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New rules providing 100% foreign ownership will boost investment in Bahrain

February 28, 2017

The Kingdom of Bahrain is in the process of making comprehensive changes to its corporate laws and procedures to make it easier to set up and carry out business in Bahrain. The changes will allow for easier company incorporation, the streamlining of the company administration process and the easing of restrictions on foreign ownership.

A series of new laws and amendments have been introduced over the last 24 months to modernize and streamline the regulatory regime, enhance corporate governance and increase accountability, empower shareholders and facilitate foreign participation in Bahrain companies. They are designed to promote enterprise in Bahrain and encourage foreign investors to choose Bahrain as a destination of choice for doing business in the Middle East.

The Bahrain cabinet has further announced that it is to allow 100% foreign ownership in residency, real estate, administrative services, health and social work, information and communications, manufacturing, mining and quarrying, food, arts, entertainment and leisure, water supplying and professional, scientific and technical activities.

Business opportunities in Bahrain are set to increase heavily in the period leading up to the new the Ministry of Industry and Commerce (MOIC) regulations, which for the first time puts Bahrain on a competitive footing with some of the region’s mega free zones and business hubs. The nature and size of the proposed business, as well as the particular requirements of investors, will govern the choice of legal structure in Bahrain. All types of Bahraini companies give the shareholders or the directors an Investor’s Residence Visa.

Bahrain imposes no exchange control restrictions on repatriation of capital, profits and dividends, enabling full financial transferability of capital, profits and dividends. Bahrain currently levies no taxes on personal or corporate income. There is no capital gains tax, no withholding tax and VAT.

Forming a company in Bahrain offers excellent access to the GCC states, especially Saudi Arabia, which is the largest market in the region. Bahrain has an expanding treaty network that includes over 30 double tax agreements with key partners in Asia, Europe and the Americas, as well as the Middle East and Africa. This is supplemented by bilateral investment treaties with countries including India, Italy and the US, and Free Trade Agreements with trading partners such as the US and Singapore.

Potential investors should speak to a consultant to ensure that the company they are establishing complies with the various new MOIC rules and regulations. Sovereign is in a unique position, through its global network of offices, to give guidance on suitable structures available to meet any personal and business requirements.

The Bahrain property market is already highly competitive when compared to other regional locations due to its attractive residential and commercial rents and values, but the huge monetary investment into the city and its infrastructure combined with the new opportunities for foreign investment will certainly help to support sustained activity in the long term.

Given the boost to real estate values and rents in Bahrain, property owners should be ensuring that their ownership structures and succession plans are fit for purpose. Many property owners are not fully conversant with local legal procedures or taxes and may not fully recognize the longer-term implications in terms of potential exposures to capital gains tax, inheritance tax or forced heirship rules. Substantial benefits may be derived through the use of corporate, trust or foundation structures to address these issues.

Sovereign assists many of its clients with the acquisition of real estate worldwide. We advise on tax and structuring and can manage the transaction process and financing arrangements. With our regional knowledge of property ownership laws and regulations, along with our tax planning expertise, we can help you reduce any potential exposure.

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Singapore to keep pursuing other Free Trade initiatives

January 31, 2017

Singapore says it will continue to participate in other free trade initiatives, as members of the Trans-Pacific Partnership (TPP) consider new options after new US President Donald Trump ditched the trade pact that he said kills American jobs. The Ministry of Trade and Industry (MTI) told The Straits Times that the Republic will also have to “discuss the way forward” with TPP partners.

“Each of the partners will have to carefully study the new balance of benefits,” MTI said in a statement. Countries from Singapore to Mexico are now considering their next move, after Mr Trump signed an executive order to withdraw the US from the 12-nation TPP that together accounts for 40 per cent of world trade. He also vowed to renegotiate a free trade agreement with Canada and Mexico.

Australia and New Zealand said they still hope to salvage the TPP despite the US withdrawal. But the deal cannot go into effect in its current form without US participation, MTI said.

“Singapore is committed to pursuing a rules-based trading system and greater regional integration,” it added. “The agreement that the TPP parties has negotiated is one such pathway to achieve stronger trade linkages that will promote growth opportunities and job creation in all the member countries.”

The MTI spokesman said Singapore will continue to participate in regional initiatives such as the Regional Comprehensive Economic Partnership (RCEP) and the proposal for a Free Trade Area of the Asia-Pacific. RCEP is an Asia-Pacific trade liberalisation initiative led by China that includes the 10 Asean members as well as Australia, New Zealand, Japan, South Korea and India.

Meanwhile, the Singapore Business Federation (SBF) called on the Government to join and encourage other TPP member countries to push for the implementation of the TPP, with or without the US. “Without the US, the TPP continues to provide substantial benefits for businesses as the US market is already quite open,” noted SBF chief executive Ho Meng Kit.

Singapore already has a bilateral free trade pact with the US, as well as with all of the other TPP countries except Canada and Mexico. This means the about-turn by the US “might not have much detrimental impact on Singapore”, noted DBS economist Irvin Seah.

The Trump administration’s shift towards greater protectionism could hurt more, he said, adding: “This will deal a big blow to global trade liberalisation. It is negative for Singapore because we are a small, open, trade-dependent economy.”

Other TPP partners have also expressed their keenness to make the deal work. Australia’s Trade Minister Steve Ciobo, for one, told ABC Radio that a TPP without the US was “very much a live option”. Japan, another TPP member, has been pressing other signatories to push on with the pact too, while suggesting it will try to change Mr Trump’s mind before next year, the deadline for the deal’s ratification.

Prime Minister Shinzo Abe’s top adviser Yoshihide Suga told CNBC: “We believe we still have an opportunity to convince the US about the importance of free trade.” But Professor Kamel Mellahi of Warwick Business School said: “The survival of the TPP trade deal is inconceivable. Plus, many Asian countries have an alternative in China’s proposals.”

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Key tax related items from the 2017 National Fiscal Budget of Kingdom of Saudi Arabia

January 31, 2017

The Kingdom of Saudi Arabia (KSA) National Budget 2017 sees a progressively lower budget deficit with the aim of achieving break even by 2020. The government has considered taxes as one of the sources for additional revenue with the introduction of certain new/revised levies on expatriates and, most notably, the Value Added Tax (VAT). Whilst these reforms will result in additional revenue for the government, it may increase the cost of doing business in KSA.

Expatriate Levy

Currently, companies pay a levy of SAR 200 per month per expatriate employee, but only for expatriate employees that exceed the number of Saudi employees. From next year, this fee will be increased gradually (from January every year) until 2020. Furthermore, for expatriate employees not exceeding the number Saudi employees, the fee will no longer be waived but will be levied at a discounted rate.

In addition, a new fee on dependents of expatriate employees will be levied. This fee will be applicable from July 2017. The fee will be SAR 100 per dependent per month and will increase gradually every year until 2020.

The potential plans to levy income tax and or remittance tax on expatriate employees has been placed on hold for now.

Value Added Tax (VAT)

The Saudi National Budget 2017 revealed that KSA signed the GCC (member states comprising Bahrain, KSA, Kuwait, Oman, Qatar and UAE) unified framework agreement for VAT in December 2016. The Saudi National Budget 2017 also confirmed the implementation of VAT in KSA from January 2018.

The current indication is that most goods and services will be subject to VAT at 5%. Certain goods and services may be either zero rated or exempt from VAT. More details on applicability of VAT will be available once the GCC framework and KSA VAT law is published.

Excise Tax on harmful goods

Excise tax will be implemented on certain products that are viewed to be harmful to individual’s health.

Excise Tax of 50% on soft drinks (at this stage, there is no indication on whether it will apply to all or specific soft drinks), and 100% on tobacco products and energy drinks will be imposed from April 2017. This will result in these specific products becoming costlier and potentially achieving the objective of reduced consumption.

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Revision of Tax Treaty between India and Cyprus: Beginning of New Era

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 1^st 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 29^th 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 28^th and 29^th June at New Delhi. On 1^st 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 1^st 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 18^th 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. 1^st 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 1^st 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.

For more details reach us at [email protected]

Newsletter

Saudi Arabia, Turkey sign 8 agreements to promote business

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

Be ready for the Unified GCC Customs Tariff 2017

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.

For more details reach us at [email protected]

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New Base Erosion & Profit Shifting (BEPS) Guidance on Country – By – Country Reporting & Implementation

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]

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