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Issue:# 8 NEWSLETTER

February, 2010

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Qatar: new tax laws in action

Doha

The new income tax law came into effect on 1 January 2010. It brings greater clarity to the tax rules.

There is now a single tax rate of 10%. It does not apply to the share of Qatari nationals in companies, or to Qatari companies wholly owned by Qatari nationals, nor to employment income. This rate does not apply to contracts already concluded with the government and to hydrocarbon contracts (the tax rates for hydrocarbon contracts would not be less than 35%). Withholding tax is to be deducted from payments made to non residents which do not have a permanent establishment in Qatar, at 5% from royalties and technical fees and at 7% from interest, commissions, brokerage fees and any other payments for services carried out wholly or partly in Qatar.

Losses can be carried forward for up to 3 years.

Oman implements new tax law

In January 2010, Oman commenced its new tax code, applying 12% corporate tax on all Omani companies, indiscriminately of shareholder nationality. This follows the US FTA, and Oman's WTO commitments.

The Secretary General of Taxation, within Oman's Ministry of Finance, Saud Bin Nasser Al-Shukali, commented: "The new law supports the Sultanate's aspirations to attract foreign companies to the Omani market, encourage competition, establish the principles of tax equity, efficiency, and transparency."

Egypt introduces new WHT procedure for non-residents

Egypt has introduced a new withholding tax (as of December 2009), which applies from the 5th of January 2010.

The new procedure means that if a tax treaty provides for an exemption or reduction of the domestic withholding tax on any outbound interest/royalty payments, the local paying agent (resident in Egypt) must withhold the full domestic rate from the non-resident. The non-resident must then apply for a refund to the tax authority within 6 months of the payment, once all documents have been submitted the tax authority is meant to revert back within 90 days.

This does not affect interest payments on Treasury bills / government bonds which are already accommodated by other previous rules from the MoF.

Qatar amendment to foreign investment law

Qatar's foreign investment law (No.13 of 2000) has been amended by Law No.1 of 2010, as of the 1st of February 2010. The change allows the potential for 100% foreign ownership to be extended to more sectors than before.

Normally foreign investors may invest in all economic sectors (exceptions of banking, insurance, commercial agencies and trading in real estate) provided that they have one or more Qatari partners owning 51% of the capital (or more). However, with Ministerial approval, foreign ownership could go beyond 49% (potentially up to 100%) in agriculture, industry, health, tourism, education, and development/exploitation of mining, energy and natural resources. The latest amendment extends this list of sectors to include consultancy and technical services, IT services, services relating to sports, culture and entertainment, and distribution services. The law has immediate effect and will apply from 1st of February 2010, and also allows the Council of Ministers to add any sector or activity to the list.

Kuwait draft labour law gains approval

The New Labour Law that was passing through the Parliament for approvals over December calls for an establishment of a public authority for manpower in order to control and supervise the recruitment of expat workers in Kuwait. The the new legislation is principally geared up to protecting the rights of workers. Employers would be required to gain advance approval from the Ministry of Labour before employing expat workers.

The new law aims also to provide free movement of labour, allowing workers to transfer from one sponsor to another. Mandatory holidays, and redundancy pay will also be provided for, and workers at remote locations should also be provided adequate accommodation and transport. Women are prohibited from working nights (between 10pm - 7am), unless their roles are specifically required within the public sector (such as hospitals). However, employers will be able to terminate an employee's contract in event of unreasonable absence for 7 consecutive days, or if they are found guilty of any crimes.

Iraq approves draft amendment for housing

In late November, Iraq's Parliament finally approved the first draft amendment to their investment law (No 13 of 2006) aimed at encouraging foreign developers to invest in housing projects through the availability of land ownership and other incentives. Though approval is still required from the Presidential Council, investors are already beginning to secure investment opportunities.

Baghdad

Aside from the growing population in Iraq (2.6% annually), the large number of refugees that are or will return to Iraq (estimated at 0.5 million by 2010), and displaced persons within Iraq requiring housing, there is also an increasing migration of the existing population to the urban and central areas as they chase work. The National Investment Council (NIC) estimates a requirement of 3 million new homes over the next 5 years.

Whilst Iraq desperately needs foreign investment for both housing and infrastructure throughout the country, it has been very unclear what the benefit is to foreign investors (since they are currently not able to own land). The Kurdistan Region, governed by the Kurdistan National Assembly, has its own investment law (Law No 4 of 2006) which in fact does allow foreigners to own land, but the rest of Iraq has until now had the additional challenge. However, the draft amendment to Iraq's Foreign Investment Law would enable foreign investors to acquire land from both the government and private sector for the purpose of developing a housing project at an agreed price. Various tax exemptions could then also be granted as per the normal mandate of the NIC and PICs. The foreign investment law requires investors to use Iraqi Nationals in place of foreign workers wherever possible, and though some media have reported there could be a new ruling on this, it is generally accepted that this is unlikely.

Afghanistan: confusion continues

In 2009, the Government of Afghanistan implemented a new Tax Code to replace the 2005 law. The law included several changes, and along with evolving enforcement strategies creates a dynamic tax environment within Afghanistan. Many of the old challenges remain, but compliance is becoming both more feasible, and more necessary.

Probably the single most important aspect of the revised 2009 tax law is the addition of a withholding requirement for subcontractors. Companies are required to withhold 2% of any payments to subcontractors doing business in Afghanistan if the subcontractor has a valid license, and 7% if the subcontractor does not have a valid license. This both closes a loophole involving payments to affiliates, and increases the spotlight on subcontractors to register. Companies not in compliance with this withholding requirement face penalties and possible criminal prosecution.

Additional changes include changes to capital gains rates, and withholding rates for rental properties. Sadly, while the law featured a 3-month amnesty period on penalties for late payments and non-filings, the amnesty period had expired before the law was promulgated in the register. In fact, even today very few people realize that there has been a new tax law passed, and many companies are in for a rude surprise with regards to subcontractor withholding obligations when they make their annual filing this year.

Poor awareness of tax rules, particularly amongst the international community, is only one of the challenges to being in compliance with local tax laws. A shortage of skilled tax professionals, as well as potential corruption continue to present challenges. The Ministry of Finance, however has continued its strategy of widening the enforcement net. This strategy can be seen in the case of the subcontractor withholding requirement; the new policy enforcing the taxability of expat salaries; the rumored end to the 6 month visa availability in Dubai; and audits which go back into previous tax years.

This contribution was gratefully received from Tom Rosenstock of Rosenstock Legal - who currently assists The Cragus Group as their correspondent in Afghanistan.

Ivory Coast introduces crisis tax

Within the 2010 Budget, a new contribution has been announced to assist in exiting the economic crisis. For a one year period only any company with a pre-tax profit larger or equal to CFAF 1 billion at the end of the calendar year in 2009 will be subject to a 3% tax on total operating costs.

However some tax incentives have also been granted to companies (newly incorporated or resuming activities) operating in the areas affected by civil war, including an exemption from corporate income tax is for 8 years. From 2010 to 2012, they will also be exempt from the withholding tax on interest relating to their inter-company payments.

DIFC plans 'substantial' cut in fees in 2010

Dubai International Financial Centre announced in January its intentions for "substantial" cuts in fees on asset managers this year; currently DIFC is perceived to be generally expensive and less competitive than other locations.

By the end of 2009, Bahrain (which began targeting funds in 1992) had 2,711 authorised funds managing $8.55 billion, including 102 local funds and 2,573 offshore foreign funds (according to Bahrain Central Bank). In contrast, DIFC reportedly has 9 fund operators and 18 administrators, currently.

So far no indication has been given about when exactly these cuts would be made or to what extent. However it should be noted that in the same week, DIFC signed an agreement with Luxembourg's Ministry of Finance (the world's second-largest investment funds centre), in a bid to improve market access and financial regulation.

Togo 2010 Budget: corporate tax changes

The 2010 Togo budget has reduced the corporate income tax rate from 33% to 30% for standard companies, and from 30% to 27% for industrial companies. Tax incentives have also been offered to companies investing more than USD 150 million into the country, including a permanent exemption from VAT on operating costs, and exemptions on customs duties.

Other changes include the introduction of declining balance depreciation accounting method for new plants and equipment (subject to approval by the General Department of Taxes); and personal taxation which is levied on a sliding scale has been reduced from 45% to 40% at the top rate.

Iraq: upstream income tax law

The Iraq Parliament has approved the amendments to the Income tax law imposing corporate income tax at the rate of 35% on foreign companies carrying on upstream activities under contract. The general income tax rate is 15%. The law will become effective once published in the official gazette, and the executive regulations are expected soon thereafter.

Jordan's new tax law

A new tax law (Temporary Law N. 28 of 2009) took effect from 1 January 2010. The Law amends and consolidates the various tax laws, and supersedes the Income Tax law No. 57 of 1985 and its amendments, the Social services tax law, the Higher Education and Scientific Research temporary law and Article 8A of the employment, training, vocational and technical education Council law No 46 of 2008.

The main change is that the general corporate income tax rate is now 14%. For the special sectors, the rate is 24% for companies involved in telecommunications, insurance, financial brokerage and financial advisory services, and 30% for banks. The rates may be reduced further in each subsequent year, depending on prevailing economic circumstances, by 1% annually (but to not less than 10% generally and not less than 20% in the case of the special sectors). Payments to non residents are subject to withholding tax of 7%. Deductible Head office allocated expenses is still limited to 5% of the income of the branch of a foreign company.

There is still no concept of Permanent Establishments under the law.

Nigeria to increase its revenue from hydrocarbons

The Petroleum Industry Bill, which is expected to also amend and consolidate the tax rules applicable to Hydrocarbon activities, is currently before the National Assembly. The Petroleum Profits Tax is to be replaced by the Nigeria Hydrocarbon Tax.

The Government expects that the Bill will significantly increase government revenues (including royalties), particularly from the oil fields in deep offshore waters which are mainly operated by the oil majors. Some of the key tax affected changes include:

  • The requirement that all joint ventures to be incorporated, and the introduction of 10% withholding tax on the payment of dividends by the joint ventures;
  • Disallowance of interest incurred on related party loans;
  • Volume and price based royalties are to be introduced.

Treaty updates:

Bahrain
Netherlands
The Bilateral Investment protection Treaty (BIT) between the Netherlands and Bahrain entered into force in December 2009. Under the Treaty, conditions are outlined for each to promote investments of the other, to erase any discrimination, and furthermore to facilitate dispute resolution.
Luxembourg
On 4 February 2010, the King of Bahrain approved DTA with Luxembourg (signed in May 2009) on February the 4th 2010.
Bulgaria
In February this year, Bahrain also approved the income and capital tax treaty between with Bulgaria (signed June 2009).
France
Bahrain has also finally approved the amendment (May 2009) to the tax treaty with France (May 1993) this February.

Egypt
Slovenia
Slovenia and Egypt signed a DTA on 16th December 2009.
Mauritius
Egypt and Mauritius initialled a DTA on the 30th of January 2010.

Kuwait
Slovenia
Slovenia and Kuwait signed a DTA on 11th January 2010.
Japan
Kuwait signed a DTA with Japan on the 17th of February 2010.

Libya
Austria
Libya and Austria initialled a DTA in Vienna on the 21st December 2009.
United Kingdom
The United Kingdom ratified their DTA with Libya (signed November 2008) on the 10th of February 2010.
Ukraine
Libya's DTA with Ukraine (signed in November 2008), entered into force on the 18th November 2009 and applies from the 1st of January 2011.

Oman
Croatia
Oman and Croatia signed a DTA on 21st December 2009.
United Kingdom
Oman ratified the amendment (signed November 2009) to the UK/Oman DTA (signed in 1998) on the 9th of February 2010.

Qatar
Mauritania
Qatar ratified the income tax treaty between Qatar and Mauritania on February 1st 2010.
Brazil
Qatar and Brazil signed an air transport tax treaty on 20 January 2010, in Brasilia.
Slovenia
Qatar and Slovenia signed a double taxation treaty on January the 10th 2010.
Poland
Qatar and Poland signed a DTA on 18th November 2008, which entered into force on 30th December 2009, and applies from 1st January 2010.
Korea (Republic)
Korea and Qatar's DTA, signed on 27 March 2007, entered into force on 15 April 2009, applies from January 1st 2010.
United Kingdom
The UK has ratified the DTA signed with Qatar in June 2009, as of the 10th of February 2010.
Austria
Qatar and Austria initialled a DTA on the 18th of February 2010.

Seychelles
Monaco
Monaco and Seychelles signed a DTA on 4th January 2010.

Saudi Arabia
Syria
Syria and Saudi ratified their tax treaty on 28th December 2009, having signed on 7th October.
Uzbekistan
Saudi Arabia approved the DTA (signed November 2008) with Uzbekistan on the 15th of February 2010.

Syria
Slovak Republic
The DTA signed between Syria and the Slovak Republic in February 2009 comes into force from the 27th of February 2010, and generally applies from January 2011.
Germany
Syria and Germany signed a DTA on the 17th of February 2010.

UAE
Greece
Greece and United Arab Emirates signed an income tax treaty, and an air transport agreement, on 18 January 2010.
Luxembourg
The tax treaty between Luxembourg and the UAE, signed on 20 November 2005, entered into force on 19 June 2009, and applies from 1 January 2010.
Bangladesh
UAE signed a DTA with Bangladesh in November 2009 (this was the 49th to date in UAE's tax treaty network according to the UAE Ministry of Finance).

Notes from America: Iran sanctions pass

The US Senate passed on January 28th the Comprehensive Iran Sanctions and Accountability and Divestment Act (S.2799). The Senate bill, sponsored by Banking Committee Chair Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL), is stronger in many respects than companion legislation passed by the House in December.

Legislative Process

The Senate and House bills will soon go to a joint conference committee to reconcile differences in the two pieces of legislation. The compromise version compiled in conference will then face a final vote in both chambers of the Congress. Senate Majority Leader Reid (D-NV) has signaled his intentions to push the conference committee to act quickly, and to pass the measure into law within the next few weeks.

Both the State Department and various industry groups had opposed the bill's imposition of extraterritorial sanctions upon foreign companies and governments. To address the Administration's concerns in this area, Senate Banking Chairman Dodd (D-CT) indicated in his floor statement prior to the vote that Democratic leaders in the Senate are working with the White House to craft some form of exemption in the bill for foreign companies whose home country governments are cooperating with the US on multilateral approached to Iranian proliferation. These negotiations are certain to continue during the work of the conference committee, and may alter the final form of the legislation.

Provisions

The Senate bill includes a number of provisions intended to strengthen the overall US sanctions regime against Iran.

The bill:

· Authorizes states, local governments and mutual funds to divest from firms investing in Iran's energy sector. The bill includes a safe harbor provision to shield private asset managers from lawsuits over fiduciary duties that may be violated by divestment actions.

· Requires the United States to work with Iran's trading partners to prevent the re-export of sensitive dual use technology to Iran through third countries, and subject those countries to restrictions on exports if they refuse U.S. assistance (this provision is highly targeted at trading states, such as the United Arab Emirates, with deep commercial relations with Iran).

· Codifies the Treasury Department's existing import/export ban on all trade with Iran, with an exception for the export of food, medicine, humanitarian aid and the exchange of information materials. The bill would also appear to eliminate the exception for an existing 10 percent de minimis rule allowing re-export of US-origin content to Iran.

· Prohibits the U.S. government from purchasing goods from companies that are sanctionable under existing Iranian sanctions law (PL 104-172).

· Expands sanctions on foreign companies investing more than $20 million in Iran's oil and gas sector

· Issues new sanctions against U.S. companies for the activities of their subsidiaries established to circumvent sanctions if they invest more than $20 million in Iran's energy sector.

· Directs the president to sanction companies involved in exporting refined petroleum products to Iran or in developing oil refineries within Iran.

· Companies and persons sanctioned by the US for contributing the development of petroleum resources in Iran, exporting refined petroleum products to Iran or investing in Iranian energy sectors will face sanctions that include bans on foreign exchange transactions, banking transactions, and property transactions to the extent of applicable US jurisdiction.

· US persons (companies) sanctioned for the actions of subsidiaries in Iran would face criminal and civil penalties under existing US sanctions law in addition to the transactional sanctions described above.

· The bill would provide a form of waiver authority for the president with regard to the imposition of sanctions on US and foreign companies as well as foreign governments. It would require the president to report to Congress describing the reasons for any use of that waiver authority.

This contribution was gratefully received from Eric Shimp - Special Advisor to UAE regarding the UAE-USA FTA Negotiations, and Senior Director, Global Business Strategy, Alston & Bird, LLP.

If you would like further information on The Cragus Group or tax matters relating to the Arabian Gulf or surrounding region, please contact:

Dominic Treays, Director of Practice Development, on [email protected]

Or visit our website www.cragus.com

 

Sincerely,

 

Gemma Eagle

Marketing Manager

The Cragus Group

[email protected]

Copyright © 2010 Cragus. All rights reserved. Please note that all use of this newsletter is subject to the Cragus Terms of Use available at http://www.cragus.com/legal.php, including the disclaimers, qualifications and limitations of liability set forth therein.

In This Issue
Qatar: new tax laws in action
Oman begins new tax code
Egypt: new WHT procedures
Qatar amends foreign investment law
Kuwait labour law
Iraq: draft for housing
Afghanistan confusion continues
Ivory Coast - crisis tax
DIFC to cut fees for funds
Togo reduces tax rate
Iraq upstream tax rate
Jordan's new tax law
Nigeria: hydrocarbon taxes
Treaty updates
Notes from America: Iran
Quick Links
About The Cragus Group
The Cragus Group is made up of hand-picked individuals from tax, legal and accounting backgrounds, with experience of international tax in the Middle East dating back 20 years. Primarily dealing with corporate international tax planning, they also provide advice on transfer pricing, tax controversy, legal structuring, oil and gas and general corporate advisory services. They serve a range of clients across the Middle East and Africa.
The Cragus Group consists of well known international tax advisors based in Dubai and a long standing network of trusted independent Member law firms, correspondents, and advisors of high professional reputation in Kuwait (Kuwait City), Oman (Muscat, Salalah, Sohar), Saudi Arabia (Jeddah), Qatar (Doha), UAE (Abu Dhabi, Dubai), and the USA (Washington DC).
Tax Leadership/Contacts:
Dominic Treays
Reggie Mezu
Mark Stevens (Strategic Adviser)
Dr. Robert E. B. Peake (Strategic Adviser)

 

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