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RIYADH: Saudi Arabia and Singapore have identified education and health as potential areas of cooperation.

“Top Saudi officials will be traveling to Singapore, an island city-state in Southeast Asia, in the near future to explore possibilities to work closely in these sectors,” said Singapore Ambassador Lawrence Anderson.

Anderson, who was speaking on the occasion of Singapore’s national day, said that “Singapore has a lot to offer to the Kingdom within the framework of the Saudi Vision 2030 … With 2017 marking the 40th anniversary of the establishment of bilateral relations, there is a great interest to further strengthen Singapore-Saudi ties through various commercial opportunities presented by the Vision 2030 reforms,” he added.

Singapore has “one of the most successful health care systems in the world, in terms of both efficiency in financing, and the results achieved in community health outcomes. Since the 1990s in the field of education, Singapore has consistently been among the top performing countries.” To this end, the diplomat noted that efforts will be made to develop modalities to enhance bilateral relations under the new cooperation plan, especially in learning “best practices” in health and education.

The envoy further pointed out that “science, technology, IT, training and skills development are other potential areas in which the two countries can further cooperate.”

Referring to commercial relations, Anderson said that Saudi Arabia has been Singapore’s second largest trading partner in the Middle East with bilateral trade reaching $10 billion last year. “At the end of 2015, the total number of Saudi companies with their presence in Singapore increased to 45 from 20 in 2006,” he noted.

The envoy, who on 07.10.2016 night hosted a reception for Singaporeans based in Riyadh, said that “the national day event organized by the embassy was a way of bringing the community together.”

Framing his speech under the three themes of “Remembrance, Rejoicing, and Thankfulness,” Anderson said that Singapore was entering a new era with the passing of its first generation of leaders like former President S.R. Nathan and founding father PM Lee Kuan Yew, who had led the country for decades to prosperity.

Anderson reminded the community of the valuable lessons of loyalty, hard work, honesty and respect for family, neighbors and friends, that these pioneer leaders espoused.

On the theme of “rejoicing,” Anderson spoke about how Singaporeans collectively cheered on their athletes Joseph Schooling and Yip Pin Xiu who won gold medals in swimming at this year’s summer Olympics and Paralympics respectively.

He highlighted the challenges that Singapore will have to face in the new era of disruptive technology, economic uncertainty, and the threats posed by terrorism.

He emphasized that the most important criteria to Singapore’s continued success was the importance of preserving its hard-fought unity as a multi-racial and multi-religious country. “If we can all pull together as one united people, regardless of race, language or religion, then we can truly look forward to the future with confidence,” Ambassador Anderson said.

The city-state 09.10.2016 is considered a barometer of global economic health owing to its high dependence on external trade. Its foreign trade and capital flows is 407.9% of its GDP.

The Gulf Cooperation Council will start implementing VAT at a rate of 5% from 1 January 2018.

The Gulf Cooperation Council (GCC) – of which the UAE and Qatar are member states along with Saudi Arabia, Kuwait, Bahrain, and Oman – will start implementing the Value Added Tax (VAT) at a rate of 5% from 1 January 2018.

Currently the GCC is in the process of approving a common legal framework for the introduction of a VAT system. This VAT framework is expected to be finalised at the next meeting of the GCC Financial and Economic Cooperation Committee, now in October 2016.

The common VAT framework will form the basis for a national VAT system that will be implemented in each of the GCC states. Each member state would still be required to issue its own national VAT legislation, and will have the authority to determine specific VAT rules in certain areas. The objective of the common VAT framework is to introduce a standard, fully-fledged VAT system in each member state.

What is VAT in the GCC?

The VAT in the GCC will – most likely – be based on the European system and will be charged at each step of the ‘supply chain’. Ultimate consumers generally bear the VAT cost while businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government. A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to the government reflect the ‘value add’ throughout the supply chain.

If a business doesn’t collect the VAT from its customers where it should, it is actually the business that becomes liable for the VAT. It is therefore very important for any businesses to ensure their VAT compliance process is functioning perfectly. As VAT is a turnover tax, it also means the liabilities, or missed opportunities on the recovery side, can build up fast.

Registering for VAT

Not all GCC businesses will need to register for VAT. In simple terms, only businesses that meet a minimum of AED 3.75m of annual turnover will have to register for VAT. Between AED 1.78m and AED 3.75m the registration for VAT is voluntary.

Also, businesses may not need to register with the government if they only provide goods and services which are not subject to VAT.

What are the VAT-related responsibilities of businesses?

All businesses in GCC member states will need to record their financial transactions and ensure that their financial records are accurate and up-to-date. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT. Businesses that do not think they should be VAT-registered should maintain their financial records in any event, in case they later need to establish whether they should be registered.

VAT-registered businesses

These businesses generally:

  • must charge VAT on taxable goods or services they supply
  • may reclaim any VAT they’ve paid on business-related goods or services
  • need to keep a range of business records which will allow the government to check that they are compliant.


A VAT-registered business must report the amount of VAT it has charged and the amount of VAT it has paid to the government on a regular basis. This will be a formal submission. If a business has charged more VAT than it has paid, it must pay the difference to the government. If a business has paid more VAT than it has charged, it can reclaim the difference.

Please find the treaty updates for the month of September 2016.

  • Canada – Israel: DTA Signed
  • Saint Kitts and Nevis – Germany: TIEA Signed
  • Liechtenstein – Austria: DTA Signed
  • Cayman Islands – Isle of Man: TIEA Signed
  • Japan – Panama: TIEA Signed

A protocol to amend the provisions of the 1983 India-Mauritius double tax treaty was signed by both countries at Port Louis, Mauritius, on 10 May 2016. The Indian government had been trying to renegotiate the treaty since 1996 to combat issues of treaty abuse and round-tripping of funds.

Under the current treaty, capital gains arising from the disposal of shares in an Indian company are taxable only in the country of residence of the selling shareholder (and not in India). Accordingly a company resident in Mauritius that does not have a permanent establishment in India and which disposes of its shares in an Indian company is liable to CGT only in Mauritius. As Mauritius does not levy CGT, no tax is levied either in India or in Mauritius.

The full version of the protocol has not yet been published, but key changes include amendments to the taxing rights on capital gains and limitation of benefits. Article 13 of the current treaty will be amended such that, from 1 April 2017, capital gains arising from disposal of shares of a company resident in India will be taxable in India.

The protocol contains a “grandfathering” provision such that investments acquired before 1 April 2017 will be unaffected by the protocol and will remain taxable in Mauritius. There will also be a transition period, from 1 April 2017 to 31 March 2019, during which any capital gain generated on the sales of investments acquired after 1 April 2017, will be taxed in India at a reduced rate of 50% of the domestic tax rate (currently 15% for listed equities and 40% for unlisted ones) provided it fulfils the conditions of the Limitation of Benefits (LOB) article. The full domestic Indian tax rate will apply from 1 April 2019.

Under the LOB article, a Mauritian resident will benefit from the reduced CGT rate provided that it satisfies the main purpose and bona fide business test, and is not a shell or conduit company. A Mauritian company will be deemed to have substance provided it meets an annual expenditure threshold of Mauritian Rs 1.5 million (approx. US$43,000) in Mauritius in the period of 12 months immediately preceding the date on which the gains arise.

Other changes include an amendment to Article 26 of the current treaty on exchange of information to bring it into line with international standards. The Protocol also introduces provisions for assistance in collection of taxes and sourcebased taxation of other income.

The current treaty was a major reason for a large number of foreign portfolio investors and foreign entities to route their investments in India through Mauritius. Between April 2000 and December 2015, Mauritius accounted for US$93.66 billion — or 33.7% — of the total foreign direct investment of US$278 billion. However, due to the uncertainty concerning the Mauritius treaty over the last few years, Singapore has emerged as the preferred destination. Cyprus and the Netherlands also enjoy treaties that offer a capital gains tax exemption to investors.

It is expected that the amended tax regime for Mauritius will also be applicable to capital gains for Singapore tax residents. Article 6 of the protocol dated 18 July 2005 to the Singapore tax treaty sets out that the CGT exemption under the Singapore treaty will remain in force only while the CGT exemption under the Mauritius treaty remains in force

The Cyprus Ministry of Finance also announced, on 29 June 2016, that it had completed negotiations for a new tax treaty with India that allows for source-based taxation of capital gains from the alienation of shares. Under the deal, Cyprus will be removed from India’s blacklist of “notified jurisdictional areas”.

As with the Mauritius protocol, India and Cyprus have agreed to generous grandfathering provisions. For investments undertaken prior to 1 April 2017, the right to tax the disposal of such shares at any future date remains with the contracting state of residence of the vendor.

The total foreign investment in Qatar has touched an estimated QR525.7bn ($144 billion). The country’s total inward investments increased by QR1.6bn at the end of 2014, from a year ago, “Qatar foreign investment survey 2015” released by the Ministry of Development Planning and Statistics (MDPS) noted.

Other foreign investments, meaning transactions from aboard in the form of loans and investments, touched QR306bn, up QR17.3bn compared to the previous year. Foreign Direct Investment (FDI) in Qatar stood at QR141.1bn, while portfolio investments amounted to QR78.6bn. During 2014, Qatar’s foreign direct inward flows witnessed a drop by QR11.3bn.

According to the Ministry’s updated data, Qatar’s outward investment increased by QR35.3bn to QR306.2bn. Other foreign investments consisting of long term loans and trade related short term financial instruments touched QR166bn of the total assets, while foreign direct investment abroad stood at QR117bn and portfolio investments or financial securities clocked QR23.2bn. Outward flow of foreign direct investment amounted to QR3.1bn in 2014 against QR13.1bn in 2013.

Over 90 percent of the inward FDI was accounted for by the oil and gas associated downstream manufacturing and other activities such as transportation and marketing. In terms of the book value of investments, manufacturing activities accounted for 52 percent of the total value of FDI, followed by mining and quarrying (38 percent) and financial insurance activities (4 percent) at the end of 2014.

Over 60 countries contributed to the stock of FDI in Qatar. The top four Group of countries’ share of FDI accounted for 94 percent. They included European Union, US, Other American Countries and GCC. Other American Countries Group accounted for the major share of FDI inward stock in 2014, with 34 percent, followed by European Union (33 percent) US (22 percent) and GCC (5 percent).

The stock of outward direct investment from Qatar stood at QR117bn, an increase of 3 percent over the previous year. Financial and Insurance activities, Transportation and storage; Information and communication, Real Estate activities were the top groups that received the most of the FDI abroad, an estimated 89 percent. The Financial and Insurance group received the major share of total FDI outward stock, 38 percent. Transportation and Storage; Information and communication group received 32 percent of the total outward stock, while real estate received 19 percent of the total outward FDI.

Qatar had FDI abroad in about 80 countries, with the European Union, GCC, Other Arab Countries and Asian group of countries collectively receiving 83 percent of the estimated QR117bn. While the maximum share went to European Union (29 percent), GCC received 26 percent. The other Arab countries and Asian countries received 18 percent and 11 percent, respectively.

The Ministry compiled the investment data with the support of Qatar Central Bank (QCB). International financial transactions made by individuals and by the Government are not covered in this study.

As of August this year, construction has commenced on the development of a new Sino-Oman industrial city, at a 11.7 square kilometre site located at the Special Economic Zone in Duqm, Oman. The development originates from an agreement valued at US$10.7bn between the Oman government and Chinese investors which will see the city being organised into three separate zones – heavy manufacturing, light manufacturing and a mixed-use area.

The site which is based 550km south of the capital Muscat will feature 35 different projects, which will include Duqm’s second oil refinery with facilities able to process 235,000 barrels a day in addition to an aluminium smelter, magnesium plant, cement and glass factories and solar factory.

One of the main investors Ningxia China-Arab Wanfang which comprises of six private companies supported by the Ningxia regional Government has pledged to developing a minimum of 30% of the site by 2022, with projections for the city to be able house a population of 25,000 by that time.

Forming part of the wider Belt and Road initiative, the investment in Oman follows on from existing Chinese investments in infrastructure projects in Egypt and Saudi Arabia.

Introduction

On 9th November, 2015 the council of ministers of Kingdom of Saudi Arabia approved much awaited new Company Law with dual objective of modernizing the company law framework and resolve ambiguities in existing framework in the kingdom. New law also strives to promote foreign investment and encourage small and medium scale enterprises by establishing simpler and flexible entry regulations. This law came into force with effect from 2nd May, 2016 and shall annul all the provisions of previous company law. Provisions of this new law are much in line with the Kingdom’s National Transformation Plan 2020 and the Saudi Vision 2030 to facilitate the kingdom to diversify its economy and reduce its dependence on energy and oil sector. Following are the major amendments made by New Company Law.

Widened Scope for Capital Market Authority

New law authorizes the Capital Market Authority for monitoring and regulating the operations of Joint Stock companies and to participate with the Ministry of Commerce and Industry (MoCI) in preparing the rules for implementation of new law. While MoCI still remains the primary authority, scope of capital market authority is also broadened.

Relaxed and Simpler Regulations

  • New law allows single person to form a Limited Liability Company (LLC). Earlier at least two persons are required to form an LLC. However, law prohibits single shareholder of one LLC from being sole shareholder in more than LLC.
  • Minimum shareholder for forming a Joint Stock Company (JSC) is now 2 while earlier the requirement was 5.
  • Minimum capital requirements for companies have also been reduced but these are subject to additional capital requirements under Foreign Investment Law, wherever applicable.
  • Minimum total statutory reserve is reduced to 30% from 50%. This is a welcome move as it will provide more liquidity to companies.
  • If the losses of company reach 50% of its capital and the shareholders failed to take any action within the stipulated time, the company will be deemed dissolved and shareholders cannot be held personally liable on failure to convene a meeting.
  • New confidentiality clause will be imposed on shareholders in respect of information about the company available to shareholders.
  • Change of articles of association will not be required for registering transfer of shares under new law and now the transfers can be registered only by recording them in a register specially made for this purpose.


Protection of Investor’s Interest

To protect the interest of investor and shareholders, new law imposes stringent provisions to be followed by management of the company. Some of the major provisions are:

  • Right to nominate board member will be directly associated with the percentage of shares held.
  • Board will be required to establish an audit committee which is mandatorily required to be independent to board of directors.
  • Modernization of provisions to convene general meetings.
  • Chairman and members of board are not allowed to hold executive positions in the company.


The Transformation

Companies formed under new law will consequently comply with this law and the existing companies in Saudi will now have to tighten their shoes to comply with the provisions of new law. Article 224 provides existing companies a period of twelve months to comply with the provisions of new law. However, it is advisable to transform into new law at the earliest, because the penalties will be levied from the effective date of new law.

Bottom Line

The government of KSA is taking effective steps to strengthen the economy and changes in foreign investment regulations and simpler and flexible entry provision will definitely attract investors. Stringent corporate governance norms will again boost confidence of investors. Now the management have to understand the requirements under new law take effective steps to comply with the provisions of new law at the earliest to save companies from paying unnecessary penalties.

Introduction

Bahrain is currently implementing changes in relation to its company’s law framework. Last year have been a year of series of new laws and amendments to existing laws with an objective to promote business activities and to attract investors coming to the region for doing or expanding their business. Various new bodies have been formed to monitor and facilitate registration and licensing requirements. This articles aims to highlight some of the major steps adopted for the same.

Establishment of Business Licensing Integrated System (‘BLIS’)

BLIS was established by Ministry of Industry and Commerce (‘MoIC’) few years ago with the objective to simplify the registration process of business, streamline licensing requirements, and ensure full transparency of procedures and to facilitate coordination amongst relevant organizations. Now this project is successfully implemented and contributing to online procedures for registration of business in Bahrain and obtaining licenses. This is saving crucial time and finance of investors and attracting people to explore business opportunities in Bahrain. The government of Bahrain has also lifted many major restrictions on foreign investments to promote international investors to come to the country for expanding their business.

The Commercial Register Law 2015 (‘CR Law’)  

The CR Law implemented last year applies to almost all organizations propose to carry or already carrying out commercial activities in Bahrain including the branches of foreign companies and the companies governed by Commercial company Law of Bahrain. This law provides that carrying out any commercial activity in Bahrain without obtaining a license and getting registered with appropriate is now a criminal offence. Without prejudice to any severer penalty set out in any other law, an offender have to face imprisonment of up to five years and or a fine of between BHD 1,000 to 5,000. In addition to this, the CR Law also provides investigative powers to the MoIC to conduct administrative investigations of any violation of the law upon any serious complaint or notification.

The CR Law sets out the procedure for dealing with violators and authorizes competent authorities to impose penalties or close down the company upon receiving an order from the court to safeguard the interest of stakeholders and ensure transparency.

Commercial Companies Law

Commercial Company law of Bahrain has also been amended last year to support corporate reforms in the nation and to bring it in line with current requirements and address existing ambiguities. Major amendment bought by the new law are as follows:

Liability of Shareholders and Directors

Article 18 states that directors, shareholders, promoters and management of companies can be held liable for the entire capital of company for any damages affecting the company or any of its partners, shareholders, directors and third parties in situations prescribed under the law.

The new Law also phenomenally extends the application of Code for Corporate Governance to all types of companies as opposite to previous law where it was applicable to listed companies only. This stringent corporate norms indicates that the government is in no mood to give leverage to persons who use corporate veil to fraudulently monetize the transaction for personal gains and bring Bahrain commercial laws in line with international practices.

Revised Capital Requirements

Minimum capital requirements for companies have also been reduced depending about the nature and size of company to promote medium and small scale business in the country.

Relaxed provisions for Public Companies

The requirement to have all Bahraini national in Public companies is now been waived off and Public companies can now use foreign capital and expertise subject to the laws applicable.

Article 234 which provides for three year restriction on closed joint stock companies from being able to convert and trade its shares publically is revised and now shares of such companies can be traded after payment of full value of shares. It is a welcome move and offers liquidity to investors and shareholders.

Introduction of Shelf Companies

New concept of Shelf companies is introduced. It is a company that can be registered without listing any activity under its functions. Such company may be sold afterwards, however the activity must be approved by the competent authority before sale. Life of a shelf company will be one year and all the licenses and approvals should be taken in this period only.

Foreign Ownership Restrictions

Bahrain has generally been liberal for foreign ownership requirements and allows for corporate vehicles undertaking certain activities to be wholly owned by foreign entities and/ or individuals.

Article 345 goes a little further and states activities which can be previously allowed only to Bahraini nationals or companies majorly owned by Bahraini national can now be undertaken without the requirement of majority Bahraini shareholding. It authorize the Council of Ministers to determine the activities which can be carried out by companies with foreign ownership by way of a resolution.

In a recent announcement, government have clarified that it is allowing 100 percent ownership in administrative services, manufacturing, residency and real estate, health and social work, information and communications etc. These changes are expected to be effective in near future.

Conclusion 

The new measures adopted in Bahrain to reform the business and investment environment are welcomed by business owners and investors as they phenomenally simplify registration and incorporation procedures, promote foreign investment and streamline the procedures. The government is taking effective steps to strengthen the economy and changes in foreign investment regulations and simpler and flexible entry provision will definitely attract investors from around the globe and will give a boost the economy. Successful implementation of these measures shall start giving sweeter fruits to Bahrain in coming decades.

The new Saudi Companies Law came into effect on 2nd May 2016 (“the Effective Date”).

Implementing Regulations clarifying the operation and effect of a number of the provisions of the new law have recently been through a consultation phase and are due to be issued in the coming months.

The renamed Ministry of Commerce and Investment (“MoCI”) and the Saudi Arabian General Investment Authority (“SAGIA”) are having to get to grips with the significant changes under the new law affecting how entities in Saudi Arabia are formed and regulated, against a background where Saudi Arabia is seeking to encourage more foreign investment in line with the National Transformation Plan 2020 and the Saudi Vision 2030, which are Saudi Arabia’s roadmap to diversify its economy and address the challenges brought by low global energy prices. 

As with many new pieces of legislation it may take a while for the regulators and others to understand fully the new law and for it to be fully implemented in practice.

This article highlights some key issues relating to the implementation of the new law, signposts some new and impending regulations that Saudi, GCC and foreign investors need to be aware of and some of the steps that existing companies and managers now need to be considering.

The New Law

The important changes in the new law from the position under the old Saudi Companies Law are listed in the tables below.

Interim Period

Article 224 of the new law gives existing companies 12 months from the Effective Date to bring their affairs into compliance with the new law. However, this does not mean that existing entities do not have to comply with the new law until the end of the 12 months because penalties can be applied from the Effective Date. MoCI and the Capital Markets Authority (“CMA”) can also determine certain provisions of the new law which are effective during this interim period.

Template Constitutional Documents

MoCI has recently published template articles of association (“AoA”) and bylaws for the different forms of entity including LLCs and joint stock companies (“JSCs”). 

Whilst it is not mandatory for a company to have constitutional documents in this format, it is likely to be easier, certainly for any companies formed after the publication of these templates, to obtain MoCI approval using constitutional documents based on this format and they should also be considered when existing companies are considering changes to their constitutional documents.

The new template AoA for LLCs reflect , for example, the following changes under the new law:

  • Financial statements to be prepared within 3 months of year end and filed within a further 1 month (previously 4 months and 2 months);
  • Suspension of set aside of statutory reserve when it reaches 30% of capital (previously 50%);
  • Changes to statutory pre-emption process including added flexibility on valuation;
  • New procedures and effects where losses reach 50% of capital.

 

JSCs-MoCI and Capital Markets Authority Statements

In April and May 2016 MoCI and the CMA issued two joint statements dealing with the implementation of the new law in relation to JSCs (and holding companies) and specifying certain provisions of the new law that must be implemented immediately and others which fall within the 12 month grace period. 

Examples of provisions to be complied with are:

  • Article 90 – regulating shareholders meetings;
  • Article 95 – cumulative voting for board elections and certain situations where directors are prohibited from voting.

 

Examples of provisions where an extension can be granted are:

  • Article 68.1 – the number of directors;
  • Article 76 – directors’ remuneration;
  • Article 81.1 – the functions of the Chairman, Deputy Chairman and Managing Director;
  • Articles 101 – 104-certain provisions relating to Audit Committees;
  • Article 150 – dealing with losses of JSCs (although listed companies have to make a monthly announcement of their plans and actions to comply if losses incurred equal or exceed 50% of capital in the interim period);
  • Articles 182 – 186-dealing with holding companies.

 

However the MoCI/CMA statements make clear that any new action intended by a JSC must comply with the new law eg on appointing a new director Article 68.1 must be complied with.

Accordingly as well as bringing their procedures and affairs into line with the new law, all existing Saudi companies will need to review their existing constitutional documents and consider the changes required to be consistent with the New Law.

Foreign Investment

The Saudi Arabian General Investment Authority (“SAGIA”) announced in 2015 that international companies were being encouraged to establish 100% foreign owned trading companies. Shortly after the announcement of the Saudi Vision 2030, the Saudi Council of Ministers approved rules to implement this change in June 2016. Initial indications suggest that only very large international companies (who amongst other things will employ significant numbers of Saudi nationals) will qualify for 100% foreign ownership

On implementation of the new law, SAGIA has yet to clarify if, when and on what basis it will license foreign owned holding companies and foreign owned single shareholder LLCs.

These clarifications are likely to have a significant impact on foreign investors structuring their investments in Saudi Arabia. 

New Implementing Regulations

The draft implementing regulations (“Implementing Regulations”) for the new law have also been through a consultation phase which was completed in May 2016. The final version is expected in the next few months.

The draft Implementing Regulations cover areas such as:

  • Use of technology at JSC meetings;
  • Buy-back of JSC shares;
  • Pledge of JSC shares;
  • Preference shares

 

Corporate Governance

In April 2016 MoCI and the CMA issued a draft of proposed new Corporate Governance Regulations (“the CG Regulations”) which again have just been through a consultation phase. The CG Regulations will apply to both Saudi listed companies and on a best practice voluntary basis to closed JSCs (favoured by many Saudi Family owned groups). Once approved the CG Regulations will replace the existing CMA Corporate Governance regulations which apply to Saudi listed companies. Saudi family-owned groups will want to consider the CG Regulations and to adopt some or all of their provisions to reflect best practice, which as well as for family governance purposes may also be important in dealings with third parties.

In the referendum held on 23 June 2016, the United Kingdom voted in favour of exiting the European Union. Although the two-year exit process is yet to commence, consideration should be given to the tax implications that may arise, especially with regard to customs, excise and value added taxes.

Transactions between the United Kingdom (UK) and the countries of the European Union (EU) are currently considered to be intra-community transactions, with an obligation to pay VAT (through a reverse charge mechanism) on assets sent and received. This allows for the free movement of goods, and the situation is similar for the provision of services.

After Brexit (a two-year process that is, at the time of publishing, yet to commence), the sale and purchase of assets between Italy (or other EU member countries) and the UK may no longer be considered intra-community transactions. Instead, assets shipped from Italy to the UK would be classed as export supplies, while incoming goods from the UK would be classed as imports. 

With regard to the provision of generic services pursuant to Article 7-ter of Presidential Decree 633/72, formal requirements would change. Services provided should therefore be identified as “not subject to” transactions. With regard to services received, the Italian taxable entity would be required to apply the reverse charge mechanism, issuing a self-billing invoice. Completion of the invoice received from the British service provider would no longer be necessary. In addition, it would no longer be obligatory to declare the transactions on the Intrastat summary lists pursuant to Article 50, paragraph 6 of Law Decree 331/1993.

Another consequence of a completed Brexit would be the loss of the simplifications that are currently applied among the EU member states. Entities established in the UK would therefore be able to identify themselves as non-resident entities for VAT purposes in Italy only through the appointment of a tax representative in accordance with Article 17, paragraph 2 of Presidential Decree 633/72 and no longer through the identifying procedure set out in Article 35-ter of Presidential Decree 633/72.

It is likely that a similar situation would arise when a taxable Italian entity intends to operate in the UK. It should be noted that, in the future, a British entity that purchases assets in Italy and subsequently resells them to another Italian taxable entity, not creating any domestic tax position, would need to go through a process to recover the VAT paid on the purchase. This process will be much more cumbersome than that which is currently in place for member states.

Some repercussions are also foreseen in e-commerce where, in the case of direct e-commerce, the British operator must necessarily appoint a tax representative in one of the member states. Another consequence would be the loss of the right of Italian economic entities to request a refund for taxes paid in the UK (the non-resident tax refund in accordance with Article 38-bis of Presidential Decree 633/72).

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