|
DIFC introduces law regarding not-for-profits | |
 The Dubai International Financial Centre (DIFC) issued a law in December relating to the treatment of Not-for-profit organizations. Typically such entities have been very difficult to register in the UAE, though in recent years there has been some progress with the introduction of International Humanatarian Citty (IHC), a free trade zone that is intended to serve those in the aid and development community.
DIFC's recent law will look to assist not-for-profits whose purpose is to support growth and development of the financial services sector in the DIFC free trade zone. Typically such instititions are expected to assist in setting best practice standards, and to act as platforms for constructive discussion within the financial services community. These organisations will have to register as corporate bodies, with founding members being residents of the UAE, and will be required to rent office space within the free trade zone. They will also be required to submit business plans as part of the registration process, along with 3 years of financial projections. |
Saudi Arabia furthers nationalization
The Ministry of Labor in Saudi Arabia had previously confirmed that firms in Saudi Arabia that employ more foreign workers than Saudi's will be liable to pay a fine of SAR 2,400, approximately USD 640, per year for each excess foreigner. However, they have since sought to reassure the private sector that they will look into legitimate cases where exceptions might be deemed appropriate.
Under the intended policy due to be introduced in February 2013, Saudi employees in the private sector receiving salaries of SR 1,500 or less are viewed as only "half workers" in their companies' Saudization records in the 'Nitaqat' system, while Saudis receiving less than this amount are not to be included at all when calculating their firms' Saudization percentage. The Council of Saudi Chambers agreed to address the issue at a meeting of its various committees to discuss how the fee would impact business. The committees will be asked to propose solutions to contracts initiated before the fee comes into effect.
Labor Minister Adel Fakeih had stated that this new Saudization drive was aimed at creating more than two million jobs for unemployed citizens, however he did also state at a press conference in December that 86% of jobs done by expatriates were not suitable for Saudi nationals. | |
New Year Brings New Realities for US Citizens Worldwide
 This year US citizens worldwide will face harsh new realities from offshore banks and foreign investment institutions. They may be requested to provide consent to their financial institutions to disclose their personal details and account information to the IRS. Alternatively, US account holders may face closure of their offshore bank and investment accounts. Or, offshore financial institutions may simply refuse US citizens from opening new accounts participating in offshore investments.
Such is, and will be, the impact to US citizens of the Foreign Account Tax Compliance Act (FATCA) which is intended to prevent US taxpayers from using offshore accounts to avoid US tax.
FATCA has global impact on worldwide foreign financial institutions by imposing a withholding tax on certain payments unless the institution either (i) certifies that it has no business or accounts from US citizens, or (ii) agrees to obtain and disclose information about accounts held directly or indirectly by US persons.
The vast net of global financial institutions impacted by FATCA, includes not only foreign banks, but also foreign investment vehicles, insurance companies, mutual funds, broker dealer hedge funds, as well as private equity funds and small family owned or managed funds.
The impact of FATCA on financial institutions worldwide is huge. Rather than deal with the regulatory compliance requirements of FATCA, many global banks (such as HSBC Holdings, Deutsche Bank, Bank of Singapore and Credit Suisse Group) and foreign investment funds are simply refusing to deal with US customers and turning away millions of dollars.
For US citizens, FATCA has effectively closed the doors to offshore financial services and investment opportunities, a step far beyond its original purpose to prevent US tax avoidance.
Zeenat Sacranie | |
Jebel Ali Free Zone implements Wages Protection Scheme
With effect from 1st of January 2013, all Jebel Ali Free Zone companies must comply with the Central Bank's Wages Protection System (WPS). Whilst the UAE had introduced this system over a year ago, Dubai's free trade zones had remained exempt; Jebel Ali is the first to implement it. As yet, it is unclear if the others will follow.
Commenting on the move Ibrahim Aljanahi, Jafza Deputy CEO said: "Our collaboration with the Central Bank and implementation of WPS is a reflection of our deep commitment to not only provide the most efficient services to our business community, but also to support Government initiatives. We are determined to enhance transparency and operational efficiency and lead in the adoption of technology and services that are beneficial to our customers. We view this system as a public service that will ultimately enrich the business environment in Jafza." | |
|
Kuwait's new Companies law
 Decree Law No 25 for 2012
The new Kuwaiti Companies law was drafted make Kuwait more attractive to potential investors, primarily doing so by ensuring that commercial entities are structured in such a manner as to be deemed more attractive and less risky. Key changes will include a heavy emphasis on corporate governance, including separation of Board of Directors (BoD) and executive management and their responsibilities. Various corporate regulations have also been introduced with regard to Sukuks, bonds and convertible bonds; there has been an elimination of minimum shareholding requirements and security shares for BoD of stock companies; an adoption in the law of the cumulative voting system for the election of Board members; and an expedited process for the valuation of in-kind contributions to a company's capital. The new law was published at the end of November 2012.
| |
|
Saudi Labor ministry to launch wage protection system
The Wage protection scheme was introduced in Saudi Arabia in December 2012 for all private sector companies. The system will start in all major companies across the country moving to other institutions shortly after. The ministry will extract monthly data to follow up on the implementation process, with inspection campaigns to deal with any violations.
"The objective of this system is to ensure that salaries reach all employees, Saudis and non-Saudis on time without any obstacles," said Hattab Al-Enezi, director general of public relations and information in the ministry. | |
Potential GCC windfall gains from new UN Transfer Pricing Manual
 The Practical Manual on Transfer Pricing for Developing Countries (Practical Manual) issued and approved by the United Nations in October 2012 provides companies trading with related parties from or in the GCC with justification to retain more profits locally within the GCC. Since tax is usually significantly less within GCC countries these companies may be able to achieve a windfall profit gain.
As GCC countries have diversified their economies and increased manufacturing of products locally, exports of manufactured product have increased. As economies have developed and wealth increased imports of manufactured products have also increased. This increase in international trade by and with the GCC has led to GCC countries signing an increasing number of double tax treaties based on either the UN or OECD models. Both these model treaties endorse the arm's length principle for allocating profit between associated enterprises.
The Practical Manual is aimed at assisting, through guidance and examples, developing country's tax administrations in implementing transfer pricing policies in accordance with the arm's length principle; therefore being able to retain a fair share of taxable profits while not discouraging trade and investment.
The Practical Manual introduces explicitly the idea of location specific advantages (LSA), which may be due to lower costs in a particular location and or other factors such as a large local market or market price premiums for products. The Indian and Chinese tax administrations specifically state (Chapter 10) their view that profits due to labour cost savings should be allocated and taxed locally. Indeed the Chinese tax authorities have adopted this as part of their annual auditing of companies tax returns.
GCC countries have, in comparison to other countries, lower energy costs and material costs for products derived from oil and gas. Therefore GCC countries have significant LSA's with regard to manufactured products, especially those using hydrocarbons. Multinational companies with manufacturing operations in the GCC can use the concept of LSA in their transfer pricing structures to justify retaining a greater proportion of their overall profit in the GCC.
In many GCC countries the market for some goods enables a price premium to be obtained in comparison to other markets. Companies selling goods into these markets can use the LSA to support retaining higher profits locally in the GCC.
The potential profit gain for companies exporting/importing to/from the GCC is dependent on them being part of a group or related enterprise and the intragroup transactions being profitable. Therefore only some groups will have sufficient incentive to undertake the detailed and careful analysis required to support changes in their transfer pricing. It is also likely that altering the terms and conditions of transactions with related parties in developing countries (e.g. India, China and Brazil) will be easier than those with developed countries such as in North America and Europe.
The potential profit gains from altering the pricing of a company's related party transactions to/from GCC countries is such that at a minimum they should be reviewed to see if it can be justified. | |
Matthew Moriarty |
UAE and UK Trade Increase
According to the UK-UAE business Council, Plans to boost trade between the UK and the United Arab Emirates (UAE) to GBP12bn (USD19.2bn) by 2015 are on track, marking a 60% increase in trade from 2009 levels. The Council is headed up by the Chairman of the Abu Dhabi Department of Economic Development, Nasser Ahmed Alsowaidi, and Samir Brikho, CEO of AMEC. The UAE has already invested over GBP5bn in the UK's energy and infrastructure sectors. | |
Changes Proposed To DIFC's AML Rules
Following a recent review in Q4 of 2012, the Dubai Financial Services Authority (DFSA) has proposed changes to its anti-money laundering (AML) and ancillary service provider (ASP) regimes. The objection of the proposed changes seek to simplify its existing frameworks by potentially replacing the current rules and modules with a consolidated AML module. The change would apply to all those who are currently subject to the AML regime.
The DFSA has also sought changes to the articles of the Regulatory Law 2004 which deal with its exercise of powers on behalf of other regulators and with the delegation of functions and powers to other regulators. Under the changes, the "other regulators" category would be expanded to include a governmental or regulatory authority exercising powers and performing functions relating to counter terrorist financing or international sanctions breaches.
The UAE federal authorities are currently reviewing and updating the wider UAE AML laws and regulations. | |
Firms could start with GCC national, rather than UAE partner
 A committee has been formed by the Dubai Department of Economic Development ( DDED ) to study requests from GCC nationals to allow them to set up partnership firms with foreigners, according to press releases in late January 2013. Currently the minimum capital for such a partnership stands at Dhs 10 Million. The establishment would be subject to a mandatory examination before any project would be approved as well as compliance with existing corporate legislation.
The Committee head Ahmed Ibrahim, Director of Business Registration in the Business Registration & Licensing (BRL) Sector at DED , said the initiative was part of an ongoing bid to create "a competitive and attractive business environment for regional and international investments." | |
New UAE Trade License renewal guidelines | |
Going forward in order to renew the trade license, Company's in the UAE will be required to submit a "No Objection Certificate" (NOC) obtained from the Real Estate Licensing Department of RERA (Real Estate Regulatory Agency). All commercial properties leased, or rented to third parties must therefore be registered through RERA or their online portal. |
The new UAE Federal Competition Law
The long awaited UAE Federal competition law (Federal Law No. (4) of 2012) has finally been published and will come into force on the 23rd of February 2013, following its recent enactment in October 2012. Whilst other UAE Federal law had touched upon some competition issues in the past, there had previously been no specific law addressing the practice.
This new Competition law will be applied to the economic activities and intellectual property of companies operating in the UAE, or abroad in any context whereby it might affect competition in the UAE. However there will be exceptions, such as Federal and local governments, state owned enterprises, or potentially small and medium-sized companies (SMEs). Certain industry sectors will also be exempt for the time being, such as financial, pharmaceutical, utility, waste disposal and transportation sectors, among others; though these may be added to or decided against at a future date. A competition regulation committee has been formed in order to propose legislation and policy going forwards, and the Ministry of Economy will be active in providing enforcement, monitoring and investigating. The new law prohibits 'restrictive agreements', such as direct price-fixing or indirectly, via limiting, or oversupply of goods or services; in addition to agreements which might divide markets or assign clients based on geography, and of course those which hinder might breach, hinder or prohibit competition. | |
|
Notes from Washinton -
Syria, Mali and Things that Go Boom in the Night
 One would be hard-pressed to identify a discernible U.S. policy toward the Middle East. The start of 2013 has produced a series of fires to which the US has lacked a strategic response. The broadening regional dimensions of conflict only raise the difficulty for Washington. The evolution of the turmoil in Syria Mali and Algeria, indicate Al Qaeda's troubling durability. Egypt and Tunisia, hailed so recently by the West as the bastions of democratic progress in in the Arab Spring, now appear close to unraveling, in the process revealing the paucity of the West's political leverage. The fragile political transition in Yemen, meanwhile, signals the depths of the historical complexities encountered by external actors in the region. Amidst these multiple poles of conflict in the Middle East, the Obama Administration has seemingly seized on three principle themes.
- Syria: avoid direct military involvement. Despite tacit US support of Israel's decision to bomb a Hezbollah arms convoy in Syria last week, the Obama Administration continues to resist rising political pressure to directly arm the Free Syrian Army. Factionalism within the opposition certainly plays a role in this decision, but of greater concern for the US is the rise of the Al Qaeda al-Nusra Front in Syria, and the radicalization of the fight against Assad. The fragmentation of the opposition, despite considerable Western efforts to aid its political organization, paints a situation quite different from the initiative to arm Bosnian Muslims in the former Yugoslavia in the 1990's. At this stage, the provision of arms to the rebel by proxies in the Arab Gulf presents the only politically palatable answer for Washington. What may compel direct US military involvement? Only an imminent risk from al Qaeda or Hezbollah obtaining chemical weapons as the Assad regime gradually disintegrates.
- Mali: provide logistical support designed to boost the French/African response. Mali is not a recent issue for the West; this past autumn, the US, France and the UK stepped up high-level diplomatic engagement on Mali and Al Qaeda in Maghreb's (AQIM) penetration from Mali into Algeria and Libya. This initiative has included travel by SecState Clinton to Algeria, work with regional leaders at the UN, and the December Global Counter-Terrorism Conference hosted by Abu Dhabi. The US Government addressed the rise of AQIM in Mali long before the fall of Ghaddafi, including training missions supplied to Mali's government by the US military's AFRICOM. Despite these efforts, the recent hostage crisis in Algeria and the apparent flow of arms from Libya into Mali has fed concerns that the Islamist groups can strike back with fresh attacks against civilian and Western targets in the wider region, stocking unrest and potentially spreading radicalism in countries including Morocco, Niger, Mauritania, Libya and even Nigeria. US airlift support to French forces in Mali constitute a "least bad" response to a situation demanding both time and operational space.
- Israel/Palestine: reengage in the quest for peace talks. The recent announcement that the first foreign trip of President Obama's term would be to Israel was accompanied by official denials that the intent of the visit would be to revive Israeli/Palestinian peace talks. Evidence to the contrary, however, would appear to be new Secretary of State Kerry's initial pronouncements upon taking office that he would prioritize the peace process. Any presidential visit to Israel will address de facto the issue of Palestine and the impact of current Israeli policy upon American security interests. Anticipate the White House seeking to exert subtle pressure on Tel Aviv to resist adventurism in Syria, and to scale back the push for new settlements in Palestinian territory. The two sides will seek to find common cause regarding Iran, Hezbollah and Syria, with the White House keen to minimize differences in public. But the potential impact of the visit upon broader events in the region remains to be seen.
The degree of US engagement in the region will remain in question, however, so long as mandatory cuts to the defense budget, courtesy of the 2012 "sequester" legislation are either pending or become reality. While March 1st is the official date for mandatory budget reductions to take place across the US Government, February 15th looms as a hard date for the US Defense Department to begin immediate drawdowns and redeployment of American security assets worldwide. Due to the realities of procurement planning and operational expenses, the Pentagon has already announced plans to hold back an aircraft carrier and missile cruiser intended for deployment to the Arab Gulf. Similar cuts may be expected to naval aviation and US Air Force operations in the region as soon as next week. Clearly, if the budget cuts begin, they will negatively influence the readiness and operations of the US military not only in the Middle East but worldwide; in this context, the US ability to pursue initiatives in Syria and North Africa will be open to skepticism. The White House has announced a short term package of budget and tax reforms to delay the onset of the sequester, but these would require rapid Congressional action to further delay the scheduled cuts. | |
This contribution was gratefully received from Eric Shimp - Special Advisor to UAE regarding the UAE-USA FTA Negotiations, and Policy Advisor, Alston & Bird, LLP. Washington DC. |
Treaty Updates
Algeria; Italy
Algeria and Italy signed an Air Services Agreement as of 22nd January 2012.
Bahrain; Azerbaijan:
Azerbaijan has announced that it is negotiating a DTA with Bahrain 11th October.
Belarus; Bangladesh
Belarus has approved the draft DTA with Bangladesh 11th October.
Bahrain; Bermuda
Bahrain & Bermuda signed a DTA on 3rd of December 2012.
Bahrain; Brunei
Bahrain and Brunei have signed a protocol as of 18th December 2012 to amend their existing DTA (signed 2008). Protocol to treaty between Bahrain and Brunei signed 19 December 2012.
Bahrain; Estonia
The Bahraini government has approved for ratification the pending DTA with Estonia as of 11th November 2012. This treaty was ratified on the 4th February 2013.
Bahrain; India
Bahrain ratified their TIEA with India.
Bahrain; Korea
Bahrain ratified a DTA with North Korea on 7th of January 2013.
Bahrain; Liechtenstein
Liechtenstein has announced on the 20th November 2012 that they have completed negotiations for a DTA with Bahrain.
Bahrain; United Kingdom
Treaty between Bahrain and United Kingdom ratified by United Kingdom 20 December 2012 and entered into force on 19th December - HMRC announced on 18th January 2013.
Cameroon; Morocco
Morocco has approved for ratification the pending DTA with Cameroon as of 22nd November 2012.
Cameroon; Turkey
Cameroon and Turkey signed an Air Transport Tax Agreement on 19th of October 2012 - 24th October. | |
Egypt; Cyprus
Egypt and Cyprus signed an Air Transport Agreement on 4th November 2012.
Egypt; Georgia & Ireland
Egypt has ratified its DTAs with both Georgia & Ireland as of 6th November 2012.
Egypt; Mauritius
Egypt and Mauritius sign DTA on 19th December 2012.
Ethiopia; North Korea
Ethiopia and North Korea signed a DTA on 5th December 2012.
Ethiopia; Seychelles & United Kingdom
Ethiopia's parliament has ratified DTAs with Seychelles, and the UK, as of 18th December 2012.
Gabon; Luxembourg
Gabon and Luxembourg signed an Air Transport Agreement on the 26th of November.
Jordan; Estonia
Estonia's Ministry of Finance has stated as of 13th November 2012 that they are seeking a DTA with Jordan.
Kuwait; Armenia
Armenia has ratified an Air Services Agreement with Kuwait as of 7th of February 2013.
Kuwait; Slovakia
Kuwait and Slovakia have signed a DTA as of 13th November 2012.
Kuwait; Tajikistan
Kuwait and Tajikistan are currently negotiating a DTA. 21st October | |
Libya
Libya extends again their deadline for corporate tax returns for years 2010-2012 inclusive, to 13th of July 2013.
Oman; Czech Republic
Oman and the Czech Republic have initialed a DTA as of 5th December 2012.
Oman; France
French Government has approved for ratification a pending protocol to the existing France-Oman DTA (signed 1989).
Oman; Germany
Oman has ratified its pending DTA with Germany as of 25th November 2012.
Oman; Japan
Oman's government has approved the pending DTA with Japan as of 2nd February 2013.
Oman; Kyrgyzstan
Oman and Kyrgyzstan have initialled a DTA on 25th December 2012.
Oman; Portugal & Tanzania
Oman has approved for signing the pending DTAs with Portugal and Tanzania, as of 1st January 2013.
Qatar; Barbados
Qatar and Barbados signed a DTA on the 6th of December 2012.
Qatar; Cambodia;
Qatar and Cambodia signed an air transport agreement on 21st of November 2012.
Qatar; Cayman Islands
Qatar has ratified a TIEA with Cayman Islands as of 22nd December 2012.
Qatar; Costa Rica
Qatar and Costa Rica have signed an Air Services Agreement as of 31st October 2012.
Qatar; Egypt
Qatar and Egypt have held a 2nd round of negotiations earlier this month, for a potential DTA. 22nd October.
Qatar; Fiji
Qatar has approved for signing the pending DTA with Fiji as of the 28th of November 2012.
Qatar; Guernsey
Qatar's Government has approved the pending DTA with Guernsey, as of 16th January 2013.
Qatar; Hong Kong
Hong Kong, Qatar & Hong Kong have initialed a DTA as of 15th of November 2012.
Qatar; Mexico
Mexico has ratified its DTA with Qatar as of the 11th of December 2012.
Qatar; Montenegro
Qatar and Montenegro initialed a DTA on 1st November 2012.
Qatar; Philippine
Philippine Senate has ratified its pending DTAs with Kuwait and also Qatar as of 22nd January 2013.
Qatar; Ukraine & Montenegro
Qatar has approved DTAs for signing with Ukraine and Montenegro as of 5th of December 2012.
Qatar; Singapore
Qatar has approved the draft DTA with Singapore as of 12th December 2012. | |
|
| |
Saudi Arabia; Bangladesh
Bangladesh government have approved for signing the pending DTA with Saudi Arabia, as of 15th November 2012.
South Africa; Costa Rica
South Africa & Costa Rica have signed a tax information exchange agreement on 27th of October 2012.
Saudi Arabia; Czech Republic
Czech Republic has ratified its pending DTA with the Kingdom of Saudi Arabia, as of 9th of November 2012.
Saudi Arabia; Hungary
The Hungarian government has approved the text of the pending DTA with Saudi Arabia on 13th November 2012.
Saudi Arabia; Tunisia
Tunisia has approved a law to ratify their pending DTA with Saudi Arabia as of 8th of January 2013.
Saudi Arabia; Venezuela
Saudi Arabia and Venezuela met mid-October for a second round of DTA negotiations. 18th October.
UAE; Armenia
UAE and Armenia signed an Air Services Agreement on the 20th of November.
UAE; Estonia
Estonian Government announced a proposal, on the 15th of January 2013, to add UAE to its 'white list' of countries that maintain adequate tax systems.
UAE; Japan
UAE and Japan have apparently agreed on their final DTA discussions. 18th October.
UAE; Kyrgyzstan
UAE and Kyrgyzstan representatives met on 23rd of January 2013 to begin DTA negotiations.
UAE; Latvia
Latvia has ratified their pending DTA with the UAE as of 15th November 2012.
UAE; Mexico
UAE & Mexico signed a DTA on the 20th of November 2012.
UAE; Oman and Hungary
Hungary has approved the pending DTAs it has with both Oman and the United Arab Emirates 11th October.
UAE; Panama
UAE Cabinet approved for ratification a DTA with Panama, & 2 air services agreements with Latvia & Swaziland, as of 14th January 2013.
UAE; Paraguay
UAE and Paraguay have signed an Air Services Agreement as of 6th November 2012.
UAE; Serbia
UAE and Serbia signed a DTA on 13th of January 2013.
Yemen; Bulgaria
Bulgaria has approved the pending DTA with Yemen as of 28th November 2012.
Zimbabwe; Zambia
Zambia & Zimbabwe sign a DTA on 29th of November 2012. |
|
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 2011 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. |
|
|
| 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
Matthew Moriarty
Dr Robert Peake
Zeenat Sacranie
Mark Stevens
(Strategic Adviser) | |
|
|
|
