- Article
- January 27, 2017
Why Taxes?
The sharp decline in oil prices in recent years, have substantially affected the revenue of the Government in GCC countries. It has also delayed, various development projects which will again result in increased costs for completion of projects. The subsidies offered on various energy and oil products in the region have also been eliminated in recent past. Removal of these subsidies will reduce the burden of expenses, but it cannot be long-term solution. Revenues need to be generated to keep the growth projects going forward. The Governments of GCC nations understand the immediate need to find out an alternative source of revenues for them for a fiscal sustainability. This resulted in introduction of taxation in the region, which was an alien for many residing in this part of the world.
Introduction
After multiple rounds of meetings of senior officials and advisers of these counties and an extraordinary meeting of ministers of finance of GCC nations held in Jeddah on 16th June, 2016 the treaties between the GCC nations for VAT (Value Added Tax) and Excise tax were approved. These treaties provide a common framework and the basis for the formation of national legislation for the introduction of taxes in all member nations. However, some administrative matters related to intra GCC trade and tax collection mechanism for it, still need to be worked out.
Introduction of taxes will be considerable economic reform in the region, which was tagged as tax free till now. The nations have signaled no income tax on individuals for now. Many industries like healthcare, food, social services and education are exempted. But, the introduction of VAT and Excise Tax will definitely need some preparation of the businesses operating in the region. Kingdom of Saudi Arabia has already confirmed the introduction of VAT with effect from 1st January, 2017 while in United Arab Emirates it is expected to be effective from 1st January, 2018. The rest of the nations in the region shall also implement it very soon.
Value Added Tax (VAT)
VAT is a tax on consumption and it is a popular fiscal tool. It is a the tax on consumption; therefore, the burden of tax will be on the consumer more than on the business. It will achieve the twin objective of tax maker viz. It will not change investment decisions of business and it will generate revenue for government.
VAT is charged by suppliers of goods and services and payable on purchases. VAT is collected by businesses from buyer and they have to file a VAT return to authority after ascertaining the net tax payable or refunded to them, if they have already submitted extra tax to the government.
Business requires getting them registered with the VAT authority for being authorized to collect taxes. In various jurisdictions, minimum turnover limits have been specified, for mandatory registration with VAT authorities. The business having lower turnover can register themselves at their choice. However, it is important to note here that once registered, the businesses are mandatorily required to charge VAT on their supplies and are eligible for deduction on purchases.
Excise Tax
It is again a tax on consumption, putting the ultimate burden on the buyer. It is levied on import of goods and services within the country. It is collected by business on behalf of tax authorities and later submitted to the authority along with excise return. Organizations engaged in import or manufacturing of excisable goods shall comply with regulations issued by Excise authorities in the jurisdiction.
What Business Owners need to Do?
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- Check whether your business turnover or activities fall under mandatory registration with the authorities.
- Register your business with the authorities.
- Maintain proper books and records for the collection and submission of taxes specific period of time.
- Maintain a proper record for import of goods and inventory in the warehouse.
- Have proper systems in place to issue tax invoices to buyers.
- Maintain proper documents, books and records for payment of taxes to suppliers.
- File periodic tax returns to avoid penalties for non – compliance.
The Bottom Line
Whether you like it or not, this is now realty and you have to be tax compliant for doing business in this part of the world. The ambitious growth projects of government require sufficient revenues on a sustainable basis and taxes are the most efficient source of revenue for Governments since ages. Governments have already given plenty of time to warm up and prepare yourself to ensure that taxation can be administered properly immediately after implementation. Therefore, the businesses should tighten their belts and start considering what this newly introduced law affects them and take appropriate steps for ensuring compliance with the law.
- Newsletter
- January 20, 2017
History
India and Cyprus had signed an agreement in June 1994 and were bound to exchange information to avoid tax evasions. It is considered to be a tax haven before 2015 and stands seventh on the list of Foreign Direct Investment (FDI) destinations in India. India received foreign investments of approximately INR 42,680 from Cyprus from April 2000 to March 2016.
On 1st November, 2013 India has marked Cyprus as “Non- Cooperative Jurisdiction/ Notified Jurisdiction” under Section 94A of Income Tax Act, 1961 of India, upon its failure to disclose crucial information about money being transferred by Indian citizens and are suspects of tax evasions. Consequently, the transactions for transferring the funds from and to Cyprus reduced to avoid payment of higher withholding taxes and disclosure requirement. The authorities at Cyprus recognized the need to take effective steps in this regard and initiated change in their policies.
In October, 2015 the Organization for Economic Cooperation and Development (OECD) declared that Cyprus had been found to be complaint with the requirements and standards laid down by Global Forum on Transparency and exchange of information for tax purposes. Cyprus got rating equals to United States, United Kingdom and Germany. With this, Cyprus lost its status of a tax haven.
The new Treaty
Mid 2016 has been a very significant period for tax treaties of India with major tax havens. Marking a historic change, India – Mauritius tax treaty have been re-negotiated and it began a new chapter of foreign investments in India.
On 29th June, 2016 the Ministry of Finance of Cyprus issued a statement that they have completed the negotiations with India and reached at agreements on all pending issues between India and Cyprus after an official level meeting held on 28th and 29th June at New Delhi. On 1st July, 2016 the Indian Ministry of Finance issued a press release confirming the same and mentioning to provide a “Grandfathering clause” for investments made prior to 1st April, 2017 for residence based taxation of capital gains. These agreements also paved way for removal of Cyprus from notified jurisdictions with retrospective effect.
These provisional agreements later been put before the cabinet of Indian Government headed by Prime Minister of India and approved by the Cabinet in August, 2016. The approved agreements which will now replace the 1994 treaty were signed on 18th November, 2016 at Nicosia, the capital of Cyprus. Mr. Ravi Bangar, high Commissioner of India to Cyprus and Mr. Harris Georgiades, the Minister of Finance of Cyprus has signed the agreement on behalf of India and Cyprus respectively. It is expected to come into force with effect from coming financial year i.e. 1st April, 2017.
The Major Provisions
The new agreements provide for source based taxation of capital gains arising from transfer of shares rather than residence based taxation as provided under previous treaty. Accordingly, all the capital gains from transfer of shares can now be taxed in country of transaction and India shall benefit by taxing the transactions undertaken in the country by Cyprus residents.
It is important to note here that as provided by the “Grandfathering clause” in the agreement, investments made prior to 1st April, 2017 can be taxed in the country where the taxpayer is resident.
The new agreement broadens the scope of permanent establishment and rate of withholding tax on royalties is reduced from 15% to 10% to bring it in line with the tax rate under Indian Laws.
New agreement also defines the provisions related to the exchange of information between the countries as per international standards and both the countries assisting each other for collection of taxes. This new treaty also paves the way for removing Cyprus from “Notified Jurisdiction” in India with retrospective effect from November, 2013 after the treaty comes into force.
Conclusion
This is a welcome move for investor and industry in both the countries. Both the countries have enjoyed good trade relations in past decades and this step shall definitely foster the growth. Cyprus shall once again become one of the largest sources of FDI in India and other parts of the world. The government’s keenness to improve the level of transparency in investments to and from Cyprus have already started delivering results and Cyprus has become a popular destination for European investors under Alternate Investment Fund Manager Directive. If Cyprus manages to keep up with robust compliance and transparency, it shall soon be most preferred destination for investment vehicles across the world.
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- Article
- January 16, 2017
Introduction
The General Authority for Zakat and Tax (GAZT), in the Kingdom of Saudi Arabia (KSA) comes up with a new regulatory framework for zakat and tax profile of companies listed on Tadawul by issuing circular no. 6768/16/1438. The new regime requires listed companies to pay taxes on the basis of nationality of shareholders of the company as per tadawul system on the last date of year. The circular shall be applicable to all the financial year ending after issuance. Accordingly, it shall be applicable to the financial year ending on 31st December, 2016 and all the tax and zakat returns for the year ending December, 2016 needs to be in compliance with this circular. This article aims to highlight some major changes brought in by this circular.
Previous Scenario
As per the prevailing scenario, key components for zakat base should be maintained in the books of zakat payer for a period of complete one year to form a part of zakat base. The company’s zakat/ tax liability is generally based on the founding members’ ownership as mentioned in the articles of association. The listed companies can change their ownership multiple times in a year and it may be with a GCC or non GCC national and it does not impact the zakat returns of the company. There is no impact of transfer of listed shares in determining the zakat base for the company.
Major Changes
The circular states that the companies listed on Tadawul will be required to determine their zakat/ tax liability on the basis of ownership shown in Tadawul system on last day of the financial year. These reports can be obtained from “Tadawulaty System” and it outlines the required details for ownership records e.g. residency, nationality, address etc.
- The circular directs listed companies to file their zakat/ tax returns as per the real ownership percentage as on the last day of financial year and attach a statement showing shareholding ownership pattern by Saudi nationals, non Suadi Nationals and GCC Nationals.
- It also provides for advance payment of taxes in the following year according to the amount of taxes in the return for previous year.
- Circular indicates that it shall be applicable to financial year ending after issuance of this circular and previous assessment(s) will be finalized on the basis of information available for them.
- The listed companies are now required to make provision for their zakat and tax liability on the basis of ownership information available in Tadawul system.
- If the ownership of the company is in hands of non GCC nationals as per the records available in Tadawul System will now be required to with declaration certification requirements of Article 60 (e) of Saudi Income Tax law, if applicable.
- The listed companies will not be allowed to consolidate its subsidiary entities for filing zakat returns. Separate zakat and tax returns needs to be filed for each wholly owned subsidiary. It will add the burden of compliance cost for companies.
- Some of important items which are deductible for zakat purposes may not be deductible in full for tax purposes (for example, loan charges, repairs and maintenance of fixed assets and etc.)
- Listed companies will now have to bear the burden of additional administrative cost for updating data of ownership structure in the system every year.
Conclusion
The new circular clearly indicates the intention to impose stricter compliances and keep a track of actual ownership of entities. The listed companies should now check their ownership records as per Tawadul system and update the same before the end of the financial year to prepare for ascertaining the zakat/ tax liabilities. Planning before time can help companies to calculate the financial impact on the company as well as ensure timely compliance for all group companies.
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- Newsletter
- December 28, 2016
- Saint Kitts and Nevis – United Arab Emirates: DTA Signed
- Hong Kong – Romania: DTA Signed
- Cyprus – India: DTA Signed
- Germany – Australia: DTA entered into force
- Canada – Madagascar: DTA Signed
- Russia – Singapore: DTA entered into force
- Newsletter
- December 28, 2016
RIYADH: Saudi Arabia and Turkey have signed eight agreements in Istanbul in the presence of Commerce and Investment Minister Majid Al-Qassabi and Turkish Economy Minister NihadZabka to boost bilateral trade.
The signing of agreements took place during the Saudi-Turkish Joint Business Council meeting in Istanbul.
Speaking after the signing of the agreements, Zabka said that Turkey has set up an investment-friendly climate for foreigners to do businesses with a sense of security, which would protect their interests in the country. “We have removed all obstacles and facilitated smooth investment procedures in Turkey,” Zabka noted, adding that Saudi and Turkish businessmen can harness these incentives for mutual interests.
Responding to Zabka’s speech, Al-Qassabi said that such incentives are important for the two countries to forge ahead.
Mazen Rajab, head of the Saudi side of the business council, said that Saudi investments in Turkey have reached $10 billion which is a healthy growth of bilateral trade.
Saudi companies mainly invest in the industrial sector in Turkey in collaboration with the Turkish private and public sectors. They can also increase their investments in agricultural, finance, tourism and communications sectors.
Turkey, on the other hand, has had a sizable number of highly qualified and technologically superior contractors who are present today in every part of the globe, including the Arabian Gulf states.
In the field of tourism, Turkey has been doing very well. A total of 39 million tourists visited Turkey in 2013, raising revenue from tourism to reach $32 billion.
“Economic ties between the two countries are strongly backed by identical approaches on the whole range of bilateral and regional issues,” YunusDemirer, the Turkish ambassador in Riyadh, said in an earlier interview.
Trade between Turkey and Saudi Arabia has been growing consistently. Around 80 percent of Turkey’s exports to the Kingdom are industrial products, whereas agricultural products account for 10 percent of exports.
On the other hand, the bulk of Turkey’s imports from Saudi Arabia come from crude oil and petrochemical products.
A close observation of the imports shows that the share of crude oil in total imports declined from 79 percent to below 40 percent between 2000 and 2014, while the share of petrochemicals increased drastically (the value of imports of polypropylene rose to $1 billion) in the same period. On the other hand, the decrease in the last two years was mainly related to the decline in crude oil prices.
Speaking about the upswing in trade and investment, Ambassador Demirer said that there is a genuine opportunity to establish a long-term partnership between the Turkish and Saudi business communities. Saudi visitors feel at ease in Turkey, says the envoy.
“As neighbors and two of the world’s oldest civilizations, Turkey and Saudi Arabia have shared a long history of religious, cultural, scientific and economic linkages,” said the envoy, adding that Turkish imports from Saudi Arabia have been traditionally dominated by fossil fuels.
For more details reach us at [email protected]
- Newsletter
- December 28, 2016
In brief
The Customs Authorities of the Gulf Co-operation Council (GCC) countries have recently finalized the Unified GCC Customs Tariff 2017, which will enter into force on 1 January 2017. The amendments to the Unified GCC Customs Tariff may have a major impact on your company.
In detail
Every five years, the HS is updated in order to reflect the major technical and global developments, and changes in trade patterns. The HS 2012 amendments, for example, included noticeable changes on biodiesel and diapers. The majority of amendments, however, usually relate to the agricultural and food sector – which is also the case for the HS 2017. The new amendments do also include a few notable changes.
HS and Unified GCC
Customs Tariff The HS is a multipurpose international product nomenclature developed by the World Customs Organization (WCO). It comprises about 5,000 commodity groups; each identified by a six digit code.
The HS is used by more than 200 countries and economies as a basis for their Customs tariffs and for the collection of international trade statistics. Over 98% of the merchandise in international trade is classified in terms of the HS.
As members of the WCO, the GCC countries have agreed to use a common system based on the HS: the Unified GCC Customs Tariff, which sets eight digit codes to classify goods for customs purposes (the first six digits correspond to the HS).
HS 2017 notable changes
The most striking amendments in HS 2017 are to be found in the forestry, chemistry, pharmaceutical and technology sector. In the forestry sector (chapter 44) the HS codes have been amended enabling a recommended to provide clear instructions to their customs agents to comply with the new Customs Tariff.
The use of incorrect HS codes may lead businesses to declare products for entry into the GCC without the applicable import permits or certificate of conformity; furthermore it may lead to the assessment of the wrong customs duty rates, underpaying or overpaying customs duties to the GCC Customs Authorities.
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- Newsletter
- December 28, 2016
New information on Country-by-Country reporting should give more certainty to tax administrations and multinationals on how to implement it.
On 5 December 2016, the OECD released further guidance on Country-by-Country (CbC) reporting and country-specific information on implementation of the guidance. CbC reporting is linked to action point 13 in the Base Erosion and Profit Shifting (BEPS) initiative.
Background on BEPS
Base erosion and profit shifting are tax avoidance strategies mostly used to exploit loopholes within the tax/legal environment by shifting profits from one specific country to a country with low or no tax, where, in most cases, the company has no or little economic activity.
Currently over 100 countries and jurisdictions have, or will, implement regulations to address base erosion and profit shifting as part of the OECD’s initiative to counter fight these practises. Both the OECD and the participating countries issued a report in 2015 containing the so called 15 action points to be taken into consideration and implementation by countries when dealing with BEPS.
The main focus of these action points is to identify and neutralise gaps and mismatches in tax rules across the countries, and facilitate increased exchange of tax information between jurisdictions to improve tax compliance.
New rules and regulations along the way
The implementation of BEPS-related laws and regulations is a rolling process, as each country is implementing BEPS action points with different views, interpretations and timelines. The OECD is continuously providing additional guidance on how these action points should be interpreted and suggesting best ways for them to be implemented.
As part of such, on 5 December 2016 the OECD released further guidance on CbC reporting and country-specific information on implementation of the guidance, specifically:
- Key details of jurisdictions’ legal framework for CbC reporting
- Additional interpretive guidance on the CbC reporting standard.
In short, the new information on country-specific reporting should give more certainty to tax administrations and multinationals on how to implement CbC reporting. It affects the timeline when CbC reporting has to be done, whether surrogate filing and voluntary filing is available for specific countries and if local CbC filing is required. Furthermore it contains information on the implementation of international exchange of CbC reports between country tax administrations.
The guidance tackles the case where notification to the country tax administration involves identifying the reporting entity within the multinationals’ structure, and how, once identified that such a notification is required it’s up to the jurisdictions to set a due date for acting upon it, thus providing some flexibility. This will be relevant while jurisdictions transit through the finalisation of their local implementation of CbC reporting and multinationals adapt to the new norms.
For more details reach us at [email protected]
- Newsletter
- December 28, 2016
Introduction
United Arab Emirates is always known for fast pace development and adapting the things to promote investor and form an attractive business environment. The government of Abu Dhabi has announced establishment of Abu Dhabi Global Market (ADGM) in 2013 to partner in regional and international growth of UAE. ADGM will comprise of three authorities namely, ADGM Courts, Registration Authority and Financial Services Regulatory Authority (FSRA). ADGM is set up in Maryah Island in the Capital of UAE.
ADMG Courts shall be supporting ADMG in adjudicating civil and common law matters. The ADGM Courts Regulations and Rules were enacted by ADGM’s Board of Directors and the Chief Justice on 17th December, 2015. They have recently started their operations and do not have jurisdiction in Criminal Courts. UAE have become the first nation in region to adopt this system.
Structure
ADGM Courts have a court at first instance and after that a court of appeal. The courts contain three divisions, namely Civil, Small Claims and employment. The judges at these courts are highly experienced and are drawn from all parts of the world. They are mandatorily required to have strong standards of judicial independence and acts on an impartial basis.
Jurisdiction
These courts are formed to facilitate the judicial proceedings for the companies operating under ADGM. The courts at first instance shall have jurisdiction over all the commercial cases and disputes related to ADMG or any of its authority and the companies operating under ADMG. These courts shall also have jurisdiction over any disputes arising out of transaction or contact formed whole or in part at ADMG. An appeal against the decision of ADGM authorities can also be filed here. These courts have three divisions, viz. civil division, small claims division and employment division.
Civil division shall have jurisdiction over cases where the value of claims are more than USD 100,000 and are not related to employment or family matters.
Small Claims division shall have jurisdiction over cases where the value of claims are less than USD 100,000 and are not related to family matters.
Employment division shall have jurisdiction over disputes arising out of employment contracts and enforcing the provisions related to employment regulations
Audience
Any person may appear as audience before small division courts or courts at first instance. However, he is required to follow the code of conduct for appearance in the court. Unlike, in other courts in the region ADGM courts have not prescribed any legal qualification or experience for audience.
The Future
Online facility is expected to be operational soon and it will allow parties to file e-complaints, document and have e-trials. This is surely an initiative for future and will attract the investor to come and invest as he will have the facility of address disputes as they are dealt with in English Law.
For more details reach us at [email protected]
- Newsletter
- December 28, 2016
A five per cent VAT will lead to fundamental change in the way businesses operate across around the region.
The adoption of value added tax by GCC countries in 2018 would enable the six countries to generate additional annual revenues of $25 billion, tax experts.
A five per cent VAT, which represents a major shift in tax policy that will impact all segments of the economy, will lead to a fundamental change in the way businesses operate across around the region.
In the UAE, VAT is expected to generate around Dh10 billion to Dh12 billion in additional revenues in the first year of implementation, or about 1.5-2 per cent of GDP. Companies that record annual revenues over Dh3.75 million will be obliged to register under the VAT system, while companies whose revenues range between Dh1.87 million and Dh3.75 million will have an option to either register under the system or not during the first phase of rolling out the system.
VAT will bring more people in the tax bracket in the UAE economy. It would increase tax to GDP Ratio and help the government in economic and structural reforms moving forward, experts said.
The additional $25 billion revenue will allow GCC governments to amend the tax policy and other fees and charges and increase infrastructure investments.
As businesses prepare to implement VAT across numerous sectors, they will need to invest in analyzing, redesigning, developing and implementing updated systems, processes, contracts and business arrangements to match the requirements of the new tax system.
All GCC countries are working towards VAT implementation by 1 January 2018 to avoid transaction and sales issues that could arise from intra-GCC trade.
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- Newsletter
- November 25, 2016
Oman is the latest Gulf Cooperation Council territory to confirm its participation in the bloc’s value-added tax project.
VAT is to be introduced in GCC countries from 2018, to diversify their tax bases away from revenues from oil.
Earlier this month, Kuwait also confirmed that it would introduce the levy from 2018.
In a meeting on June 16, 2016, the GCC Ministers of Finance approved a common framework for the development of national regimes for customs duties and value-added tax. The agreement paved the way for the introduction of harmonized excise duties from January 1, 2017, and a pan-GCC VAT framework from January 1, 2018.
The GCC is comprised of Saudi Arabia, the United Arab Emirates, Bahrain, Kuwait, Qatar, and Oman. The territories are expected to have a harmonized tax base and a five percent rate.
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