Welcome to the August edition of our Tax Newsletter, bringing you recent news and developments. Countries continue to reform their tax systems with the goal of becoming more competitive, globally. While striving to meet international standards, it is more important than ever to keep up with trends and developments. In our August issue, we cover GCC tax updates and international tax developments.
The United Arab Emirates (UAE) Ministry of Finance, by way of a Cabinet Minister’s Resolution, issued Country-by-Country Reporting (CbCR). The UAE is the third GCC country to implement CbCR following the introduction of transfer pricing by-laws in Saudi Arabia and CbCR implementation in Qatar.
The simultaneous introduction of CbCR and economic substance regulations affirms the UAE’s commitment to addressing substance and transparency topics, in line with the European Union’s requirements.
2) The FTA (‘Federal Tax Authority’) issued three public clarifications on the following matters:
-Importation of goods by agent on behalf of Value Added Tax (‘VAT’) registered person:
Goods imported by an agent (or customer) on behalf of a “VAT registered person” providing the agent’s TRN will automatically populate in the agent’s VAT return.
This guide clarifies that, even though the transaction is prepopulated in the VAT return of the agent, he will not be able to recover input tax as he is not the “owner of goods”. The right to recover input tax on such imported goods remains with the VAT registered person as the owner of the goods.
Hence, the FTA expects the agent and the VAT registered person to undertake either of following approaches:
o The agent should reverse the auto-populated transaction in his VAT return and the VAT registered person should incorporate the import transaction in his VAT return. This requires the agent and VAT registered entity to make negative and positive adjustments in box 7 of their respective VAT returns and to enter an agreement to undertake these adjustments; or
o The agent should issue a document equivalent to “tax invoice” recharging the import VAT to the registered person and the agent should not claim a corresponding input credit in their VAT return. The registered person can claim input tax based on such document.
Please note this clarification has direct implications for circumstances where goods imported by a customer are under delivered duty paid (DDP) incoterms.
In this clarification, the FTA provides guidance on the VAT treatment of “recovery of expenses” between commercial parties. The VAT treatment primarily depends on whether the recovery is a “disbursement” or “reimbursement” and the FTA provide principles for differentiating “disbursements” and “reimbursements”.
If the recovery is in the nature of reimbursement, then it will form part of the “main supply”, in which case it will take the same VAT treatment of the main supply (e.g. taxable at 5% or 0% etc.). Whereas, if the recovery is in the nature of disbursement, then it does not constitute as a “supply” for VAT purposes and hence, will be out of scope.
This clarification provides clarity on the tax treatment of an option premium.
As per the guide, options in relation to debt or equity security qualify as “exempt financial service” and hence, VAT is not applicable on the option premium. However, non-debt or non-equity options do not qualify as “exempt financial service” and hence will be treated as “taxable supply”.
The clarification also elaborates on a mechanism to adjust for previous incorrect VAT treatment. Essentially this involves the supplier issuing a tax credit note to the recipient in circumstances where the supplier previously incorrectly applied 5% VAT tax before 31 July 2019, with both parties then adjusting their returns in the respective periods the credit note is issued and received.
3) New Foreign Capital Investment Law (FCIL) passed allowing 100% foreign investment in Oman
A new FCIL (RD 50/2019) was decreed on 1 July 2019 and will be effective six months from 7 July 2019, the date it was published in the Official Gazette. Under the new FCIL, amongst other things, 100% foreign investment is allowed for activities to be specified in the Executive Regulations (ER), which are expected to be released by July 2020. Furthermore, the ERs will also specify activities which will be prohibited for foreign investments. The ERs will also specify the investment projects that will enjoy exemption from taxes, custom and non-custom duties without prejudice to the provisions of the GCC Common Custom Law and the Income Tax Law. Until the new ERs are issued, the old ERs issued under the previous law would continue to apply to the extent they are not inconsistent with the new FCIL.
4) Other major decrees to enhance business environment and spur growth in Oman
A Privatization Law was decreed (RD 51/2019) with a view to encourage and provide a framework for the private sector to take up management of some state-owned enterprises. The law includes procedures for launching and awarding of privatization projects, privatization of government facilities, use of privatization revenues, and dealing with the status of Omani public servants working in projects affected by privatization.
RD 52/2019 and RD 54/2019 approved the Partnership Law between Public and Private Sectors and establishment of the Public Authority for Privatisation and Partnership (Authority) respectively. The Authority is empowered as the body to control public-private partnership projects in consultation with other ministries. The objective is to improve operational efficiency, provide financing needs, encourage foreign investment and attract technical expertise.
Lastly, Bankruptcy law (RD 53/2019) was passed to provide a framework for bankruptcy and protect businessmen who go bankrupt while ensuring that any reported bankruptcy is genuine.
The above long awaited laws emphasize the Sultanate’s commitment to create a robust environment for businesses and the investor community and make the Sultanate an attractive investment market.
International tax updates
The Organization for Economic Cooperation and Development (OECD) issued a release reporting a status update on implementing the base erosion and profit shifting (BEPS) Action 5 minimum standard.
According to the OECD release, 22 jurisdictions are changing their laws to address harmful tax practices.
The Netherlands lower house has been presented with the bill to implement the EU Directive on mandatory disclosure (DAC6). DAC6 provides for the mandatory automatic exchange of information on reportable cross-border arrangements. In principle, it requires intermediaries (including so-called “auxiliary intermediaries”) to report potentially aggressive cross-border tax planning arrangements, so that this information can be exchanged between the tax authorities of the EU member states.
Newly enacted law in Bermuda—the Economic Substance Amendment Act 2019 provides that non-resident entities are not subject to economic substance requirements in Bermuda.
For this purpose, the term “non-resident entity” means an entity that is resident for tax purposes in a jurisdiction outside Bermuda, provided that the other jurisdiction is not in Annex 1 of the EU’s list of non-cooperative jurisdictions.
On 24 July 2019, French President Macron signed the digital services tax legislation. This was published in the Official Gazette on 25 July 2019. The digital services tax is imposed at a rate of 3% on the gross revenues derived from digital activities of which French “users” are deemed to play a major role in value creation. The law not only affects digital companies but, more generally, digital business models.