managing tax affairs in emerging markets jayne stokes khadija idboujnane april 2014

Managing Tax Affairs in Emerging Markets

Jayne Stokes Khadija Idboujnane

April 2014

General tax landscape

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• Countries rich with natural resources in the Middle East derive revenues from taxation of the Oil & Gas industry

• Other countries have a greater need for wider tax revenues

• Taxing authorities are evolving and continue to become more sophisticated

– Move towards simplified tax regimes and reduced corporate tax rates

– Increased implementation of withholding taxes(“WHT”)

– Introduction of transfer pricing rules

– Increase in the number of double taxation treaties

Misconception there is no tax in the Middle East


• WHTs are increasingly being introduced into legislation to increase taxing revenues on cross border payments

• 13 out of 15 countries in the Middle East region have WHT regimes

– UAE and Bahrain are the exception

• New complexities to cross-border projects, but also opportunities for effective tax planning, including the application of Double Tax Treaties (“DTTs”)

• There are currently more than 500 DTTs agreed by MENA countries

– The UAE has the highest with c.60 DTTs

– Palestinian Ruled Territories and Iraq have the lowest with no DTTs concluded

• Increasing number of DTTs being agreed in the region

– Qatar has agreed 12 DTTs in the past 18 months

WHT and double tax treaties in the Middle East


Top rates of WHT in the MENA region

Top Rate of Withholding Tax per country

Algeria Egypt Libya

Tunisia Iraq

KuwaitMorocco

Saudi Arabia Sudan

Lebanon Mauritania

OmanPalestinian Ruled Territories

South SudanYemen

Syria Jordan

Qatar Bahrain

United Arab Emirates

0% 5% 10% 15% 20% 25% 30%

WHT Percentage

Source: Deloitte Middle East Tax Handbook 2013


• Transfer pricing (“TP”) in the Middle East– The new frontier – OECD based rules– Egyptian experience– Documentation requirements

Challenging times ahead in the Middle East

Egypt Kuwait Qatar Saudi ArabiaFormal TP rules exist, broadly based on OECD Guidelines, and require detailed documentation to support the arm’s length principle

No formal TP rules, however, inter company transactions considered in some circulars

2011 law introduced TP principles into the tax code

No formal TP rules, however, tax laws provide for prevention of tax avoidance

Considerations for Emerging Markets


Considerations for emerging markets

• Legislation• Historical tax legislation; updates not consolidated in existing legislation • Practical application not always consistent with legislative position • Changes to legislation not well communicated to taxpayers

• Practical difficulties• Manual processes• Limited guidance on interpretation • Unclear on process requirements

• Tax compliance and risks• Rulings and decisions by Tax Authorities not binding• Pay now, argue later principle• Developing judicial system• Shortage of skilled technical resource


Positive developments within the region


Positive developments within the region

• Developing awareness of taxpayers issues• Demand for technical training for tax authorities• Participation in working groups alongside taxpayers and tax

professionals• Tax authorities increasingly open to dialogue with taxpayers• Increasing initiatives to modernise the processes (e.g.

introduction of e-filing, e-payment)• Collaboration between tax authorities of countries in the region to

share best practices• Increasing interest to expand the tax treaties network

Questions and answers

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managing tax affairs in emerging markets jayne stokes khadija idboujnane april 2014

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