recent international tax developments in the middle east · recent international tax developments...
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Recent International TaxDevelopments in the Middle East
18th International Tax Conference - Dec 6-8, 2012, Mumbai
Thomas Hanzély
www.bbd-e.com
Introduction
Taxes in the Middle East - an overview
Presentation will focus on the GCC (inparticular Bahrain, Qatar and the UAE)
Will taxes remain low in the Middle East andwhat impact could the recent political turmoilin the region have on tax policies?
The role of the GCC - will we see a politicaland economic union?
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Overview of Taxes
Corporate Income Tax
VAT - the next tax to come in the GCC? Anyharmonization of indirect taxes foreseeable inthe GCC in the near future?
Personal Income Tax
Withholding Tax regimes applied by most ofthe MENA countries
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Tax rate changes
55 :A
45%
20%
I Old
I New
Saudi Kuwait Oman Qatar Egypt
Arabia
Iraq Libya
Source: Ernst & Young, Tax Treaties - Recent Applications in the Middle East, 2010
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Treaty NetworkBBD ENTERPRISES
Rapidly growing Double Tax Treaty network- Availability of treaty benefits
- Dispute resolution not tested in many jurisdictions
- Aggressive approach in various matters (e.g.Permanent Establishments, Withholding Taxes)
- Non-Discrimination article
- Subject-to-Tax provisions
UN Model vs OECD Model
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Ease of Doing Business
The international view of the investment climate in theGCC:- Ease of Doing Business report (World Bank, 2012) places Saudi
Arabia overall 12th, the UAE 33rd, Qatar 36th, Bahrain 38th- Index of Economic Freedom (Heritage Foundation in
cooperation with the WSJ 2012) places Bahrain 12th, Qatar25th, UAE 35th
Communication with authorities- Interpretation of tax rules- Language
Bankruptcy laws / credit rating systemStill a safe haven for business?
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Economic Substance in the GCC
ES is an emerging trend
ES can be implemented in the region - i.e.place of effective management and controlcan be in GCC countries
There are plenty of non-tax reason toestablish a company in the GCC
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Bahrain - Tax Profile
Only GCC country without any (statutory) tax- No corporate income tax (CIT), no capital gains tax
(CGT), no withholding tax (WHT), no personal incometax (PIT) and no VAT
- Except a 46% corporate income tax levied on oil andgas companies
Treaty network (28 in force, 6 pending)- a.o. Austria, China, France, Ireland, Luxembourg,
Netherlands, Singapore
- Pending treaties with Belgium, South Korea, UK
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Bahrain - at a Glance IBBD ENTERPRISES
Historical financial and trading hub in the ME
Not considered a tax haven
100% foreign ownership allowed
Business friendly environment
Good infrastructure
Reasonable Costs
Political situation?
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Bahrain - at a Glance IIBBD ENTERPRISES
Free Trade Agreement with the U.S. (2006)Bahrain International Investment Park (BMP)
0% Corporate Tax with a 10 year guarantee- Duty free access to the markets of the Gulf Cooperation Council
(Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UnitedArab Emirates)
- 100% Foreign Ownership- Availability of serviced industrial land at extremely competitive
rates- Renewable 50 year leases- No recruitment restrictions for the first 5 years
Dedicated assistance of a professional management team
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Qatar - Tax Profile
New Tax Code effective since 1 January 2011
CIT and CGT 10% (flat rate); petroleumcompanies are taxed at not less than 35% oras determined in the production sharingagreement (PSA)
No PIT
No VAT
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Qatar - at a Glance
One of the fastest growing economies worldwide
In general, restricted foreign ownership (49/51)
100% foreign ownership only in exceptional cases
Qatar Financial Centre (QFC) - separate/parallelfrom Qatari legal system based on common lawprinciples
Qatarization lawsCosts
Treaty Network (42 in force, 11 pending)
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The Qatar Financial Center (QFC)
Established in 2005Onshore center for banks, insurance andinvestment sectors together with supportingfirms100% foreign ownership allowedNoWHTEncourages also the incorporation of SPVs andHolding CompaniesAccess to Double Tax TreatiesMeeting all OECD standards
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BBD ENTERPRISES
WHT imposed at- 5% (royalties, technical fees or management fees),
or
- 7% on any other payments (e.g. director's fees,brokerage fees, commissions, etc.)
Contract Retention:_No contract retention, ifcompany is incorporated in Qatar, however,3% retention if the company is registered forless than a year or only for a specifc project.
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UAE - Tax ProfileBBD ENTERPRISES
Statutory CIT exists, but not enforced, currently0% CIT
Petroleum companies taxed at rates between50-55% or based on individual agreementsBranches of foreign banks are also taxed
No PIT, no CGT, no VAT
Treaty Network (45 treaties in force, 12 pending)- Many OECD countries, India, China, Singapore,
Mauritius
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UAE - Free Zones
Free Zones- 100% foreign ownership only in free zones - new
company laws on the agenda
- guaranteed tax holiday
- no restrictions on hiring foreign professionals
- State of the art infrastructure
- Professional local authorities / procedures put inplace
More than 30 Free Zones in the Emirates
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UAE - Free Zones & Economic SubstanceBBD ENTERPRISES
Dubai International Financial Center (DIFC) JebelAli Free Zone (JAFZA) most well known- Most Free Zones allow for the implementation of
economic substance
Anti-avoidance provisions in tax treaties- limitation of benefits
- subject-to-tax / liable-to-tax (unclear whether UAEresidents are liable to tax in the context of the treaty)
- Conclusion: bonafide business at least required inorder to benefit from tax treaties
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UAE - Recent DevelopmentsBBD ENTERPRISES
Ras Al-Khaimah (RAK) - new offshorejurisdiction- Is the UAE (still) promoting offshore structures?
Since 1 January 2011 offshore companies maynot acquire real estate in the UAE anymore- A result of the fight against money laundering and
a move towards greater transparency
- Only entities registered with the Jebel AN FreeZone are eligible to register real estate
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General Legal Issues I
"Anti-Fronting Laws" - what to do?- How are minority shareholders protected under
local laws?
- How can additional protection be incorporated?
Bilateral Investment Treaties (BIT)
"Revival" of the Organisation of IslamicCooperation (OIC) Investment Treaty
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General Legal Issues II
Legal Systems / Dispute Resolution- civil law (based on Egyptian law)
- common law (e.g. DIFC and other free zones)
- Shariah law (GCC countries have a dual system)
- Arbitration
- Enforceability of DIFC court judgments in the UAE(ie, outside the DIFC) and the GCC
Laws in the GCC are very protective of localnationals and local economic interests
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Greater Arab Free Trade Agreement(GAFTA)
Pan-Arab free trade greement (1997)14 signatory statesFull liberalization of goods with full exemption ofcustoms duties and chargesKey benefits: reduction of usual 15/20% importduty imposed by many MENA countriesTo benefit from the GAFTA, the importedproducts must be enhanced in one of thesignatory states - the UAE is often used as agateway to other GAFTA countries, since it haslow import duties (5%)
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Indian Double Tax Treaties with GCCBBD ENTERPRISES
Kuwait (in force, 2007)
Oman (1997)
Qatar(2000)
Saudi Arabia (2006)
UAE (1997, amended in 2007)
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