follows with 16 and 3 percent respectively.
If you are looking to register your business in the free zone, please feel free to contact us at [email protected]
- VAT
- June 9, 2017
Introduction
The GCC nations have announced introduction of VAT from the next year and preparation for the same is in full swing. Kingdom of Saudi Arabia already published the treaty in their official gazette earlier this month and is all set to introduce it with effect from 1 January, 2018. The view of rulers of the United Arab Emirates (UAE) is not any different and the UAE is also introducing VAT from next year. This article shall answer some major questions about the recent development for introduction of VAT in the UAE.
Where?
All the GCC nations are bound to introduce the VAT by 2018 for the treaty signed by them. UAE is introducing VAT in all of its seven emirates from 1 January, 2018. The ministry of finance in the UAE is expected to reveal the VAT rules for companies incorporated in free zone in a couple of weeks. Offshore transactions will also be subject to VAT on a reverse charge basis.
How?
VAT is an indirect tax and accordingly the burden of payment will be on end consumer. The business registered in the UAE will be required to register themselves with the authorities for collection of VAT if their turnover exceeds the specified limit which is AED 375,000. The businesses that have a turnover of AED 187,500 have the option to voluntarily register them for VAT.
The registered business can also avail the VAT credit on the VAT paid by them and get the benefit of input credit on the VAT invoices issued by them.
What you need to do?
If you are a business registered in UAE, ensure you have proper books of accounts and financial records in place. Also, check if your turnover exceeds the specified limit and register for VAT with the regulatory authorities. The authorities are expected to open the registration in a couple of months. Also, ensure that your staff is competent enough to address the new challenges bought in by introduction of this new law.
Please feel free to contact us at [email protected] for making your company 100% compliant with the VAT regulation.
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