Welcome to the October edition of our Tax Newsletter, bringing you recent news and developments. Countries continue to reform their tax systems with the goal of becoming more globally competitive. While striving to meet international standards, it is more important than ever to keep up with trends and developments. In our October issue, we cover Tax events, GCC tax updates, international tax developments and KPMG tax publications.
Emerging trends such as geopolitical shifts, technological innovation and globalization—as well as new business and consumer demands—are transforming the way tax leaders are thinking. The KPMG MESA Tax Conference, being held on 22 October in Dubai, will address these issues.
To join our conference please click here.
1) EU set to remove the UAE from tax blacklist of non-cooperative jurisdictions
At a meeting on 10 October 2019, European Union (EU) finance ministers are expected to remove the UAE from the EU’s list of non-cooperative jurisdictions for tax purposes (the EU blacklist), an EU document stated.
The EU included the UAE to the EU blacklist in March 2019. Post this, the UAE announced their commitment to cooperating with the EU and fulfilling the necessary requirements in order to be removed from the EU blacklist.
Hence, the UAE recently introduced Country-by-Country Reporting and Economic Substance Regulations.
On 11 September 2019, the UAE Ministry of Finance issued the Directive for implementation of the provisions of Cabinet Decision No. 31 of 2019 i.e., guidance on the Economic Substance Regulations (ESR) via Ministerial Decision No. 215. The Directive includes information and clarification regarding:
· Relevant activities
· Definition of license
· Exempt companies
· Key requirements of the Economic Substance Test
3) Economic Substance Rules – released by free zones
Economic Substance regulation in UAE is applicable to both mainland and free zone entities. The legislation came into effect on 30 April 2019 and all companies are required to provide the information within 12 months from the end of the financial year.
Free zones have started working on issuing guidance on ESR applicable to the entities registered in the free zone and devising rules to help determine whether a company falls under the ESR.
Recently, RAK International Corporate Centre issued guidance on ESR.
4) Dubai – Foreign direct investment (FDI)
Dubai registered a record USD 12.69 billion (AED 46.6 billion) in FDI in the first half of 2019. This is an increase of 135 percent year-on-year, ranking the emirate third globally both in terms of capital flows and number of greenfield projects. The emirate also surpassed its 2018 full-year FDI figure of USD 10.49 billion (AED 38.5 billion).
The Economic Cooperation and Development (OECD) continues to update the status of jurisdictions with active CbC exchange relationships. Forty-nine bilateral exchange relationships have been activated by the UAE since September 2019, effective for fiscal years beginning on or after 1 January 2019. The first exchange of reports is expected in 2020.
This Tax Flash contains information clarifying the following:
• What does the activated exchange relationships of CbC reports mean for UAE groups?
• What is the implication for foreign groups based in the UAE?
• Who are the UAE’s exchange partners?
• What is next?
6) Tax Treaty between Iraq and the UAE
The UAE and Iraq signed the Iraq-United Arab Emirates Income and Capital Tax Treaty on 3 October 2017. Both the UAE and Iraq have ratified the treaty; therefore it is expected to enter into force, shortly.
1) Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (Multilateral Instrument or MLI)
The MLI modifies 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 three jurisdictions (Belgium, India and Russia) came into force with effect from 1 October 2019.
The Mandatory Disclosure Requirements (MDR) were introduced as an amendment to the Directive on Administrative Cooperation in the Field of Taxation (DAC6) and will apply from 1 July 2020.
DAC6 introduces an obligation on intermediaries to disclose information on cross-border tax arrangements that meet certain criteria to their domestic tax authorities and rules for the subsequent exchange of this information between tax administrations.
From 1 July 2020 all disclosures must be made within 30 days of a trigger event. Intermediaries and relevant taxpayers will also be required to disclose information on reportable cross-border arrangements, the first step of which is to be implemented between 25 June 2018 and 1 July 2020.
Poland is the only EU Member State that has implemented MDR based on the provisions of DAC6, with the first important reporting deadline being 30 June 2019. Seventeen countries (Austria, Cyprus, the Czech Republic, Denmark, Finland, France, Germany, Italy, Lithuania, Luxembourg, the Netherlands, Portugal, Slovakia, Slovenia, Spain, Sweden and the United Kingdom) have approved or published draft legislation for consultation or are discussing proposals within their Ministries of Finance. The remaining ten Member States are expected to publish draft bills later in the course of this year.
3) Seychelles and British Virgin Island (BVI) to automatically exchange CbCR
Seychelles and BVI have signed up their Multilateral Competent Authorities Agreement (MCAA) on country-by-country reporting based on updates from OECD.
Membership of the agreement enables the two territories to automatically exchange country-by-country reports with other jurisdictions. According to the OECD's 30 August 30 2019 update, a total of 82 territories have now signed up to automatically exchange CbC reports.
1) KPMG: Doing Business in the UAE
There have been several recent changes in the UAE’s tax and regulatory system. Please click on the link to download the recent publication prepared by KPMG Lower Gulf Limited
2) MESA Tax Update – September 2019 edition
The latest edition of our Middle East and South Asia Tax Update, brings you the latest news in tax from the region. Please click on the link to download the recent MESA Tax update
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