Welcome to the July edition of our Tax Newsletter covering GCC and global news. As countries continue to reform their tax systems with the goal of becoming more globally competitive it is more important than ever to keep up with trends and developments.
New regulations have been issued in Cabinet of Ministers Resolution No. 31 of 2019, dated 30 April 2019. They introduce a legal requirement for all UAE entities (mainland and free zone) to locally maintain ‘economic substance’ in line with the level and type of activity they undertake. Economic substance can broadly be considered to consist of employees, premises, management, and costs. There are also various regulatory filing requirements which must be met in order to comply.
The regulations should also assist in further aligning the UAE’s legislative framework to standards set out in the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) action plan. The regulations are similar to economic substance requirements recently implemented in jurisdictions such as the Cayman Islands and Jersey.
“Official participants” of Expo 2020 (i.e., countries and intergovernmental organizations) will be allowed value added tax (VAT) refunds with respect to import and local procurement made for pavilions at the Expo 2020 Dubai site.
For specified construction and operational activities at the Expo 2020 Dubai site, official participants (that would not be expected to register separately for VAT) will be required to obtain a refund entitlement certificate from the Bureau Expo 2020 Dubai office. Refund entitlement certificates would allow them to obtain VAT refunds (subject to review and processing requirements).
The UAE Cabinet approved specific sectors and economic activities eligible for up to 100% foreign ownership on the mainland UAE. Previously, foreign investors could hold up to 49% of a mainland company.
This development follows the FDI Law published last September. A total of 122 economic activities across the following 13 sectors have now been deemed eligible for up to 100% foreign ownership
The UAE Cabinet specified that the local governments of each emirate will determine the ownership percentage of foreign investors in these activities. In certain emirates, some activities may still require an Emirati shareholder, even if the foreign ownership threshold increases.
4) Oman excise tax update
Oman has implemented the Excise Tax Law, effective 15 June 2019. The relevant Executive Regulations are still awaited. The Ministry of Finance (MoF) has six months from 15 June 2019 to issue the Executive Regulations. However, in the absence of Executive Regulations, the Secretariat General for Taxation, Ministry of Finance (SGT) has published an Implementation Guide and Frequently Asked Questions on 26 May 2019. These are not legally binding documents, but are intended to provide a better understanding of an excise taxpayers’ obligations.
The MoF has also published Ministerial Decision No.112/2019 dated 2 June 2019 (Ministerial Decision), on the determination of type, value and tax rate applicable to excisable goods. This is a legally binding document. According to the Ministerial Decision, the rate of excise tax on carbonated drinks was 50 percent and alcohol, energy drinks, pork products and tobacco products was 100 percent.
The SGT has confirmed a temporary reduction in the rate of excise tax on alcohol to 50 percent, updating the standard list price with the revised excise tax rates. However, the Ministerial Decision has not been amended to reflect the reduction.
The SGT has also confirmed an extension for filing transitional return of excise tax declaring the inventory of excise goods held by businesses as on midnight of 14 June 2019, from 30 June 2019 to Monday, 15 July 2019. However, the Excise Tax Law has not been amended to reflect the extension. The format of transitional excise tax returns is currently awaited.
The SGT appears to have informally confirmed an extension in the time limit for payment of transitional excise tax liability from 30 June 2019 to 15 July 2019, but there has been no official/formal confirmation to reflect the extension. The SGT has shared details regarding the bank account where excise tax needs to be remitted, but processes governing payments have not been communicated.
5) Oman introduces Common Reporting Standard (CRS)
In line with its commitment to adopt international best practices in tackling cross-border tax evasion and meeting the standards set by the European Union (EU) and the OECD, Oman is currently in the process of issuing regulations for automatic exchange of information (AEOI) through CRS.
In order to allow the exchange of information in 2020, banks and other financial institutions have already been mandated by the Central Bank of Oman to ensure collection of CRS-related information for new account holders effective from 1 July 2019. It is expected that financial institutions will also have to perform CRS due diligence on pre-existing account holders in the later part of 2019.
The Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) conducted a day-long workshop on 12 June 2019 to educate banks and financial institutions about CRS and its implementation. Earlier in April 2019, a visit from the Secretariat of the Global Forum launched an Induction Programme for Oman to participate in and benefit from international developments in tax transparency and exchange of information. The SGT is currently developing legislation so as to facilitate concerned entities to undertake filings. Based on discussions arising from the workshop, it is expected that entities will need to make their first filings (for data collected from 1 July 2019 till 31 December 2019) by May 2020, although it is advisable to reconfirm these dates after the legislation is published.
6) FTA has operationalized “administrative exception” provisions in the VAT Law:
There are various provisions in the VAT Law, which envisage attempts to relax certain administrative compliance requirements; however, specific processes to apply such changes were not prescribed.
Recently, the FTA has published the “VAT Administrative Exception User Guide” containing an application form, scenarios and conditions in which exceptions can be granted from the following compliance requirements in the VAT Law:
- Tax invoice and tax credit note:
Relaxation of the obligations to issue tax invoices or tax credit notes or from incorporating certain details in such documents
- Length of the tax period
Individuals and businesses constantly in refund positions can apply for a longer length of the tax period (i.e. greater than quarterly reporting tax periods)
- Stagger of the tax period (i.e. period ending for tax period)
Businesses who submit VAT returns on quarterly bases can opt for a stagger to end the tax period in a suitable month (i.e. other than the current reporting schedule assigned by the FTA)
- Time limit for export of goods
A request can be filed to extend the time period for exporting goods beyond 90 days in order to avail zero rating export provisions
The application form should be supported with details of the practical challenges experienced when adhering to the standard compliance requirement.
KPMG Lower Gulf, as a registered tax agency, can assist with the completion and submission of administrative exception application forms with the FTA.
7) Relaxation of certain requirements on the tax invoice and tax credit notes
The Cabinet has issued a decision to relax the following requirements on tax invoices and tax credit notes, effective from the implementation of VAT, i.e. 1 January 2018:
- A single document can be issued for a tax invoice and tax credit notes labeled as “tax invoice/tax credit note” (i.e. rather than two separate documents)
- The supplier’s mailing address would be sufficient to meet the criteria for a valid tax invoice or valid tax credit note (i.e., P.O. Box can be sufficient for supplier and recipient).
The National Bureau for Revenue provided guidance concerning the VAT topics below. Click here to learn more:
— Invoice requirements
— Input tax deduction on motor vehicles
— Transfer of a going concern
— Bank statements
— Bulk post-supply discounts
— Correction of tax invoices
— VAT grouping rules
— Deferring payment of VAT on imports
— VAT guides
The General Authority of Zakat and Tax has determined excise tax will apply to the following products:
·Sugary drinks: excise tax rate of 50%
·Electronic cigarette and other electronic smoking tools: excise tax rate of 100%
·Electronic cigarette fluids: excise tax rate of 100%
The measures concerning e-cigarette products have an immediate effective date. The effective date for the excise tax on sugary drinks has not been established.
10) Saudi Arabia offers permanent residency to expatriates
The Kingdom of Saudi Arabia has opened applications for a permanent residency program which has been designed to attract foreign investment for a cost of SAR 800,000. Further, there is also an option for one-year renewable residency costing SAR 100,000.
Permanent residency will allow foreigners to buy the property and do business without a Saudi sponsor, switch jobs, exit the Kingdom easily and sponsor visas for family members. Applicants must be at least 21 years old, prove financial solvency and have a clean criminal record and bill of health.
11) New employment law introduced in DIFC (Dubai)
The Dubai International Financial Centre (DIFC) published a final version of the new DIFC Employment Law, which shall come into force on 28 August 2019. A number of key changes have been introduced which address issues such as paternity leave, sick pay and end-of-service settlements, among others.
12) UAE: high earning executives to enjoy long-term visas in the UAE
The UAE recently extended the long-term residency program to executives who earn a salary of AED 30,000 and above monthly. However, executives who meet the salary threshold and are interested in applying for the long-term residency program must also possess a bachelor’s degree and have at least five years’ work experience in the country. This will enable them to apply for a 10-year residency visa.
13) Oman provides tax breaks to boost Musandam tourism
His Majesty Sultan Qaboos bin Said has issued a Royal Directive to provide tax breaks to any new investor who wishes to establish a tourist project in Musandam. Investors will now be allowed an exemption from customs duties covering building materials, tools, and equipment that are essential during the construction phase of tourism-related projects. An exemption has also been provided from the 4% tourism tax, the 5% municipal tax and the 15% corporate income tax from the start of the project to the end of its first 10 years of operations. The Royal Directive is expected to take effect from June 2019. We understand that the Ministry of Tourism, in coordination with the Ministry of Finance/SGT, will issue a Ministerial Decision to provide further details and compliance related procedures.
14) Clarifying letter issued by SGT regarding the suspension of the withholding tax on interest and dividends
As mentioned in our last newsletter, the Capital Market Authority had announced the suspension of withholding tax on interest and dividends with effect from 6 May 2019 for a period of three years, subject to extension if required. In continuation of this announcement, the SGT has now issued a letter to all accounting firms clarifying the same position. The letter states that this suspension has been issued in order to boost and encourage foreign investment in Oman.
International tax updates
India’s Union Cabinet approved the ratification of the multilateral convention or instrument (MLI) to implement the tax treaty-related measures identified in OECD BEPS Action 6.
Some taxpayers in South Africa are favoring shorter-term investments that are known as “section 12J investments” in an effort to reap higher returns. Section 12J investments are enhanced by an up-front tax deduction.
The governments of Jersey, Guernsey, and the Isle of Man, on 19 June 2019, set out their stance on the future registers of the beneficial ownership of companies.
The plan will be informed by an EU directive to address money laundering—a directive that calls for public access to information about the beneficial ownership of companies as well as the current position of access for relevant government agencies and law enforcement.
On 26 February 2019, the Court of Justice of the European Union rendered two important judgments on the anti-abuse rules in the Parent-Subsidiary Directive and in the Interest and Royalties Directive (IRD), and on the beneficial ownership concept in the IRD. On 14 June 2019, the Deputy Minister of Finance, answered Parliamentary questions about these judgments, which mainly concerned the implications of judgments for the Netherlands.
In India, the due dates for filing certain goods and services tax (GST) returns has been extended.
New Zealand’s Inland Revenue and the Australian Taxation Office reached an agreement for determining the tax residency of dual-resident companies.
Determining the location where a dual-resident company is a tax resident is relevant under the New Zealand-Australia income tax treaty (as well as under certain other income tax treaties). Dual-resident companies must now seek formal confirmation from the tax authorities to agree on their tax residency under applicable income tax treaties. This change applies from 1 January 2019 for the income tax treaty between New Zealand and Australia.
The OECD reported that there is an agreement for a “road map” with regard to resolving the tax newsletter challenges arising from digitalization of the economy and a commitment for continued work toward a consensus-based long-term solution by the end of 2020.
Find previous editions of the tax newsletter here.
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