Welcome to the June edition of our Tax Newsletter. As countries look to reform their tax systems with the goal of becoming more globally competitive, keeping up to date with trends and developments is increasingly important. In this issue, we cover GCC and international tax updates, as well as upcoming events in the United Arab Emirates (UAE).
Following a Royal Directive, the Capital Market Authority Oman (CMA) announced the suspension of WHT on dividends and interest. As per the announcement, this suspension begins from 6 May 2019, is valid for a period of three years and can be extended for further periods if required.
The WHT suspension on interest will potentially benefit all payers. It is also applicable to dividends of joint stock companies; other forms of companies were not subject to dividend WHT. The Royal Directive is prospective in nature. Consequently, WHT on dividends and interest prior to 6 May 2019 will continue to apply based on the existing law.
The Dubai Free Zones Council recently reached a preliminary agreement to introduce the One Free Zone Passport initiative, which allows companies licensed in one free zone to also operate in other free zones in Dubai without the need for another license.
Its aim is to promote business and make it easier for companies to operate across multiple free zones in the emirate.
Dubai Development Authority, formerly known as Dubai Creative Clusters Authority, has issued its 2018 Licensing Categories Decision for the Dubai Creative Clusters Zone, through Circular 302 dated 4 December 2018.
A key requirement of Circular 302 is the preparation of audited accounts for Free Zone Limited Liability Companies and Branches, beginning from business year 2018. Accordingly, the first submission of the audited accounts will be in 2019. The news flash specifies the free zones which are impacted by the mandatory audit requirements.
4) Multilateral Instrument (MLI) – United Arab Emirates deposits instrument of ratification
On 29 May 2019, the United Arab Emirates became the 26th country to deposit its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). With respect to the United Arab Emirates, the convention will come into force on 1 September 2019. As of this date, the United Arab Emirates' treaties with Finland, France, Ireland, Japan, Jersey, Lithuania, Luxembourg, Malta, the Netherlands, New Zealand, Poland, Serbia, Singapore, Slovenia and the United Kingdom will be affected by the MLI. The list of affected treaties will increase as further partner countries deposit their instruments of ratification. The extent to which the MLI will modify the United Arab Emirates’ bilateral tax treaties will depend on the final adoption positions of the other countries.
The United Arab Emirates submitted its MLI position at the time of signature, listing its reservations and notifications and including 114 tax treaties that it wished to be covered by the MLI. In the final version of its MLI position, the United Arab Emirates left the total number of listed agreements unaltered.
5) Oman: Introduction of scientific and other specialized zones
Royal Decree 27/2019 was published on 28 April 2019 with regard to the set-up of scholarly zones affiliated with the Research Council, scientific zones and other specialized zones subject to the approval of the Council of Ministers. Entities operating in these zones will be entitled to incentives such as initial exemption from tax for five years (renewable twice for a period of five years each), import duty exemptions, waiver of the minimum capital requirement and benefits relating to usufruct of land. Such incentives are subject to licensing and other conditions. However, entities such as banks, financial institutions, insurance, re-insurance, communications or land transport services companies are excluded from the purview of exemption. It is expected that establishment of such zones will happen in the near future.
6) Global Forum assists Oman in their fight against tax evasion
An induction program, for Oman to participate in and benefit from the international developments in tax transparency and exchange of information, was launched with the visit of the Secretariat of the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum), on 7-11 April 2019.
Oman, which joined the Global Forum in October 2018, will be reviewed against the standard of exchange of information upon request (EOIR) in the next 2-3 years. Oman is also committed to implementing the standard on automatic exchange of financial account information (AEOI) by 2020, and will also be reviewed against this standard in the near future.
During the visit, a seminar was held to raise awareness among the government authorities on the international standards of transparency and exchange of information for tax purposes, and their implications and opportunities for Oman. It was followed by a workshop on AEOI to help Oman draft its AEOI legal framework. This induction program will enable Oman to implement the EOIR and AEOI standards and to prepare for its peer reviews. The Oman authorities expressed their commitment to complying with the international standards of tax transparency.
KPMG International has launched its free mobile tax application, ‘KPMG Africa Business Guide’. The application covers 53 countries and serves as an all-in-one tool to understand the nuances of investing in African economies.
It is updated quarterly with the latest resources from KPMG International and can be downloaded via the Apple App Store and Google Play Store.
2) Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (“Multilateral Instrument" or "MLI")
The MLI modifies the double tax treaties to make them compliant with the BEPS Action Plan.
To date, 87 countries have signed the MLI. Various jurisdictions have recently ratified the MLI and delivered a ratification instrument to the OECD. MLIs pertaining to seven jurisdictions (Curaçao, Finland, Georgia, Guernsey, Ireland, Monaco, and the Netherlands) will come into force between May to July 2019.
Further to the publication of Law 63(I)/2019, the provisions of the EU Anti-Tax Avoidance Directive (ATAD EU 2016/1164) of July 2016 were transposed into Cypriot law on 25 April 2019. The Law transposes three ATAD measures in the Cypriot law, with effect from 01 January 2019: interest limitation (earnings stripping rule), a general anti-abuse rule (GAAR) and rules concerning controlled foreign companies (CFC).
The remaining ATAD provisions will be transposed gradually as per the timeframe set in the Directive. These rules apply to all companies as well as other entities that are subject to tax in Cyprus in the same manner as companies, including entities that are not Cyprus tax residents but that have a permanent establishment in Cyprus.
4) African Continental Free Trade Area Agreement (ACFTA) comes into force
The ACFTA came into force on 30 May 2019. The ACFTA was introduced by the African Union in March 2018 and currently, 52 of the 55 African countries have signed the agreement. However, Africa’s largest economy, Nigeria as well as the Republic of Benin and Eritrea, are yet to sign the agreement. Nigeria put off signing the agreement following protests by major labor unions which warned that the deal would harm the local economy.
The objective of the ACFTA is to create a single continental market for goods and services by removing tariffs from 90% of goods, allowing free access to commodities, goods, and services across the continent. The agreement will be the largest free trade area in the world in terms of participating countries since the formation of the World Trade Organization.
5) OECD program of work for developing a future international tax
On 31 May 2019, the OECD released a detailed program of work on their website, for the overhaul of international tax rules. This was endorsed by the 129 members of the Inclusive Framework on BEPS (IF) at their Paris meeting on 28/29 May and is set to be endorsed by G20 Finance Ministers at their Fukuoka meeting on 8/9 June.
The program of work sets a January 2020 target for the IF to reach agreement on the new ‘architecture’ of international tax rules, with the granular details to be worked out subsequently. This means that the various Working Parties (WPs) and other IF subsidiary bodies, dealing with different aspects of the new rules, will have between June and the end of 2019 to draft the rules and perform the economic impact assessment. Once it becomes apparent whether an agreement can be reached at IF level, multinational enterprises (MNEs) will need to start assessing the implications of the new rules for their global structures, supply chains, and business models. As elsewhere, this will have implications for cross-border business activity into and out of the UAE and the Middle East.
6) EU mandatory disclosure requirements - update
EU Member States are proceeding towards implementing an amendment to the Directive on Administrative Cooperation in the Field of Taxation (DAC 6) into domestic legislation. Several jurisdictions have already published draft legislation or introduced mandatory disclosure rules. Member states are required to implement the legislation by 31 December 2019.
If any company or its affiliates, subsidiaries or related parties have any economic, physical or other presence in a European Union (EU) country, the company may have an obligation to disclose a “reportable arrangement/transaction” under the terms of the EU Mandatory Disclosure Requirements for Intermediaries and Taxpayers (the EU MDR).
Poland recently became the first EU member state to implement the legislation. The first disclosure in Poland for the period from 25 June 2018, to 31 May 2019, is due on 30 June 2019.
Are you aware of the salient points of IFRIC 23, Uncertainty over Income Tax Treatments, recently issued by the IFRS Interpretations Committee? Join our breakfast briefing on Tuesday 2 July to discuss the implications of IFRIC 23. Please contact the tax team to find out more.
Find previous editions of the tax newsletter here.
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