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Welcome to the latest edition of our Middle East and South Asia (MESA) Tax Update, bringing you the latest news in tax from the MESA region. As countries in the region look to reform their tax systems to attract foreign investment and become more globally competitive, keeping up with trends and developments is more important than ever.

Inside, you'll find briefings on key news, events and thought leadership contributed by tax professionals in KPMG member firms across the region.

In this issue:

Bahrain - Key aspects covered in the updated VAT Technical FAQs regarding disposal of obsolete stock

National Bureau of Revenue (NBR) has also updated the VAT Technical FAQ section regarding disposal of obsolete stock.

We have summarized below the key aspects covered in the updated VAT Technical FAQs:

1. Definition of obsolete stock

  • Stock that is no longer used, can no longer be traded and is not usable or needed, usually because something newer and better has replaced it. For example, expired stock that could harm a human’s health.

2. Approval from the NBR in order to dispose off obsolete stock

  • The VAT payer must submit an application form and give advance notice to the NBR of their intention to dispose off such stock at least 30 days before the disposal. The VAT payer must not proceed with the destruction unless they receive the prior approval from the NBR.
  • The obsolete stock declaration form prepared by the NBR has been attached to this update.

3. VAT treatment on disposal of obsolete stock

  • VAT payers who have disposed off their obsolete stock will not be obliged to account for VAT on the stock, provided that they have applied and received approval of the stock disposal from the NBR.
  • No adjustment is required when obsolete stock is disposed after NBR’s approval. However, input VAT will need to be adjusted if the VAT payer disposes off the stock prior to/without NBR’s approval.

4. Exceptions to notifying NBR

  • We have outlined below the exceptions where taxpayer is not required to notify the NBR of his intention to dispose off obsolete stock:
  1. First BHD 5,000/- in value of obsolete stock on which input VAT has been fully or partially claimed in a calendar year
  2. Where the goods comprise perishable food items that are no longer fit for human consumption and which may create a risk to human health if not disposed off quickly. NBR does not expect this to apply to securely packaged food.
  3. Where the goods comprise hazardous materials which are required under Bahraini laws or guidance issued by any competent government authority or agency to be disposed off quickly to avoid damage to human health, property etc.
  • The taxpayer will be expected to retain the following details in order to apply the exceptions highlighted above:
  1. Stock description
  2. The purchase price and the VAT claimed on the stock disposed.
  3. Supporting documents that the total value of the stock disposed off did not exceed the BHD 5,000/- threshold during one calendar year.
  4. Either 2 or 3 of the exceptions that were mentioned above supported by evidence. A few examples of supporting documents could be a confirmation by competent authorities or reports.
  5. The reason(s) why the stock was considered obsolete;
  6. Evidence that the stock has been written off in its financial statements.
  7. Method of disposal.

Bangladesh - Key budget proposals 2020 pertaining to direct tax

KPMG in Bangladesh shares insights on the budget proposals concerning personal and corporate tax rate.

1. Personal Income: Individual/Firm tax rates

Tax Payer

Income Slabs (existing)

Income Slabs (proposed)

Tax Rate (existing)

Tax Rate (proposed)

For Bangladeshi individuals,
resident foreigners, and firms

BDT 250,000

BDT 300,000

Nil

Nil

Next BDT 400,000

Next BDT 100,000

10%

5%

Next BDT 500,000

Next BDT 300,000

15%

10%

Next BDT 600,000

Next BDT 400,000

20%

15%

Next BDT 3,000,000

Next BDT 5,000,000

25%

20%

On balance

On balance

30%

25%

For non-resident foreigners, flat tax rate is 30%

Tax Payer

Exempted Limit (existing)

Exempted Limit (proposed)

Increase

Men and Firms

BDT 250,000

BDT 300,000

BDT 50,000

Women and senior citizens (65+)

BDT 300,000

BDT 350,000

BDT 50,000

Physically challenged persons

BDT 400,000

BDT 450,000

BDT 50,000

War wounded gazetted freedom fighters

BDT 425,000

BDT 475,000

BDT 50,000

2. Corporate income tax rate:

Tax rate for private limited company including Branch and liaison office has been proposed to reduce from 35% to 32.5%.

3. Changes in deduction not admissible in certain circumstances

  • Allowable limit for “Overseas travelling expenses limit” has been proposed from 1.25% to 0.50% of disclosed turnover.
  • Inserted new item as “Promotional expense limit” and allowable limit for Promotional expense limit” has been proposed to 0.50% of disclosed business turnover.

4. No question on sources of fund if invested in securities between 1 July 2020 and 30 June 2021 subject to 10% tax on investment to be paid.

5. No question will be raised over the source of fund of certain previously undisclosed investment subject to 10% tax to be paid on total investment.

6. Loss of association of person (AoP) will only be set-off against income of AoP. Members of AoP cannot carry forward and set-off losses of AoP against their income.

7. Computation mechanism of capital gain has been introduced for transfer of business and undertaking

8. Inclusion of seven (7) additional sectors under newly industrial undertaking.

9. Deduction at source is required from professional service, technical service fee or technical assistance fee and wheeling charge for electricity transmission to be considered as minimum tax.

10. Minimum tax at 0.5% on gross receipts would be applicable for individual assesses subject to some conditions.

11. Received from approved gratuity and pension fund is eligible for exemption.

12. Person participating in shared economic activities by providing motor vehicle, space accommodation or any other assets, owing any licensed arms, persons required to have Twelve-digit Tax-payers Identification Number under section 184A are required to be submit their tax returns.

13. Public universities, English medium school. Local authority and Artificial juridical person are required to be filed return of half-yearly withholding tax.

14. 30% withholding tax on dividend is required to deduct if dividend paid to non-resident fund and trust.

15. Tax at source on distributors has been modified.

16. Inclusion of tax at source on payment of service under any sharing economy platform including ride sharing service, coworking space providing service and accommodation providing service.

17. Additional tax of 50% would be applied on misreported amount of exports or imports.

18. National Board of Revenue (NBR) can condone tax or extend the time period due to epidemic, pandemic or any other acts of Almighty. NBR can also provide retrospective relief.

19. All taxpayers who will file their return first time through online will enjoy tax rebate of BDT 2,000.

Kuwait – Extension of deadlines with respect to filing of returns, settlements, objections and appeals

KPMG in Kuwait shares insights on the latest updates on Kuwait Tax by Kuwait's Ministry of Finance announcing various filing deadlines.

The Kuwait Ministry of Finance (“MOF”) has issued Ministerial Order No. 21 of 2020 (“MO”) in the official gazette (“Kuwait Al-Youm”) on 16 June 2020 providing an extension of deadlines with respect to filing of returns, settlements, objections and appeals which were disrupted due to the closure of the public sector in Kuwait based on instructions by the Kuwait Government to combat Covid-19.

The MO covers businesses that are subject to obligations under the following laws:

  • Kuwait Income Tax Decree No.3 of 1955 as amended by Law No.2 of 2008 and its executive regulations (“Corporate Income Tax Law”);
  • Kuwait Income Tax Law No. 23 of 1961 in the designated area (“Partitioned Neutral Zone Tax Law”);
  • Law No. 46 of 2006 and its executive regulations (“Zakat Law”); and
  • Law No. 19 of 2000 and its Resolution of the Council of ministers No. 185 of 2001 (“National Labour Support Tax Law”).

Filing Deadlines

Filing deadlines for returns under the respective laws are extended by the following: 

  • 60 days from the date the MOF resumes operations where the fiscal year end of a company is either 31 December 2019 or 31 January 2020; and
  • 30 days from the date the MOF resumes operations where the fiscal year end of a company is before 31 December 2019.

In addition, the Kuwait Tax Authority (“KTA”) has issued Circular No. 4 of 2020 (“CR No. 4 of 2020”) dated 28 June 2020 providing an extension of deadlines with respect to filing of returns and settlements for businesses with fiscal year end of 29 February 2020, 31 March 2020 and 30 April 2020 due to disruption caused by Covid-19.

The Circular covers businesses that are subject to filing obligations under the following laws:

  • Kuwait Income Tax Decree No.3 of 1955 as amended by Law No.2 of 2008 and its executive regulations ("Corporate Income Tax Law");
  • Kuwait Income Tax Law No. 23 of 1961 in the designated area ("Partitioned Neutral Zone Tax Law");
  • Law No. 46 of 2006 and its executive regulations ("Zakat Law"); and
  • Law No. 19 of 2000 and its Resolution of the Council of Ministers No. 185 of 2001 ("National Labour Support Tax Law").

Filing Deadlines

Filing deadlines for returns under the respective laws are extended as follows:

27 August 2020

13 September 2020

14 October 2020

Submission of returns for tax payers with a 29 February 2020 year end, being 60 days from the date the Ministry of Finance (“MOF”) resumed operations on 30 June 2020.

Submission of returns for tax payers with a 31 March 2020 year end, being 60 days from the statutory due date of 15 July 2020; and

Submission of returns for tax payers with a 30 April 2020 year end, being 60 days from the statutory due date of 15 August 2020.

These are blanket extensions and would also cover tax payers filing their tax returns on a deemed profit basis.

Settlement of Amounts Due

Corporate income tax, Zakat and National Labour Support Tax due as stated on the respective returns should be settled on or before the extended deadlines set out above.

Where companies are settling the taxes in instalments, all instalments due up to the date of settlement should be paid in lump sum. No special instalment provisions have been approved for Zakat and NLST and amounts remain to be settled as lump sum.

Due date for settlement of taxes stated on any assessment letters issued prior to the closure of the MOF are extended by the same numbers of days as the period of closure of the MOF from 12 March 2020 and when the MOF resumes operations.

Objections and Appeals

Deadlines for contesting an assessment through an objection or appeal are extended by the same numbers of days as the period of closure of the MOF from 12 March 2020 and when the MOF resumes operations.

Similarly, the time period for the MOF to respond to an objection is extended by the same numbers of days as the period of closure of the MOF from 12 March 2020 and when the MOF resumes operations.

Discussions with the Kuwait Tax Authority (“KTA”)

Separately, the KTA has also issued Circular No. 3 of 2020 (“CR No. 3 of 2020”) dated 24 June 2020 clarifying the rules and regulations with respect to electronic correspondence with the KTA. Through CR No. 3 of 2020, the KTA has clarified the following:

  • Effective from 28 June 2020, the MOF has now a designated e-mail address where submissions for filings, No Objection Letters, Tax Clearance Certificates, objections, appeals and other correspondence with the KTA are to be sent;
  • The KTA would issue all correspondence to the authorized tax advisor through the same email; and
  • All payments of taxes and levies should be transferred MOF account at the Central bank of Kuwait;

In addition, whilst the KTA has not issued an official clarification, in practice tax inspectors have commenced remote working and have started to conduct tax inspection through online platforms, based on internal prioritisation.

Oman – Tax card provisions, Excise tax and other tax updates

KPMG in Oman provides an overview of the tax card provisions effective from 1 July 2020, excise tax developments and other tax updates.

Oman Tax Authority makes tax card provisions effective from 1 July 2020

The tax card, as a concept, was introduced in February 2017. The purpose is to mention the tax card number on all correspondence, invoices and contracts entered into by the taxpayer. Further, the ministries, government bodies, other units of state-owned apparatus and companies owned by the government (to the extent of at least 40%) are required to obtain a copy of the tax card before dealing with any taxpayer. Failure to comply with the relevant provisions carries a maximum fine of OMR 5,000.

Subsequently, in February 2019, rules related to tax cards were introduced, such as relevant form to apply tax card, its validity, renewal process, etc. through amendments made in the executive regulations to Oman tax law. The tax card provisions have now been made effective from 1 July 2020. A nominal fee of OMR 10 has been prescribed for issuing the tax card.

Our detailed news on this development can be read here.

Oman increases excise tax on alcohol from 50% to 100% from 1 July 2020

Oman had introduced excise tax on alcohol and alcohol products, energy drinks, carbonated drinks, pork and pork products, and tobacco and tobacco products with effect from 15 June 2019.

According to Ministerial Decision 112/2019, on determination of value, types of excise goods and rate of tax imposed on each of such goods, published on 2 June 2019 (Ministerial Decision), alcohol and alcohol products were subject to excise tax at the rate of 100%. The Oman Tax Authority implemented a temporary reduction in the rate of excise tax on alcohol and alcohol products to 50%. The Ministerial Decision was, however, not amended to reflect the temporary reduction.

The Oman Tax Authority has now removed the temporary reduction and reverted to the original rate of excise tax on alcohol and alcohol products, which is 100%. This will take effect from 1 July 2020.

This means that within 15 days of the effective date of increase in the excise tax rate, i.e. by 15 July 2020, businesses in possession of alcohol and alcohol products as on 1 July 2020 will be required to:

  • report the inventory of such goods (through transitional declaration/returns); and
  • pay the differential excise tax on the inventory.

In order to ensure accurate submissions and evidence in the event of a future audit by the Oman Tax Authority, it would also be advisable for affected businesses to undertake a stock count of alcohol and alcohol products in possession as on 1 July 2020.

Oman introduces 50% excise tax on sugar sweetened beverages from 1 October 2020

The Oman Tax Authority (TA) announced the introduction of excise tax on sweetened beverages from 1 October 2020 on social media a couple of weeks ago. The TA has now issued Decision No. 34/2020 dated 16 June 2020 (Decision No. 34/2020) making necessary legislative amendments. Decision No. 34/2020 amends Decision No. 112/2019 dated 2 June 2019 on Determination of value, types of excise goods and rate of tax imposed on each of such goods (Decision No. 34/2020) to enable the implementation of excise tax on sweetened beverages with effect from 1 October 2020.

You can access KPMG’s unofficial English translation of MD No. 112/2019 dated 2 June 2019 on Determination of value, types of excise goods and rate of tax imposed on each of such goods as amended by Decision 34/2020 (PDF 285 KB).

Decision No. 34/2020 provides more clarity and, in certain cases, also makes certain deviations from the information originally released on social media by the TA on the scope of the proposed levy. In particular, the inclusion of sugar substitutes in the scope of “sugar” in the context of sweetened beverages for the purposes of excise tax.

KPMG’s original tax alert, addressing frequently asked questions on the extension of excise tax to the new category of excise goods, has been updated to reflect the clarification and deviations. You can access the updated tax alert (PDF 211 KB).

Oman Tax Authority announces tax relief measures

Certain tax relief measures were announced by the Oman Tax Authority (“TA”) on 8 July 2020, in relation to the due dates for payment of taxes due in the year 2020. This comes in the wake of Supreme Committee decision pertaining to the Covid-19 pandemic, which authorized the TA to implement these measures.

These measures inter-alia include:

  • The suspension, until 30 September 2020, of:
    • all fines related to the failure of compliance with the due dates for filing tax returns, both provisional and final, along with the annual audited accounts for the year ended 31 December 2019;
    • additional taxes (1% per month) triggered by non-payment of income tax due to be paid for the year ended 31 December 2019; and
    • additional taxes (1% per month) arising from 1 January 2020 to 30 September 2020 due to non-payment of income tax due for the years ended prior to 31 December 2019.

The above effectively implies that the due date for filing the tax returns for the year ended 31 December 2019 has been extended to 30 September 2020.

  • Extension of the due date for payment of taxes and suspension of additional tax (1% per month) for taxpayers whose year ends after 31 December 2019, by a period of 9 months from the end of the accounting year. As in the case of the above, the due date for payment of taxes has effectively been extended by 9 months although no specific suspension of fines has been granted similar to the returns for the year ended 31 December 2019.
  • Allowing tax payments in installments to be approved for the year ended 31 December 2019 with the possibility of non-levy of additional tax (1% per month) based on facts and circumstances of each case.
  • Allowing rescheduling of previously approved payment of tax in installments for prior tax years with the possibility of non-levy of additional tax (1% per month), based on facts and circumstances of each case.
  • Allowing stay of demand requests until conclusion of objections even if such a request is made after the statutory period of 30 days of filing the objection.
  • Allowing the grant of additional time for submission of details and information during assessment and objection proceedings. If additional time is granted by the TA, the time frame as specified by the income tax law for completion of assessment proceedings, or objection by the TA, shall be extended by such additional time granted.

The measures detailed above come as a welcome move by the TA to provide relief to taxpayers who have not already filed their returns, and who are adversely impacted by the current Covid-19 pandemic. We recommend our clients engage in discussion with the TA through their tax advisors to seek clarity on these announcements, as necessary. 

Oman ratifies double tax treaty with the Slovak Republic

Oman ratified a double tax treaty (DTT) with the Slovak Republic on 8 June 2020 by way of Royal Decree No. 63/2020. The treaty was signed on 25 March 2018, with the objective of avoiding double taxation and preventing income tax evasion. The tax treaty shall be entered into force in accordance with Article 29 of the DTT.

Source: Report from IBFD Tax Treaties Unit

Establishment of Oman Investment Authority (OIA)

Royal Decree no. 61/2020 (RD) was issued on 4 June 2020 establishing OIA as a result of which all sovereign government funds, including State’s General Reserve Fund, the Oman Investment Fund and the Directorate General of Investments at the Ministry of Finance (MOF), stands transferred to the OIA.

The RD empowers transfer of ownership of all government companies and investments to OIA with the exception of Petroleum Development Oman, government contributions to international establishments and other companies to be specified in a Royal Order.

OIA will enjoy financial and administrative autonomy and will work under the purview of the Council of Ministers, as per the RD.

Oman extends reporting deadline under Common Reporting Standard (CRS)

The Capital Markets Authority (CMA) of Oman, based on its discussion with the Oman Tax Authority, has recently extended the final report submission deadline under CRS to 31 July 2020 (from 31 May 2020). This has been done to provide more time to banks and relevant financial institutions (specified institutions) due to the exceptional circumstances caused by Covid-19.

As a brief background, the specified institutions in Oman were mandated by the Central Bank of Oman vide circular, dated 15 May 2019, to ensure the collection of CRS-related information for new account holders effective from 1 July 2019. This requirement was further endorsed through a circular from the CMA dated 28 May 2019. It was followed by a workshop conducted in Oman on 12 June 2019 by the Global Forum on Transparency and Exchange of Information for Tax Purposes educating specified institutions on CRS and its implementation.

Oman is expected to soon release local legislation allowing specified institutions to undertake the CRS compliance.

Royal Decree 34/2020 ratifies the Mutual Administrative Assistance on Tax Matters Convention

Over 100 countries have committed to exchanging information under the Common Reporting Standard (CRS) regime. Such exchange relationships between jurisdictions are typically based on the multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Convention).

Oman signed the Convention on 26 November 2019, becoming 107th jurisdiction to join. The Convention was ratified by Oman Royal Decree 34/2020 on 25 March 2020.

The ratification demonstrates Oman’s commitment to international norms for exchanging information with other countries. As a consequence, local legislation allowing specified institutions to undertake the CRS compliances with the designated authority is expected soon. This may support Oman’s removal from the European Union blacklist.

Royal Decree (RD) 43/2020 ratifies the Multilateral Convention to implement tax treaty measures to prevent Base Erosion and Profit Shifting (BEPS)

On 26 November 2019, Oman signed the Multilateral Convention (MLI) to implement tax treaty related measures to prevent BEPS, making the total signatories to 92 jurisdictions, globally. RD 43/2020 was issued on 31 March 2020 to ratify the MLI. The RD will be published in the Official Gazette and come into force from date of its issue.

As a next step, Oman is expected to deposit the ratified instrument with the OECD. After three months from the end of the month in which the MLI is deposited by Oman, the MLI will enter into force for 34 identified tax treaties forming part of Oman’s current tax treaty network.  

Shura Council to decide on draft Oman VAT Law and amendments to the Income Tax Law within a month

According to recent news reports, the Council of Ministers in Oman has referred two laws to the Shura Council. These comprise the draft Oman Value Added Tax (VAT) Law and a draft to amend the existing Oman Income Tax Law (collectively referred to as “the Laws”).

The Laws have been referred to the Shura Council as a matter of urgency. The Shura Council is required to decide on both the Laws, by approval or amendment, within one month from the date of the referral. The Shura Council’s current session, scheduled to end 16 July 2020, is likely to be extended to enable a decision on both the Laws. Once the Shura Council decides on the Laws, they will be referred to the State Council. The State Council is required to decide on them, by approval or amendment, within 15 days from the date of the referral. Once the State Council decides on both the Laws, the Laws will be submitted to His Majesty the Sultan, with the opinion of both the Shura and the State Council.

VAT likely to be implemented in early 2021

Oman, like many other countries in the region and outside, is significantly challenged with the sharp slump in international oil prices and the economic instability created by Covid-19, which continues to impact the country’s credit rating. Since the beginning of 2020, the Ministry of Finance has issued many circulars and directives to government units to reduce spending. In April 2020, the Ministry of Finance announced a cut of OMR 500 million in the State Budget.

In the recent past, Oman has made a conscious effort at economic diversification. Collections from indirect tax reforms, such as selective/excise tax and VAT, are expected to generate an additional OMR 400 million[1], which would give an immediate fillip to non-tax revenues.

The Sultanate has been preparing for the introduction of VAT for quite some time. The referral of the draft VAT Law to the Shura Council as a matter of urgency is a clear indication that VAT is likely to be implemented in Oman soon. In an interview with Bloomberg at the World Economic Forum 2020 in Davos earlier in January this year, His Excellency Ali bin Masoud Al-Sunaidi, Minister of Commerce and Industry in Oman, confirmed that Oman would introduce VAT “sometime during the beginning of 2021”.

VAT has a significant impact on every facet of business and therefore requires timely and careful planning. KPMG has a dedicated team of experienced VAT implementation specialists and advisors based in Oman. If you need any assistance with VAT implementation in Oman, please reach out to your tax advisors at KPMG or the contacts mentioned below.

Oman Income Tax Law amendments

Oman is expected to amend the Income Tax Law to allow, among other things, the Automatic Exchange of Information (AEOI) and Country-by-Country Reporting (CbyCR). These are some of the measures the Sultanate has taken over the last few months to action Oman’s commitment to implement the four minimum Base Erosion and Profit Shifting (BEPS) standards of the OECD. Oman is also expected to introduce detailed transfer pricing guidelines and documentation regulations to govern arms’ length pricing of transactions between related parties.

Oman Tax Authority’s new organizational structure

Pursuant to Royal Decree (RD) 66/2019 establishing the Tax Authority (TA), His Majesty Sultan Haitham Bin Tarik Al Said issued RD 42/2020 on 31 March 2020 - promulgating the Organizational Structure of the TA. This RD includes a By-Law and is effective from the date of its issuance (31 March 2020).

Main highlights of RD 42/2020 include:

  • The Head of the TA shall assume the powers prescribed to the Minister responsible for Financial Affairs under the Income Tax Law and the Excise Tax Law as well as any powers related to issuing exemption from income tax wherever they occur in regulations, systems and royal decrees.
  • For matters not dealt with under the by-law, the current laws and RDs applicable to “Units of the State Administrative Apparatus” will apply to the TA.
  • The TA’s headquarters will be in the Muscat Governorate. It is allowed to open branches in other governorates based on the decision of the Head of the TA.
  • The By-Law outlines the TA’s key objectives, which include:
    • Developing a tax system in line with approved tax policies
    • Improving TA efficiency levels – particularly in the areas of tax assessment and collection
    • Increasing tax awareness, as pertains to taxpayers’ rights and obligations
    • Boosting tax compliance

In addition, certain key responsibilities have been assigned to the TA under the By-Law.

  • Appointments of the Head (minister rank) and the Deputy Head (special grade) of the TA would be made by Royal Decree. In this regard, RD 70/2019 was issued on 14 October 2019, appointing H.E. Sultan bin Salim bin Said Al Habsi as the Head of the TA.
  • The Head of the TA shall have responsibility for enforcing the Tax Law its Executive Regulations, and the By-Law now issued. The Head shall represent the TA before the courts and in dealings with third parties.
  • Financial resources of the TA shall include:
    • Money assigned to the TA under the State General Budget
    • Fees collected by the TA in consideration of rendered services
    • Any other resources prescribed by the Council of Ministers
  • The TA will have its own budget, with a fiscal year of 1 January to 31 December of each year. The first fiscal year has been specified in the By-Law: 31 March 2020 to 31 December 2020.
  • The TA shall be exempted from all taxes and fees without prejudice to the Common Customs Law for the Arab States of the Gulf Co-operation Council.
  • The TA’s funds are to be deposited in a ‘special account’ at one or more licensed banks in Oman, following approval from the Ministry of Finance.

As you may be aware, the TA has re-designated its previous bank account, which is now in the name of “Tax Authority”. Further, it has changed its address to P.O Box 285, P.C 100.

Key observations on the TA’s new organizational structure:

  • The Deputy Head of the Tax Authority position was introduced, which did not exist previously. The Deputy Head will report to the Head of the Tax Authority.
  • The previous General Directorate of Assessment and Investigation (i.e., Large Taxpayer Unit, First Tax Department, Second Tax Department And Customs, Exemption And Withholding Tax Department) will now be split amongst two General Directorates (First and Second), reporting to the Deputy Head of the TA.
  • The Department for Indirect Tax (value added tax and excise tax) no longer appears under the new structure. It seems that each of the above General Directorates (First and Second) will assume responsibility for this department under the new structure.

The issuance of this RD and the By-Law echoes the Tax Authority’s autonomous status, established last year, and enables timely tax policy changes. In fact, after announcing the new tax structure in October 2019, Oman has signed the Automatic Exchange of Information. In November 2019, the Multilateral Convention (MLI) was also signed which supports implementation of tax-treaty related measures to prevent Base Erosion and Profit Shifting (BEPS). Both tax policy measures were ratified through issuance of respective RDs (34/2020 and 43/2020) on 31 March 2020.

Given the pace of tax reforms, Oman may soon come out of the current EU blacklist, which is dampening foreign investments.

Pakistan - Amendments in federal taxation laws through Finance Act, 2020

The National Assembly approved the Finance Bill 2020 with certain amendments proposed therein and after the assent of the President of Pakistan, Finance Act, 2020 has been enacted on 30 June 2020.

There have been changes made in Income Tax Ordinance, 2001, Sales Tax Act, 1990, Federal Excise Act, 2005 and The Customs Act, 1969 through the Finance Act, 2020.

Read a July 2020 report (PDF 1.8 MB) prepared by the KPMG member firm in Pakistan.

Qatar – Dhareeba portal and Second Extension of Deadline for filing Income Tax Return and Payment of Income Tax

KPMG in Qatar shares insights on the new tax administration portal and Second Extension of Deadline for filing Income Tax Return and Payment of Income Tax.

Mandatory registration in the new tax administration portal - Dhareeba

As per the Circular No (3) issued by the General Tax Authority (“the GTA”) on 30 June 2020, registration stage for the new tax administration system – Dhareeba – goes live with the effect from 01 July 2020.

The circular emphasizes following matters:

  • The GTA will stop receiving applications for registration through the current tax administration system (TAS) effective from 30 June 2020;
  • All taxpayers, including those currently registered in the TAS, are required to be registered in “Dhareeba” portal according to the procedures and controls in effect;
  • All registered taxpayers must adjust their status and re-register in Dhareeba within 90 days (no later than 30 September 2020), according to Article (69) of the executive regulations of the Income Tax Law No. (24) for the year 2018;
  • Taxpayers who will register no later than 30 September 2020 in the “Dhareeba” portal will be exempted from the financial penalties resulting from not registering and obtaining the tax card previously.

Key actions required from taxpayers:

  • Collecting necessary information/details required for registration purposes;
  • Ensuring the authorized representatives are registered of with National Authentication System (NAS);
  • Ensuring the presence of the authorized persons for signing offs the required statements and appointment of tax agent;
  • Trying to complete the registration process as soon as possible in order to mitigate any potential risk and avoid any penalties.

How KPMG can help you?

We as KPMG were able to test the registration process, are familiar with the system functionality and did trial registration under several types of scenarios.

In this respect, KPMG in Qatar can help you regarding the registration process in the Dhareeba portal and make the said process smooth for your firm.

Second Extension of Deadline for filing Income Tax Return and Payment of Income Tax

The General Tax Authority (“GTA”) has issued Circular No. 7 for the year 2020 following an application made by KPMG along with other big 4 firms on behalf of the Taxpayers requesting the GTA for a second extension of time to submit the Tax returns and pay the Tax liability for the year ended 31 December 2019 (FY2019).

In response to the request and considering difficulties faced by the Taxpayers due to Covid-19, the GTA has provided an additional extension of 2 months for filing of the Tax returns for FY2019. Therefore, the new Tax return submission deadline for Taxpayers with financial year ended 31 December 2019 has been extended to 30 August 2020. Further, any income tax liability for these Taxpayers shall also be due on or before 30 August 2020. The Circular has been issued in light of the exceptional circumstances that the Taxpayers and businesses are facing during this period.

While the extension provides relief to deal with the current situations, we highly recommend to our clients to work towards having the Tax returns submitted well within the deadline, to avoid any inconveniences given these uncertain times.

Saudi Arabia - Increased customs duties, VAT and Transfer Pricing developments

KPMG in Saudi Arabia provides update on the increased customs duties, VAT rate increase and Transfer Pricing developments.

Increased customs duties effective 20 June 2020

The Saudi Arabia Council of Ministers has announced an increase in customs duties effective from 20 June 2020.

The rate increases range from 0.5 to 15%. A full list of new duty rates can be found on the Saudi Customs website.

Products affected 

The increase in duty rates affects a wide variety of products such as: dairy, food products, chemicals, plastic, rubber, leather, paper, clothes, shoes, fabrics, marble, ceramics, porcelain, glass, various metals, furniture and machinery.

Please see below examples of the products affected:

  • Foods and beverages - for example, dairy products, yogurt, buttermilk, cream, natural butter, butteroil, fresh cheese, maize (corn) starch, glucose sugar, cream caramel, artificial honey. The customs duty rates for these products have increased from 5% to a range between 6% and 15%, depending on the product.
  • Chemicals - for example, bulk gypsum, zinc oxide, polyamide, silicon resins, bidets, reservoirs tanks, screws, bolts, washers). The customs duty rates for these products have increased from 5% and 12% to a range between 5.5% and 15%, depending on the product.
  • Leather products - for example, raw skins of goats, tanned skins of goats in the wet state split but not further prepared, further prepared after tanning skins of sheet without wool un split. The customs duty rate for these products has increased from 12% to a new rate of 15%.
  • Straw, paper products - for example, unbleached paper in rolls, box files, letter trays, packing containers for files. The customs duty rates for these products have increased from 5% to a range between 8% and 10%, depending on the product.
  • Carpets, clothes, shoes - for example, synthetic staple fibers- not carded- combed or otherwise processed for spinning, non-woven fabrics, other non-woven fabrics of synthetic, carpets made of synthetic textile materials, blankets, men 's shoes with outer leather of wood and leather. The customs duty rate for these products has increased from 5% and 12% to a new rate of 15%.
  • Other – for example, marble and ceramic products, granite paving stones, pipes and pipes, plates and sheets of drawn glass, mixed cast iron, electric wires non-insulated, machinery and machine products, electrical appliances and parts thereof, certain car brands and parts, pumps, air compressors, combined refrigerator-freezers, digital control panels, optic fibers, water meters. The customs duty rates for these products may increase from 5%, 10% and 12% to a range between 7% and 20%, depending on the product.

We recommend that all importers consider a detailed assessment of their supply chain and customs practices in an effort to explore strategies to mitigate the likely negative effect of the duties increase on the business. For example, ensuring that the correct tariff codes are applied, making use of customs duty exemptions and reductions available (including the applicability of Free Trade Agreements, General System of Preferences, etc), use of bonded warehouses and tolling arrangements).

KPMG in Saudi Arabia can advise businesses on the impact of the duty increases by identifying options to reduce the effect on the business, and by providing support with the execution of recommended action as well as with ongoing compliance with the customs legislation in Saudi Arabia.

Saudi Arabia increases VAT rate to 15% from 1 July 2020

The KSA VAT rate will increase from 5% to 15% with effect from 1 July 2020. This increase is a response to the unprecedented economic fallout from the impact of the COVID-19 pandemic. Inevitably, the government is seeking to address the fiscal imbalance caused by the dramatic decrease in consumer and commercial spending, the major loss of oil and tax revenues and the cost of the many healthcare initiatives put in place to fight the pandemic.

Implications for consumers

This increase will impact directly the spending habits of consumers both before and after the rate change – notably, the likely spike in spending to beat the higher rate of VAT and the subsequent drop in spending after the rate increase. We can expect sales in sectors such as: automotive; retail; electrical; and real estate to increase sharply prior to 1 July, much like the trend experienced towards the end of 2017.

Although VAT is a consumption tax, proportionately, it affects consumers in the middle and lower- income brackets to a greater extent. It is hoped that when additional details are shared, measures will be introduced to soften the impact on all consumers such as lower rates for essential goods and services, for example, basic foods, education and medical services.

Implications for business

Businesses that supply directly to the final consumer will be concerned about remaining competitive and may have to absorb part or all the VAT increase so that the retail prices of goods and services are affected as little as possible. Unfortunately, there may be little choice but to increase prices to cover the additional costs expected to be incurred.

 Key issues that will require detailed consideration and action from taxpayers include:

  • Supplies that span the effective date of the increase (e.g. rental agreements, insurance contracts, cleaning contracts and subscription services);
  • Time of supply (continuous supplies vs one-off supplies);
  • Advanced payments received before the rate increase;
  • Goods returned after the rate increase;
  • Adjustments to VAT clauses in existing contracts;
  • Pricing – absorbing the VAT increase to support market competitiveness;
  • Annual price lists adjustments;
  • Rebate and discounts;
  • Purchase of immovable property;
  • Changes to accounting systems, point of sale and digital platforms to include the new tax rate;
  • Changes to tax invoices, debit and credit notes;
  • Change of use of capital assets; and
  • Splitting the input VAT apportionment calculation for businesses that make both taxable and exempt supplies.

Businesses in the financial and real estate sectors where significant proportions of their goods and services are exempt from VAT face a significant increase in costs as they are not able to claim input VAT incurred that relates to exempt activities. This increase will impact profitability and, eventually, will have a cascading effect on customers.

Government bodies, public schools, hospitals are prohibited from claiming any VAT on their expenses because of their activities and so, will be at a major disadvantage from the VAT increase.

Along with the rate change comes the increased risk if taxpayers make mistakes in their VAT accounting. It is now more critical than ever to assess the readiness of the business to manage VAT reporting in an accurate and timely manner. The VAT penalty regime is now extremely concerning in terms of the adverse financial impact that results from accounting errors.

Transitional provisions

Taxpayers must review existing contracts that provide for ongoing or periodic supplies of goods/services. For example, for continuous supplies (e.g. services, construction or installation of complex equipment), it would be prudent to agree an intermediary service acceptance and invoicing protocol to avoid the entire supply being taxed at the higher rate especially in situations where customers are unable to recover input VAT in full.

Implications for the GCC

The impact on the GCC Agreement and the future of VAT in the region is unknown. As per the Agreement, the VAT rate is stipulated as per Article 25 and is not determined by local law or regulations. Such an increase should be agreed amongst the member states and announced at least 6 months before implementation, so that business and consumers can plan.

Undoubtedly, questions will be raised regarding the enforcement of the GCC Agreement as a common VAT framework - will the remaining GCC countries also increase their VAT rates to match Saudi Arabia? If the rates across the GCC are not aligned, consumption and spending in the Kingdom is likely to shift to those GCC states without VAT or with lower VAT rates.

Saudi Arabia VAT rate increase: Tranisitonal Provisions

A guideline was issued on the transitional provisions which will apply to contracts signed and tax invoices issued before the entry into force of the new VAT rate.

The following provisions will apply:

CONTRACTS

 Contracts signed

With Government entities

Between VAT registered persons

Before 11 May 2020

 

The 5% rate will apply until the date of expiration or renewal of the contract, or until 30 June 2021, whichever is the earlier.

 

The 5% rate will apply until the date of expiration or renewal of the contract, or until 30 June 2021, whichever is the earlier.

 

Condition: The customer must be entitled to deduct input VAT in relation to that supply in full.

Between 11 May 2020 and EOD 30 June 2020

 

·         The 5% rate will apply on supplies made before EOD 30 June 2020.

·         The 15% will apply on supplies made on or after 1 July 2020.

 

 

·         The 5% rate will apply on supplies made before EOD 30 June 2020.

·         The 15% will apply on supplies made on or after 1 July 2020.

TAX INVOICES

Tax invoices issued before 11 May 2020.

If tax invoices are issued before 11 May 2020 in relation to supplies to be made on or after 1 July 2020, the 5% rate will apply on that supply provided the supply is made before EOD 30 June 2021. Supplies made on or after 1 July 2021 will be subject to the 15% rate. In this case, the supplier must issue an additional tax invoice for the additional due VAT.

Tax invoices issued between 11 May 2020 and EOD 30 June 2020

If tax invoices are issued between 11 May 2020 and EOD 30 June 2020:

  • The 5% rate will apply on supplies made before EOD 30 June 2020; and
  • The 15% rate will apply on supplies made on or after 1 July 2020. In this case, the supplier must issue (at the time of supply) an additional tax invoice for the additional due VAT.

Saudi Arabia Transfer Pricing Guidelines: Second Edition

In February 2019, the General Authority of Zakat and Tax (GAZT) in the Kingdom of Saudi Arabia (KSA) formally released the final Transfer Pricing Bylaws (TP Bylaws). The GAZT also subsequently issued the First Edition of the Transfer Pricing Guidelines (TP Guidelines) in March 2019. The TP Guidelines serves to provide guidance on how the TP Bylaws are to be applied in KSA.

On 1 June 2020, the GAZT has issued the Second Edition of the TP Guidelines. The Second Edition does not usher in any significant changes / additions to the application of the TP Bylaws.

Please find additional information here (PDF 183 KB).

Sri Lanka - Tax concessions for Small and Medium Scale Entrepreneurs (SME) affected by COVID-19 Pandemic

The Cabinet approved the certain measures as reliefs for the SME sector who has been affected by COVID-19.

The notification does not provide a definition for the SME sector. However, the current income tax law provides a definition for the SME. Following are the relief measures approved by the Cabinet:-

1. Release of income tax in arrears for assessments issued up to Year of Assessment 2018/2019, if Commissioner General of Inland Revenue (CGIR) is satisfied that no willful evasion of tax has taken place.

2. Granting of a concessionary period for settlement of taxes that have been agreed upon with the Department of Inland Revenue (DIR) and are in arrears.

3. If a SME Entrepreneur has paid income tax for the Year of Assessment 2019/2020 and filed the Income Tax Return for such Year of Assessment, no additional assessments would be raised by the DIR for such Year of Assessment.

4. Extension of period provided for submitting a bank guarantee or payment of non- refundable amount when lodging an appeal with the Tax Appeals Commission

5. Granting of an extension up to 31st December 2020 for payment of any tax and filing of any tax return which were due during the period 1st March 2020 to 30th June 2020.

6. Suspension of implementation of injunction orders issued to banks up to 30th April 2021.

United Arab Emirates - Economic Substance Regulations (ESR) update and updated version of the VAT Executive Regulations

KPMG in UAE provides updates on the ESR compliance requirements and amendment to the zero rating conditions for exported services as per the UAE VAT Executive Regulations.

Effective 30 April 2019, with reporting from financial year on or after 1 January 2019, UAE has introduced the Economic Substance Regulations (ESR). The ESR effectively imposes a legal requirement for all UAE entities including branches of local and foreign companies that carry on any of the 9 relevant activities (Banking, Insurance, Investment Fund Management, Lease-Finance, Shipping, Headquarters, Holding Company, Intellectual Property, Distribution and Service center) to maintain economic substance in the UAE specific to each relevant activity. There are also annual regulatory filing requirements (that include notification and reporting) that need to be met in order to comply with the regulations as well as penalties for non-compliance.

Please find a detailed review of the new guidance (PDF 131 KB), along with some its possible application in the UAE.

KPMG has developed a five-minute ESR survey tool. Based on information submitted, it will provide a preliminary assessment on the likely application of ESR to your business and determine whether there is a need for formal assessment. Click here to begin.

The UAE MoF has also issued COVID-19 related relaxations concerning the ESR. The UAE MoF has recognized that businesses around the world and in the UAE might be required to adjust their operating procedures to address disruptions caused by COVID-19. In particular, the pandemic might affect the mobility of individuals, either as a result of travel restrictions or due to self-isolation or quarantine. Based on communication with some of the above mentioned authorities, we understand that their ES Notification deadlines remain unchanged, thus far. Click here to read the latest tax flash relating to this development.

Amendment to the zero rating conditions for exported services as per the UAE VAT Executive Regulations

The Federal Tax Authority (“FTA”) recently published an updated version of the VAT Executive Regulations - Cabinet Decision No.(52) of 2017 on The Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax.  The updated version appears to incorporate the additional Cabinet Decision No. 46 of 2020, issued 4 June 2020.

While most of the changes in the VAT Executive Regulations are stylistic, the one change of note was made under Article 31(2).  This change is specifically highlighted through a footnote to the relevant article referencing Cabinet Decision No. 46 of 2020 (dated 4 June 2020).

Article 31(2) of the VAT Executive Regulations qualifies whether a person is considered as “outside the State” for the purpose of zero rating services under Article 31(1)(a) of the VAT Executive Regulations. The change is as follows:

Amended version

For the purpose of paragraph (a) of Clause 1 of this Article, a Person shall be considered as being “outside the State” if they only have a short-term presence in the State of less than a month and the presence is not effectively connected with the supply.

Previous version

For the purpose of paragraph (a) of Clause 1 of this Article, a Person shall be considered as being “outside the State” if they only have a short-term presence in the State of less than a month or the presence is not effectively connected with the supply.

The change effectively narrows the scope and requires that both conditions now need to be satisfied to determine if a person is outside the UAE at the time the services are supplied.  In other words, it suggests that where the person has a connection to the supply and is present in the UAE for any period of time during the supply of the services, zero rating of the services cannot apply.

Suppliers will need to consider the following to determine if the zero rate can apply to the export of services:

  • whether the recipient of the services has a place of residence in the UAE, i.e. the place of establishment or fixed establishment most closely related to the supply; and
  • where there is no place of residence in the UAE, if the recipient has any presence in the UAE that is connected to the supply and the duration of that presence.

A separate copy of Cabinet Decision No. 46 of 2020 is not available in the public domain and therefore the date of effect of the change is not yet confirmed.

Sources

https://www.atheer.om/archives/

https://www.atheer.om/archives/

1. Sultanate of Oman, Oman in the world view, Issue number 1, January 2016, published by the Ministry of Information, Oman