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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:

Bangladesh - Government and institution measures in response to COVID-19 as well as Direct tax provisions and step towards Transfer Pricing Assessment by the National Board of Revenue

  1. Bangladesh Bank (BB) announces moratorium on loan payments until 30 June 2020 and that such borrowers will not be in default
  2. Government announces details of its BDT 50bn (approx. USD595m) stimulus package for export-oriented industries. This includes assistance towards salaries and funding of 2 year loans to factory owners at 2% interest.
  3. Prime minister announces another stimulus packages of BDT 67,750m (approx. USD8bn) planned to implement in immediate, short and long phases through four programs (increasing public expenditure, formulating a stimulus package, widening social safety net coverage and increasing monetary supply).

Tax measures:

1. Lifting of import taxes on medical and protective items:

The National Board of Revenue (NBR) waives of 12 types of safety products and test kits from import duties and taxes until 30 June 2020.

2. Exemptions/incentives available to power companies as per the Income-tax Ordinance, 1984 (‘ITO’) and relevant Statutory Regulatory Order (SRO)

  • Tax exemption in case of (other than Coal based) Private Power Generation Company (“PPGC”):
    If commercial production of the PPGC starts within 1 January 2020 to 31 December 2022; the following income tax exemption shall be available:
    • Income of PPGC exempt upto 31 December 2034;
    • Income of foreign nationals exempt for 3 years;
    • Interest payment on foreign loans can be paid off without Withholding Tax (WHT);
    • Royalty, Technical Know-how and Technical assistance fees payments can be made without WHT;
    • Capital Gains arising from divestment is exempt;

      Conditions:
      • Proper books of accounts must be kept
      • Annual Income Tax Return shall have to be submitted within specified time as per section 75 of ITO.
         
  • Tax exemption in case of (other than Coal based) Private Power Generation Company:
    If commercial production of the PPGC starts on within 1 January 2023 to 31 December 2024, the following Corporate tax exemption only will be available:

SL

Duration of the tax exemption
Rate of tax exemption
01 First 5 (five) years from the date of commercial operation (first, second, third, fourth and fifth year) 100%
02 Next 3 (three) years (sixth, seventh and eighth year) 50%
03 Next 2 (two) years (ninth and tenth year) 25%

Conditions:

  • Proper books of accounts must be kept
  • Annual Income Tax Return shall have to be submitted within specified time as per section 75 of ITO.

3. Change in withholding tax rate on export cash subsidy

The withholding tax rate on export cash subsidy reduced from 10% to 5%.

Transfer Pricing (TP) Cell of National Board of Revenue (NBR) has initiated TP related queries to the Multinational Companies (MNCs) operating in Bangladesh

Recently TP Cell of NBR has initiated TP related queries to the MNCs operating in Bangladesh. TP Cell has recently asked 921 MNCs operating in Bangladesh to submit detailed information about their business profiles and related activities to scrutinise their international transactions for finding out whether they have evaded taxes. They have issued letters to all 921 companies, requesting them to provide details on a prescribed format. The TP Cell has sought a basic profile of the entities like ownership, period of operation, activities, status of employees, names of top employees, bank accounts and expenses of Bangladesh operation.

NBR plans to form another TP Cell

In a recent board meeting, the NBR has decided to take necessary preparation for establishing another TP cell for its Customs and VAT Wing. The TP cell will be set up to verify authenticity of transaction values between associated enterprises. The cell will investigate trade-based money laundering through transfer mispricing. This cell for Customs Wing will check duty evasion through mispricing of products in collaboration of two associated enterprises. The TP cell will review customs acts of the neighboring countries, including India and Sri Lanka, and recommend ways to proceed in this area. They will also seek help of the World Customs Organisation (WCO) in this regard.

Egypt - Tax developments in response to the coronavirus (COVID-19)

In respect of the ongoing Coronavirus situation, the Tax Authority has extended the deadline (March 31, 2020) of income tax return for individuals to April 16.

However, for corporate bodies, no extension for tax filing deadline has been declared so far (leaving the taxpayer to choose the extension request option - mentioned in the tax law - provided that the tax due must be remitted along with filing such request).

In this regard, the Tax Authority allowed the options of remitting the tax payments to be made either electronically or through bank cheques.

Jordan - Social security contribution update

Social security commission in Jordan declared that the Social security contribution for the three months (March, April and May) would be decreased to 5.25% instead of 21.75%, divided to 4.25% as employer share and 1% as employee share and the payments will need to be done maximum by December 31, 2023 without any interest. 

Lebanon - Measures in relation to COVID-19 crisis

Lebanon has introduced tax measures as a response on the Covid-19 pandemic, these measures include suspension of tax deadlines, deferral of the payment of social security contributions, in addition the Lebanese government introduced limited exemption for 2 months from custom duties.

Tax measures – Direct and Indirect taxes

Measures announced to provide relief for taxpayers in response to COVID-19 pandemic include:

  • The Lebanese ministry of finance introduced a suspension of tax deadlines including tax returns filing and payment, registration and deregistration, objections and appeals and other tax obligations. The suspension applies until the end of the lockout situation.
  • Taxpayers are able to submit their requests to the ministry of finance through emails to avoid in-person visits.
  • Exemption for 2 months from custom duties and excise tax on medical and laboratory equipment used to encounter Covid-19 pandemic.

Employment-related measures

  • Public sector workers will continue to receive their salaries; no other specific policy discussed for private sector workers.
  • The National social security fund issued a decision to defer the payments of social security contributions related to the first six months of the year 2020 for an additional period of six months from the original deadlines.

 

The major tax amendments that were introduced by the 2020 Budget law dated 5/3/2020:

  • Introducing a new definition of NGO’s activities which are exempted from VAT and benefit from the tax refund based on article 59 of the VAT Law.
  • Exemption from VAT for the imported raw material directly used in the Pharmaceutical industries.
  • In addition to the profit Income Tax, banks, financial institutions and financial intermediaries are subject to a lump sum tax of 2% on their turnover related to 2019, and this tax should be paid in three equal installments in 2020 within a certain deadline.
  • In case of any previous violation of work and residency permit in Lebanon, the employer has the right to settle the foreign workers status and avoid paying penalties within three months from the date of publication of the budget law.
  • A reduction of penalties related to taxes, social security and other duties in case of settlement within six months from the date of publication of the budget law.
  • Taxpayers can benefit within certain conditions from a settlement of VAT and Income tax related to unresolved objections in front of the objection committees, the amount of the settlement shall be limited to 50% of the value of taxes, and the taxpayer will benefit from waiving all penalties.
  • Licensed industrial factories will benefit from a subsidy amounted of 5% of the value of their annual exported goods manufactured in Lebanon.

Oman - COVID-19 related tax measures announced by the Government of Oman

1. Corporate tax relief measures:

The Oman Tax Authority provided certain corporate tax relief measures specifically to taxpayers affected by COVID-19 as a result of the precautionary measures imposed by the government to counter this pandemic in Oman. These include the following:

  • Deferral of tax return filing and payment of tax by up to three months from the due date. 
  • Exemption from all fines and penalties related to such deferred filing and tax payments.
  • Tax deductions for all donations or contributions made towards handling COVID-19 pandemic in accordance with the prescribed rules under the income tax law and the executive regulations. 
  • Other measures include flexible tax payment mechanisms, extension of timeline for filing objections against tax assessments and additional time to submit supporting documents and clarifications for ongoing objection proceedings.

Refer to our Tax Flash of 31 March 2020 for further details.

2. Custom duty related relief measures:

  • The Omani customs authority has announced that where the importer is unable to obtain or produce the necessary authorisations (i.e., documents and certificates of the goods from the exporting country), the relevant goods will still be cleared.
  • Further, the current requirement to obtain a guarantee for the non-submission of original legalised documents has been waived until further notice.

3. Other tax measures:

  • Exemption from Tourist and Municipal Tax (currently imposed at 4%) for restaurants until 31 August 2020;
  • Exemption from Municipal Tax (currently imposed at 5%) for commercial establishments until 31 August 2020.

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

  • Over 100 countries have committed to exchanging information with each other 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 this convention. The convention is now ratified by Oman vide Royal Decree 34/2020 on 25 March 2020. As a next step, the ratified instrument will be deposited with the relevant depositories, following which it will come into effect for Oman.
  • The ratification demonstrates Oman’s commitment to international norms for exchanging information with other countries. As a consequence to this, it is expected that that Oman’s local legislation allowing specified institutions to undertake the CRS compliances with the designated authority will be available soon. This will aid in Oman coming out of the current European Union blacklist.

Source:

1. Convention on Mutual Administrative Assistance in Tax Matters
2. Tracking coronavirus (COVID-19) - Browse OECD contributions.

Inspection and audit of financial institutions by the Tax Authority for CRS compliance

The Tax Authority (TA) and the Capital Market Authority have confirmed that inspection and audit of financial institutions will be undertaken by the TA in order to ensure compliance with the Multilateral Competent Authority Agreement for Automatic Exchange of information. The TA will currently assess the compliance for the period 1 July 2019 to
30 September 2019.

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 has been issued on 31 March 2020 to ratify such MLI. The RD shall be published in the Official Gazette and shall come into force from date of its issue.

In addition to the above, a Royal Decree 42/2020 has been issued on 31 March 2020 promulgating the Tax Authority System and approving its Organizational Structure. The RD shall be published in the Official Gazette and would be made effective from its date of issue.

Withholding tax (“WHT”) on payments made by Oman Branch to Foreign Head Offices

  • Under the Oman Tax Law, specified foreign payments made to foreign person by the Taxpayer are subject to WHT at 10% on gross basis in Oman. It is important to note that where the Omani branches (Taxpayer) make a specified payment to its head office such as Royalties, Management fees or Service fees, then such payments are subject to WHT in Oman. 
  • The Oman Tax Authorities have clarified to KPMG acting for a client that the Omani branches making payments in the nature of head office expenses to their foreign head offices, which constitute income of the head office and fall within the specified categories shall be under obligation to withhold tax in Oman.

Evaluation of foreign investments proposal(s) under the new Foreign Capital Investment Law (“FCIL”) started:

The Authorities in Oman have started evaluating foreign investments for approval in setting up 100% foreign owned companies in Oman under the new FCIL (RD 50/2019). The FCIL became effective from January 2020.

Refer to our tax flash on Oman: New Foreign Capital Investment law to attract investments dated 2 February 2020 for further details.

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 - Government and institution measures in response to COVID-19

On 30 March 2020, The Government of Pakistan (GoP) has approved the fiscal stimulus package of Rs. 1.2 trillion and Supplementary Grant of Rs. 100 billion for the "Residual/Emergency Relief Fund" in relation to provision of funds for mitigating the effect of COVID-19 for the impacted population.

Tax measures – Direct and Indirect

Tax Relief

1. Release of Rs. 75 Billion for Tax Regulator – GoP approved Rs.75 billion to payback the pending sales tax and income tax refunds, duty drawbacks and customs duties.

2. GoP allowed to reduce different taxes and duties on import and supply of different food items for alleviating the adverse impact of COVID -19 on different sections of the society:

  • Rate of advance tax on the import of different food items was reduced to 0% from 2%;
  • Individuals and associations of persons providing basic food items to Government owned departmental stores without a brand name will pay 1.5% withholding tax instead of 4.5%;; and
  • ACD (additional customs duty) at 2% on soya bean oil, canola oil, palm oil and sunflower oil (also on oil seeds) has also been exempted.

Economic stimulus measures

Fiscal and Monetary Measures

  • Central bank reduced the policy rate by a further 150 bps points to 11% bringing the cumulative ease to 250 bps in a week.
  • Central Bank has relaxed the Debt Burden Ratio (DBR) for consumer loans from 50% to 60%.
  • Banks and Development Finance Institutions (DFIs) will defer the payment of principal on loans and advances for one year.
  • Keeping in view the steep decline in share prices, margin call requirement of 30% vis-a-vis banks' financing against listed shares has been significantly reduced to 10%.
  • The regulatory limit on extension of credit to SMEs has been permanently increased from Rs. 125 million to Rs. 180 million
  • The Central Bank will refinance banks to provide financing at reduced end-user rate of 3 percent for 5 years for the purchase of equipment to detect, contain and treat the Coronavirus.

Other measures and sources

Relaxation in trade and cash/ Government subsidy

  • The Government of Pakistan (GoP) has approved the fiscal stimulus package of Rs. 1.2 trillion and Supplementary Grant of Rs. 100 billion for the "Residual/Emergency Relief Fund" in relation to provision of funds for mitigating the effect of COVID-19 for the impacted population.
  • Rs. 200 billion of cash assistance for the daily wages working in the formal industrial sector and who had been laid off as a result of COVID-19 outbreak.
  • Rs. 50 billion for Utility Stores Corporation to provide essential food items to the vulnerable section of the society at subsidized rates.
  • The supplementary grant of Rs. 30 billion to Ministry of Commerce to payback duty drawbacks to textile exporters in the current financial year to improve their liquidity position.
  • Pakistan has arranged about $4 billion additional financial assistance from multilateral lending and aid agencies to shore up foreign exchange reserves and budgetary support for fighting adverse impacts of the coronavirus pandemic.
  • Pakistan is in negotiation with IMF to seek additional $1.4 billion fast-track and upfront payment package to fight of Coronavirus.

Main sources of information 

1. Ministry of Finance
2. State Bank of Pakistan

Qatar - Customs measures in response to COVID-19 and extension of the deadline for filing tax returns

The novel coronavirus (COVID-19) outbreak has been declared a pandemic by the World Health Organization, causing a huge impact on people’s lives, families, communities, businesses as well as international trade. The State of Qatar has initiated on-time preventive actions to combat the current medical situation and minimize the effects on the economy.

Following the directives of His Highness The Amir Sheikh Tamim bin Hamad Al-Thani, as part of the implementation of customs-related incentives, the General Authority of Customs (the GAC) has exempted food and medical commodities from customs duties for a period of six months effective from 23 March 2020.

The GAC has initiated implementing this directive by dropping customs duties for 905 different listed items at Al Nadeeb e-customs clearance system. These included basic food items and a number of medical equipment and tools. Please click the link for exempted list of items.

Extension of deadline for tax return 31 December 2019 filing

The General Tax Authority (“GTA”) has issued Circular No.5 for the year 2020, in response to letters received by the GTA, requesting for an extension of the deadline for filing tax returns for the year ended 31 December 2019 (FY 2019).

The GTA has provided an extension of 2 months for filing the tax returns for the FY 2019; whereby 30 June 2020 will now be the deadline to file the said tax returns. The circular has been issued in light of the exceptional circumstances that the State is facing during this period.

We at KPMG in Qatar are grateful for the quick action that the GTA has taken on requests for extension sent by us, other firms and the taxpayers.

While the said extension provides relief to deal with the current situations, we would highly recommend to our clients to work towards having the tax returns filed well within the abovementioned deadline, to avoid last surprises given these uncertain times.

Dhareeba–new online tax management portal

Background

General Tax Authority (the GTA) in Qatar will launch soon a new online tax management portal called “Dhareeba” in order to improve the tax administrative management process in the State of Qatar. The Dhareeba system will replace the currently used “Tax Administrative System” (TAS) for the tax filings for Financial Year 2020 and be more user friendly and efficient to handle tax registration, return filling and submission of applications.

KPMG Qatar has been invited to several Dhareebatrial registration training sessions, where we had the opportunity to test the system functionality, to be familiar with the registration process, to do trial registrations under several types of scenarios and to provide our feedback in relation to system functionality.

Recommendation for the companies

Based on our observation during the trial registration, we advice the companies to be prepared for Dhareeba registration and collect the documents and data to be required in advance in order to mitigate any upcoming administrative burden.

How can KPMG assist you?

KPMG in Qatar can help you in relation to the registration process in Dhareeba portal and make registration process smooth for your firm. If you have any questions or would like to discuss this directly, please contact us.

Saudi Arabia – Tax relief measures in response to coronavirus (COVID-19)

Cancellation of penalties and postponement of Zakat, Tax, WHT filing and payment for three months

As part of implementation of the massive efforts by the Government of Saudi Arabia to mitigate the impact of the COVID -19 pandemic on the economic activities in the Kingdom, it has announced several measures targeted specifically at taxpayers that are designed to ease filing and payment requirements for a limited period.

In the implementation of Royal Decree (RD) No. 45089 dated 23 Rajab 1141H (18 March 2020G) General Authority of Zakat and Tax (“GAZT”) has issued circular to taxpayers informing them of the incentives available to taxpayers during the period 18 March 2020 till 30 June 2020 which include the following:

1. Cancellation of penalties for late submission or amendments to tax return:

Cancellation of all penalties in case of late filing of tax returns or revision of previously submitted tax return during the incentive period starting 18 March 2020. The concession is subject to payment of tax by 30 June 2020. It appears that GAZT is trying to encourage taxpayers to file any delayed returns or amend any incorrect returns previously filed by the taxpayer. This is a good opportunity for taxpayers to amend any errors or omissions related to past filings. Important to note that, the concession includes VAT and Excise duty as well.

2. Cancelation of penalties for late registration

Cancelation of late registration penalties for a person who was required to register with GAZT prior to 18 March 2020. Such person can benefit from the concession provided, registration is made with GAZT and any due declarations and tax is settled on or before 30 June 2020.

3. Payment of due tax in installments

The GAZT will allow payment of tax due in this concession period in instalments. No penalty will be imposed till 30 June 2020 starting from the date the amount is due, provided the application is submitted to GAZT during the incentive period. There will be no ceiling on the amount of tax that can be paid in instalments. However, imposition of penalties will resume from 01 July 2020 till the time of full payment.

4. Cancellation of all penalties during 18 March to 30 June 2020

Cancellation of all penalties arising from due liabilities during the incentive period excluding penalties on the due liabilities pertaining to the periods prior to 18 March 2020, except as mentioned in point 1 & 2 above. GAZT has also published clarifications regarding concessions in the area of filing and payment of tax in the coming 3 months.

Zakat and tax return for the fiscal year 2019

The period for submitting tax and zakat returns due for the fiscal year ending in 2019 have been extended for a period of three months for all returns that were required to be filed during the period between 18/3/2020 to 30/6/2020.

Fiscal year Original due date Extended due date for filing and payment
31 December 2019 29 April 2020 29 July 2020

In order to encourage tax and zakat payers in conducting their business activities smoothly, the GAZT has issued tax/zakat Certificate valid until 30 April 2021, without submitting 2019 tax/zakat returns. However, taxpayers are required to submit the returns within the extended period.

Withholding tax (“WHT”)

The initiative also includes WHT. Due dates for filing monthly WHT returns will be as follows:

Month Original due date Extended due date for filing and payment
March 2020 10 April 2020 10 July 2020
April 2020 10 May 2020 10 August 2020
May 2020 10 June 2020 10 September 2020

The returns due after May 2020 will not change, and their due dates will remain the same. Due date for filing June 2020 WHT return will be 10 July 2020.

VAT: Measures to support taxpayers during the COVID-19 Pandemic

As part of the Saudi Arabian Government’s efforts to mitigate the impact of COVID-19 on taxpayers, the General Authority for Zakat and Tax (GAZT) has announced multiple initiatives effective from March 18, 2020:

1. Postponing the due date of submitting VAT returns and payment of VAT liabilities:

Monthly VAT returns

  • Three months’ extension of the due date has been granted to taxpayers filing VAT returns on a monthly basis as set out in the schedule below
Tax period Original due date New due date
February 2020 March 31, 2020 June 30, 2020
March 2020 April 30, 2020 July 31, 2020
April 2020 May 31, 2020 August 31, 2020
May 2020 June 30, 2020 September 30, 2020
  • Please note that from the tax period of June 2020, the normal due dates for filing of the VAT returns will resume as follows:
Tax period Original due date Comment
June 2020 July 31, 2020 Unchanged
July 2020 August 31, 2020 Unchanged
August 2020 September 30, 2020 Unchanged
September 2020 October 31, 2020 Unchanged

Quarterly VAT returns

  • Taxpayers filing returns on a quarterly basis should submit them as follows:
Tax period Original due date New due date
Jan 1, 2020 to Mar 31, 2020 April 30, 2020 July 31, 2020
  • Please note that from the tax period of April 1, 2020 to June 30, 2020, the normal due dates for filing returns resume as follows:
Tax period Original due date Comment
April 1, 2020 to June 30, 2020 July 31, 2020 Unchanged

2. Payment of VAT due

  • Payment of VAT due for returns where the submission deadline is extended is also postponed and is due on the same date as the extended return.
  • If the VAT return for which the submission deadline is extended is submitted early, the deadline for payment will remain extended and unchanged.

3. Postponing the payment of VAT on the importation of goods:

  • The payment of VAT due at importation by VAT registered taxpayers can now be postponed, if the customs clearance occurs between March 18, 2020 and June 30, 2020 and the goods are imported in the ordinary course of business of the taxpayer.
  • Taxpayers are not required to seek pre-approval from GAZT or from the Customs Authority in this respect.
  • Postponed payments should be reported in the VAT return for the relevant period under the reverse charge section. Non-deductible import VAT should be reported as an adjustment.

4. Suspending the application of fines and penalties from 18 March to 30 June 2020

  • Registered taxpayers for all taxes (including VAT) will be exempted from penalties and fines where they:
  • Amend returns which results in additional tax due; or
  • Submit returns which did not comply with the deadlines set for filing the declaration.
  • Unregistered taxpayers who are required to register for tax will be exempted from penalties and fines provided they register by 30 June 2020.
  • In order to obtain these benefits, taxpayers must be registered during the initiative period, submit returns and pay the taxes due or request an installment plan no later than 30 June 2020 in order to cancel the penalties.
  • In using this initiative, taxpayers can benefit by being exempted from all penalties, including delay fines as mentioned below:
Delay Penalties
Delaying submission of VAT returns Fine of 5% to 25% of the VAT due, for each return
Delaying payment of due tax Fine of 5% of the VAT due, for each month or part of month of delay
  • This is a unique opportunity provided to taxpayers by the Saudi government to normalize their tax affairs without financial penalties. We would recommend that all taxpayers review their tax position from the introduction of VAT on January 1, 2018 and consider the self-disclosure of VAT errors. The potential cash saving could be substantial.
  • Further, considering that, in order to benefit from the suspension of penalties and fines, payment of taxes due must be made by 30 June 2020, such assessment should be undertaken without delay.

5. Additional measures

In addition to the above incentives, the tax authority has committed to:

  • Expediting payment of VAT refund requests filed by the taxpayers;
  • Suspending the requirement to provide bank guarantees to GAZT; and
  • Suspending the application of penalties due on adjustment of submitted VAT returns

GAZT has announced various schemes for the voluntary disclosure of past VAT errors and omissions

Taxpayers can self-disclose errors made since the introduction of VAT. Consequently, we recommend that all taxpayers review their returns from January 1, 2018 and consider amendments as necessary. The potential cash saving could be substantial.

Based on our understanding of the Saudi VAT Laws and Implementing Regulations (the “VATR”) and client experience, typically, the following issues impact the total tax due and result in additional tax being assessed along with penalties amounting to 50% of the additional tax due for incorrect filing and 5% - 25% per tax period of the additional tax due in respect of the delay in payment of the additional tax or non-submission of a VAT return.

Under reported output tax 

  • Incorrect application of VAT from 1 January 2018 based on changes in GAZT’s interpretation;
  • Non-declaration of non-routine income such as disposal of fixed assets, scrap materials or by-products;
  • VAT not accounted for the deemed/nominal supplies;
  • VAT not accounted for on advances received from customers;
  • Incorrect application of the zero rate under the transitional provisions provided for by Article 79 of the VATR;
  • Incorrect application of the zero rate to services supplied to non-residents;
  • Incorrect VAT treatment of debit and credit notes issued or received by the taxpayer;
  • Reconciliation of the value of imports for customs duty and VAT;
  • Fair market value not applied in case of qualifying related party transactions and free supplies;
  • Goods imported by the buyer but supplied with installation in KSA are not treated as subject to VAT by the supplier; and
  • VAT accounted for based on the issue of the invoice in the next tax period when the time of supply took place in the previous tax period.

Over claimed input tax: 

  • Claiming VAT input on purchases not used in an economic activity;
  • Claiming input tax using non-compliant tax invoices and/or customs Bayans;
  • Where entities make both taxable and exempt supplies, not blocking deductions of input VAT directly or indirectly related to exempt supplies;
  • Use of an incorrect ratio for the proportional deduction of input tax; and
  • Claiming import VAT on temporary imports

How KPMG can help you? 

We can provide support with the following: 

  • Estimating were the reduction in VAT payable or additional VAT refund is available to the taxpayer and support with obtaining refunds from the GAZT;
  • Review of VAT returns to identify gaps and determine the correct amount of tax due for each period using data analytics tools to improve the efficiency of the analysis;
  • Review of customer and supplier contracts entered into before 30 May 2017 to help management ascertain whether zero-rating is available;
  • Checking compliance of purchase invoices and customs documentation with the requirements of the VATR;
  • Advising on potential VAT implications of transactions with related parties and non-resident vendors and highlighting the correct VAT treatment;
  • Assisting in identifying VAT exposures relating to advances from customers and deemed/nominal supplies;
  • Identifying instances where there is a time lag between the date of posting of local purchase transactions and date of claiming the input tax deduction in the VAT return;
  • Evaluating the financial implication of claiming deduction against the blocked-input expenses;
  • Verifying the ratio used for the proportional deduction of input tax and year-end adjustments; and
  • Support self-disclosure of VAT errors and filing of amended VAT returns after due approval from management.

Postponement of excise tax filing and payment for three months

As a part of the efforts to mitigate the impact of the COVID -19 pandemic on the economic activities of the Kingdom, the Government of Saudi Arabia has announced several measures targeted specifically at taxpayers that are designed to ease filing and payment requirements for a limited period.

In this respect, the General Authority of Zakat and Tax (GAZT) has published further clarifications regarding concessions in the area of filing and payment of excise tax in the coming 3 months.

Excise tax on goods imported to KSA

The businesses - importers will be able to postpone the excise tax due on goods imported into KSA. The deferred tax has to be declared to GAZT by submitting a temporary return via GAZT’s portal and paid as follows:

Import date Original due date Extended due date for filing and payment
18 March – 31 March Importation date 30 June
01 April – 30 April Importation date 31 July
01 May – 31 May Importation date 31 August
01 June – 30 June Importation date 30 September
Import dateImport date

Starting from 1 July 2020, imports will be subject to the excise tax according to regular rules. The concession will be provided automatically to all persons who are registered for the purposes of the excise tax, without a requirement to provide any application or bank guarantee in this respect.

If the temporary return introduced is not submitted or the respective tax is not paid on time, the GAZT will impose penalties for late filing of the return and late payment of the tax as prescribed by the legislation.

Excise on goods produced in KSA

For taxpayers who are subject to the excise tax on goods produced in KSA, that hold a tax warehouse license and are obliged to submit excise tax returns to GAZT, they will be allowed to postpone the submission of the excise tax return and respective payment of the tax due for March and April 2020 as follows:

Tax period

Original due date

Extended due date

March and April 2020

15 May 2020

15 August 2020

Returns due before and after this period will not change their submission and payment date:

Tax period

Original due date

Extended due date

January and February 2020 15 March 2020 No change
May and June 2020 15 July 2020 No change
July and August 2020 15 September 2020 No change

Postponement of customs duties payments

As a part of the efforts to mitigate the impact of the COVID -19 pandemic on the economic activities of the Kingdom, the Government of Saudi Arabia has announced several measures targeted specifically at taxpayers that are designed to ease filing and payment requirements for a limited period.

In this respect, in addition to the measures introduced by the General Authority of Zakat and Tax (GAZT) in respect of VAT and excise tax to be paid at the time of customs clearance (see our dedicated news alert in this respect), the Saudi Customs Authorities has announced the postponement of the payment of customs duties for the most affected activities from the businesses-importers for a period of 30 days. This relief is available during the next three months from 22 March to 30 June 2020.

The Saudi Customs Authorities has indicated that there are more than 51,000 importing companies in the Kingdom that can benefit from this initiative. However, no details have been made available to date.

Procedure for applying for customs duties postponement:

  • Submit an application through the Saudi Customs portal;
  • Submit a bank guarantee (the value of the guarantee must cover the import duty during the postponement period); and
  • Wait for the review and approval by the Customs Authorities.

Customs duties that will be postponed:

All customs duties and any other fees, such as fees for the clearing platform service up to the value of the bank guarantee.

Please note, that GAZT has also introduced rules for postponing VAT and excise tax to be paid during customs clearance (please see our alerts on these topics).

Self-correction program finishes on 30 June 2020:

As mentioned in our earlier Customs alerts, with effect from 1 January 2020, the Saudi Customs Authorities introduced a self-correction program enabling importers to declare and pay customs duties on any historic non-compliance with the KSA customs legislation without being subject to any penalties.

The initiative is effective until 30 June 2020, therefore, importers have limited time to identify, evaluate and self-disclose customs duties errors.

This timeline is important as the Saudi Customs Authorities continue to conduct post-clearance audits covering the last five years.

KPMG KSA can advise businesses on these matters and provide support with identifying and preparing voluntary self-disclosures as well as ongoing compliance with the customs legislation in KSA.

In our view, this is a unique opportunity for taxpayers to normalize their tax affairs without financial penalties. We would recommend that all taxpayers review their tax position and consider the disclosure of customs duties errors. The potential cash saving could be substantial.

Postponement of tax filing and payment obligations for three months

As part of the massive efforts to mitigate the impact of the COVID -19 pandemic on the economic activities of the Kingdom, the Government of Saudi Arabia has announced several measures targeted specifically at taxpayers that are designed to ease filing and payment requirements for a limited period.

The General Authority for Zakat and Tax (GAZT) introduced a general postponement of tax filing and associated payment obligations for registered taxpayers of three months for the following taxes: Zakat, income tax, withholding tax, Value Added Tax and Excise tax for filings and payments due in the period from 18 March to 30 June 2020 as follows:

  • Tax/Zakat: return filing dates will be postponed until 31 July for taxpayers with a December year end, certificates will be issued without restrictions for the year 2019.
  • VAT: return filing dates will be postponed until 30 June, 31 July, 31 August, 30 September for the February, March, April and May VAT periods.
  • Excise: payments due on goods imported during the postponement period can be delayed but the importer must submit monthly temporary returns to GAZT.
  • WHT: filing dates for submission of returns are now 10 July, August and September for the March, April and May periods.
  • Delay penalties: taxpayers are exempted from delay penalties for the submission of returns and the associated payments for all taxes mentioned above that fall due within the period starting from 18 March to 30 June 2020.
  • Payments suspended: payments due such as delay and amendments penalties are suspended.
  • Refund payments: refunds due to taxpayers are to be expedited. 

Sri Lanka – Tax relief measures and extension of payment deadlines for Withholding Tax, Stamp Duty, VAT

Withholding Tax - Extension of payment deadline

The Department of Inland Revenue (DIR) has published a notice on extension of deadline for payment of Withholding Tax to the DIR.

In line with the directions issued by the Presidential Secretariat on March 23, 2020 to provide relief measures due to Covid 19 outbreak, Inland Revenue Department announces the following with respect to WHT Payments.

Withholding agents and withholdees who are liable to make the payments [Subject to the proposed changes announced by the Notice PN/IT/2020-03 (amended) dated 18.02.2020] for the month of February 2020 which was due on March 15, 2020 and the payment for the month of March 2020 which is due on April 15, 2020 are allowed to make the respective payments till April 30, 2020.

Accordingly, payments made on or before April 30, 2020 for above periods shall be deemed as payments made on due dates and any penalty auto-imposed by the system on late payments for above periods will be waived off.

Stamp Duty - Extension of deadlines

In terms of the provisions of the Stamp Duty Act, following persons who are permitted by the Commissioner General of the Inland Revenue to compound the amount of Stamp Duty are required to make the payment and submit the return for the quarter ending March 31, 2020, on or before April 15, 2020.

  • any person issuing insurance policies
  • any authority issuing licenses
  • any service provider, on the presentation of a claim, demand or request for the payment of any money on the use of a credit card
  • any employer employing more than one hundred persons accepting receipts for payments made to the employees
  • any other person issuing any other instrument of a category, having regard to the impracticability or inexpediency of stamping instruments of such category, at the time and in the manner prescribed

Taking into account of the prevailing situation in the country, such persons are allowed to make the payment and submit the return for the above period until April 30, 2020.

VAT - Extension of deadlines and validity periods

As per the directions issued by the Presidential Secretariat on March 23, 2020 taxpayers are informed on the following:

VAT Payments for the months of February and March 2020

  • Making the VAT payment including VAT on Financial services for the month of February which was due on March 20, 2020 and the payment for the month of March which is due on April 20, 2020 has been allowed up to April 30, 2020.
  • Accordingly, payments made on or before April 30, 2020 for above periods shall be deemed as payments made on due dates and any penalty auto-imposed by the system on late payments for above periods will be waived off.

In addition, taking into account of the prevailing situation in the country, all VAT registered persons are informed on followings:

VAT Deferment Facility at the point of Customs/BOI

  • Validity of the extension letters (which will be expired before April 30, 2020) issued with regard to Credit Vouchers due against the VAT deferred under deferment facility have been extended by one month from the respective expiring date.

Temporary VAT

  • If any Temporary VAT Registration issued and period of validity expires prior to April 30, 2020 as per the certificate, the validity period has been extended till April 30, 2020.

Submission of VAT Return

  • In terms of the provisions of the VAT Act, VAT Return for the month of February is required to submit on or before March 31, 2020. e-Filing facility is available through IRD Portal, e-Services to submit the VAT return for above period on the due date.
  • However, those who could not file the VAT return through e-Services or manually, they are allowed to submit the return until April 30, 2020.

Extension of timeline for filing of the Transfer Pricing Disclosure form to 30th April 2020

Taking in to the account of prevailing situation in the country, Submission of Transfer Pricing Disclosure Form (TPDF) has been allowed up to 30th April, 2020.

Persons who submit Transfer Pricing Disclosure Form on or before 30.04.2020 would be deemed to have submitted it on the date the Tax Return had been submitted.

United Arab Emirates - Short-term measures to navigate the potential impact of COVID-19

In a move designed to help affected businesses navigate the financial and administrative impact of COVID-19, the Federal Tax Authority (“FTA”) in the United Arab Emirates (“UAE”) has extended the due date for filing the excise tax return and payment of excise tax for the month of March 2020 by one month from 15 April 2020 to 17 May 2020.

To facilitate this extension within the existing legal framework, the FTA has extended the (monthly) tax period that commenced on 1 March 2020 by one month so that it will now end on 30 April 2020 instead of 31 March 2020 and will therefore be, in essence, a two month tax period.

Notwithstanding that tax period extension to 30 April 2020, the FTA announcement indicates that excise registered taxpayers will be required to:

1. File separate excise tax returns for March 2020 and April 2020 by 17 May 2020; and

2. Pay excise tax for March 2020 and April 2020 by 17 May 2020.

Mirroring similar measures adopted by tax administrations globally and in the region, this extension has been communicated by the FTA to excise registered taxpayers directly and will no doubt be a welcome relief for affected businesses.

The Dubai government recently announced several short-term measures as part of an economic stimulus package intended to aid UAE businesses navigate the potential impact of COVID-19. 

As a part of the implementation of customs-related incentives in the stimulus package, Dubai Customs has confirmed:

  1. There will be a refund of 1% of the customs duty imposed on imported goods sold locally in the UAE. Goods imported between 15 March 2020 and 30 June 2020 which are liable to customs duty at the rate of 5% are eligible for the refund.
  2. There will be an exemption from the berthing fee for arrivals and departures, and direct and indirect loading fees for traditional wooden commercial vessels registered in the UAE at Dubai and Hamriyah Port between 15 March 2020 and 30 June 2020.
  3. The AED 50,000 bank or cash guarantee required to undertake customs broking activities is revoked.
  4. The bank or cash guarantee deposited by existing customs brokers and clearing companies will be refunded.

In these difficult times as businesses cope with the uncertainties of COVID-19 and reduced oil prices, initiatives like these help improve the cost and ease of doing business.

We await the details of the mechanism for claiming these incentives and will be happy to assist you in exploring your eligibility to claim them. 

Dubai and Abu Dhabi roll out economic stimulus packages in times of COVID-19

Dubai and Abu Dhabi, respectively, have recently announced several short-term measures to counter the effects of COVID-19.

Dubai

On 12 March 2020, the Dubai Government announced a AED 1.5 billion economic stimulus package to enhance liquidity and cushion the potential impact of the current global economic situation caused by the onset of the COVID-19 outbreak. The package includes 15 focused initiatives aimed at reducing the cost of doing business and simplifying business procedures, especially in the commercial, retail, external trade, tourism, and energy sectors.

Fifteen initiatives will be introduced soon and shall be valid for three months, after which time their impact on the UAE economy will be reviewed. According to news reports[1], Dubai’s key initiatives include:

  1. Refund of 20 percent of the customs fee imposed on imported products sold in Dubai
  2. Refund of bank guarantees or cash required to be paid by existing custom clearance companies
  3. Cancellation of the AED 50,000 bank guarantee or cash requirement in order to undertake customs clearance activities
  4. Cancellation of bank guarantees required to be submitted before resolution of customs-related grievances.
  5. A 90 percent reduction of fees imposed on submission of customs documents
  6. Freeze on the 2.5 percent market fees levied on all facilities operating in Dubai
  7. Exemption to traditional wooden commercial vessels registered in the country from mooring service fees for arrival and departure, and direct and indirect loading fees at Dubai and Hamriyah Ports
  8. Cancellation of 25 percent down payment required for requesting installment-based payment of government fees for obtaining and renewing licenses
  9. Permission to renew commercial licenses without mandatory renewal of lease contracts
  10. Reduction of municipality fees imposed on sales at hotels from 7 percent to 3.5 percent
  11. Exemption from fees charged to companies for postponement and cancellation of tourism and sports events scheduled for 2020
  12. Freeze on the fees for classification/rating of hotels
  13. Freeze on the fees charged for the sale of tickets, issuance of permits and other government fees related to entertainment and business events
  14. Reduction in water and electricity bills by 10 percent
  15. Reduction in deposits paid for water and electricity connections by 10 percent

 

Abu Dhabi

Abu Dhabi has also announced 15 initiatives focused on supporting SMEs and easing the availability of loans to local companies. These measures are a part of “Ghadan 21”, an AED 50 billion development plan announced by Abu Dhabi in 2018 aimed at enhancing the competitiveness of the emirate.

According to news reports[1], key initiatives announced by Abu Dhabi include:

  1. Allocation of AED 3 billion to the SME credit guarantee scheme managed by the Abu Dhabi Investment Office to stimulate financing by local banks and enable SMEs to navigate the current market environment
  2. Allocation of AED 1 billion to establish a market maker fund, to enhance liquidity and sustain balance between supply and demand for stocks
  3. Establish a new committee to review lending options to support local companies
  4. Exemption to all commercial and industrial activities from Tawtheeq fees until the end of this year
  5. Suspension of real estate registration fees until the end of this year
  6. Reduction of industrial land leasing fees by 25 percent on new contracts
  7. Waiver of certain commercial and industrial penalties
  8. Suspension of bid bonds and exempting startups from performance guarantees for projects up to AED 50 million
  9. Settlement of all approved government payables and invoices within 15 working days
  10. Suspension of tourism and municipality fees for the tourism and entertainment sectors until the end of this year
  11. Rebate of up to 20 percent on rental values for restaurants, tourism and entertainment sectors
  12. Allocation of AED 5 billion in water and electricity subsidies
  13. Reduction in electricity connection fees for startups until the end of this year
  14. Exemption to commercial vehicles from annual registration fees until the end of this year
  15. Exemption to all vehicles from road toll tariffs until the end of this year

Businesses around the world are affected by COVID-19 and face issues linked to cash flow, profitability and ultimately continuity. Several governments, like Dubai and Abu Dhabi, are being proactive in rolling out stimulus packages with the intention of optimizing costs, supporting businesses and demonstrating support.

References

1. Forbes
2. ARN News Centre
3. The National
4. Khaleej Times
5. Gulf News
6. Khaleej Times