A Member Firm of Andersen Global

Blog

RIYADH: Deputy Crown Prince Mohammed bin Salman, second deputy premier and minister of defense, met with Jordanian Prime Minister and Minister of Defense Hani Al-Mulki at Al-Yamamah Palace here on 19.10.2016. Their meeting was the first of the Saudi-Jordanian Coordination Council.

The council later issued a joint statement.

During the meeting, the council reviewed the distinguished bilateral relations between the two countries in various fields, and discussed aspects of coordination in the areas referred to in the joint statement issued on 11/4/2016. The council confirmed its commitment to developing and enhancing these areas in order to achieve the aspirations of the leaderships of the two countries and serve the interests of both countries, the statement said.

During the meeting, a memorandum of understanding was signed between the Public Investment Fund and the Aqaba Economic Authority to establish an investment development project in Aqaba. An agreement was also reached between the two countries to avoid double taxation and prevent income tax evasion. A memorandum of understanding was reached for industrial cooperation between the two countries, as well as an executive program for cooperation between the Saudi Broadcasting Corporation in the Kingdom and the Jordanian Television and Broadcasting Institution.  

The meeting was briefed on a decision of the Public Investment Fund in the Kingdom in accordance with the memorandum of understanding in the field of investment promotion signed in Amman on 25/08/2016 regarding the establishment of an investment company for economic projects in Jordan, and to be registered in line with the Jordan Investment Law with participation of Jordanian banks and financial institutions.

The two sides agreed to finalize all relevant procedures regarding registration of all investment companies as early as possible.
The two sides agreed on the continuation of efforts and work of the preparatory committee of the Joint Saudi-Jordanian Coordination Council, and to complete other draft agreements, especially those in the fields of electrical connectivity, nuclear energy, investment promotion, mining, military cooperation, and military industries, so as to submit these drafts to the council to take required procedures for signatures during a visit of Custodian of the Two Holy Mosques King Salman to Jordan.

The two sides emphasized the importance of ongoing cooperation between the two countries.

At the end of the meeting, Al-Mulki expressed appreciation for the warm Saudi hospitality.

Agreements reached

The following were the agreements reached between Saudi Arabia and Jordan during the first meeting of the Saudi-Jordanian Coordination Council in Riyadh on 19.10.2016:

  • MoU signed between the Public Investment Fund and the Aqaba Economic Authority to establish an investment development project in Aqaba
  • Agreement reached between the two countries to avoid double taxation and prevent income tax evasion
  • MoU reached for industrial cooperation between the two countries
  • Executive program for cooperation agreed between the Saudi Broadcasting Corporation and the Jordanian Television and Broadcasting Institution

RIYADH: The escalating tensions between Turkey and Iraq, as well as the bloodshed in Syria, will top the agenda of a high profile joint meeting of the foreign ministers of the six-nation Gulf Cooperation Council (GCC) and Turkey here on 13.10.2016.

The meeting will also focus on a range of key regional and international issues such as Yemen, Iran and international efforts to combat terrorism.

“The meeting will look into ways to further strengthen joint cooperation between the GCC as a bloc and Turkey,” said GCC secretary-general Abdullatif Al-Zayani on 12.10.2016. “The foreign ministers will discuss the latest political and security developments in the region, and the international efforts to combat terrorism,” he added.

The meeting is politically significant keeping in view the tensions between Ankara and Baghdad, which grew more intense on 11.10.2016 and 12.10.2016 after Turkish President Recep Tayyip Erdogan had a tiff with Iraqi Premier Haider Al-Abadi.

The GCC-Turkey ministerial meeting will be co-chaired by Foreign Minister Adel Al-Jubeir and Turkish Foreign Minister Mevlut Cavusoglu.

Speaking to Arab News 12.10.2016, Turkish Ambassador Yunus Demirer said that “the meeting has been convened within the framework of the strategic dialogue between the GCC and Turkey that was launched in 2008.” He pointed out that “two senior ministers from Turkey— Foreign Minister Cavusoglu and Economy Minister Nihat Zeybekci— will attend the GCC ministerial meeting.”

About the meeting agenda, Demirer said that “all key regional and bilateral issues will be discussed.”

The diplomat also lambasted Iraq, saying that the removal of Turkey from the Iraqi agenda due to pressure from Iran will not create a new, prosperous and peaceful Iraq. Around 1,000 Turkish troops are stationed near Mosul in Iraq to protect interests of Turkey and its regional allies.

He said that the relations between Turkey and the GCC have been “progressively growing.” Ties between the GCC and Turkey are set to improve further as their interests fully align on key regional issues, as well as international subjects. Across regional conflicts, from Libya to Syria, Iraq and even Yemen, Turkey and Riyadh are more on the same page and have the same positions.

RIYADH: 09.10.2016 meetings between the visiting Japanese ministers and Saudi officials in Riyadh have given a fresh boost to their bilateral relations.

Custodian of the Two Holy Mosques King Salman received at Al-Yamamah Palace Japanese Minister of Economy, Trade and Industry, Hiroshige Seko and Minister of State for Foreign Affairs Kentaro Sonora and their accompanying delegation.

During the meeting, the relations between the Kingdom of Saudi Arabia and Japan as well as the prospects for bilateral cooperation between the two countries in various fields were reviewed. The audience was attended by a number of Saudi ministers and the ambassador of Japan to the Kingdom, Norihiro Okuda.

Deputy Crown Prince Mohammed bin Salman, second deputy premier and minister of defense, also reviewed with the visiting ministers the areas of partnership to realize Saudi Arabia’s Vision 2030.

The two parties discussed the role of Japanese companies and government in activating the achievement of the Vision, including the development of joint programs between the two countries since the start of the Joint Saudi-Japanese Group for Vision 2030. The meeting was attended by Minister of Economy and Planning Adel Fakeih.

At the meetings between the ministers, Japan and Saudi Arabia agreed to advance bilateral cooperation in fields such as network-connected devices and renewable energy.

In the first meeting held in the Saudi capital to support the Kingdom’s structural reform drive and help Japanese companies to make inroads, Trade Minister Hiroshige Seko said the occasion marks the beginning of bilateral cooperation in a concrete form.

“If combined with the Abenomics economy policy mix being pursued by the government of Prime Minister Shinzo Abe, Saudi Arabia’s reform efforts would create a “synergy” that yields great benefits,” Seko said at the outset of the meeting.

The ministerial-level meeting was attended by Adel Fakeih, minister of economy and planning, among other officials.

At the meeting, the two sides also agreed on Japanese support in such areas as talent development in animation and video games, energy conservation and nuclear power, martial arts seminars and athletic training, Japanese officials said.

Executives of about 30 Japanese companies accompanying Seko also met with Saudi officials and pitched their business plans.

The meeting was the result of an agreement reached between Abe and Deputy Crown Prince Mohammed bin Salman in Tokyo last month.

During the meeting between businessmen of the two countries held at the headquarters of the Council of Saudi Chambers on 09.10.2016, Japan and Saudi Arabia agreed to advance bilateral trade cooperation between the two private sectors.

Speaking on behalf of the Saudi team at the headquarters of the Council of Saudi Chambers, Tariq Al-Qahtani told the Japanese officials that there is the second largest trade partner to the Kingdom enjoying a bilateral trade of $57 billion in 2013. He said the recent visit of the deputy crown prince to Japan and an earlier visit of King Salman when he was crown prince, had boosted trade between the two countries.

Al-Qahtani recalled that during these visits, a number agreements were signed and they are now being successfully implemented to derive mutual benefits. The results of these agreements will affect technology transfer and boost small and medium enterprises in the Kingdom.

The executive president of JETRO said that Japan’s largest volume of oil comes from the Kingdom and Japan in turn exports a variety of products including automobiles and machinery to Saudi Arabia.

Describing trade between two countries as significant, he said Japan is interested in taking part actively in the implementation of the 2030 program.

Leading Japanese bank Mizuho Financial Group, Inc. and state-owned Saudi Arabian Oil Co. (Saudi Aramco) recently signed a major agreement for business cooperation with the aim to support Japanese companies investing in the Kingdom. The move will go a long way in expanding ties between the two countries, especially in the energy sector.

With the memorandum of understanding, Mizuho, the sole Japanese bank to have an office in Saudi Arabia, is expected to work more closely with the Kingdom and provide enhanced support to Aramco, which works to transform its business portfolio, the Tokyo-based financial group said in a press statement, while referring to the visit of Deputy Crown Prince Mohammed bin Salman to Tokyo.

The statement said that “Mizuho will use Aramco’s knowhow and network to introduce Japanese companies, in particular SMEs and middle-marketers which have unique technological advantages, to Aramco and other Saudi companies as their business partners.”

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.

Follow Us

Recent Posts