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Issue:# 5 NEWSLETTER |
March, 2009 |
Welcome to the Cragus Group newsletter. Please feel free to contact us on [email protected]To add yourself to our mailing list, unsubscribe, or forward to a colleague, please see links at the bottom of this email. |
VAT 'not up for discussion' in UAE
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On the 24th of March, Mohammed Ahmad bin Abdul Aziz, Director-General of the UAE Ministry of Economy, was reported as saying that VAT is "not on the table at the moment" and ''not up for discussion,''. The quotes were taken by local press at an Arab Investment Forum, he further added: ''We don't foresee that happening in the near future".
Hisham Abdullah Al Shirawi, Second Vice-Chairman of the Dubai Chamber of Commerce and Industry, was also reported to answer questions on the subject and stated that he wasn't sure if VAT would be implemented, further adding that in current times the government is ''rather expected to lower its service fees.'' This contradicts the message that had been put out in recent years by Dubai Customs and some other government officials which had indicated originally that implementation might occur in 2008. |
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Cragus welcomes new addition to tax leadership team |
| The Cragus Group is delighted to welcome their latest addition to the team - Catherine Le Bourgeois, an international corporate tax adviser with over 25 years tax and legal experience.
Having most recently worked with the private equity arm of a governmental investment institution in the Arabian Gulf, most of Catherine's career has been served in-house. She has worked as the tax director for several multinational companies, with activities and responsibilities spread over the six continents. She also worked originally as a private practice attorney including several years with KPMG Legal, France. Catherine has a wide knowledge of and expertise in financial institutions, real estate, software industry, internet, transport, and logistics sectors; with extensive experience across Africa, Europe, Asia Pacific, North America and Middle East, in corporate structuring, mergers and acquisitions, joint ventures, cross-border transactions, due diligence and transfer pricing.
Originally from Belgium, she speaks fluent French and has on the ground experience in Africa, especially in French-speaking West Africa. Her qualifications include a Masters in Business Law, and also in Accounting, Tax and Finance, from the Assas Paris University in France. |
| Obama nominates Helen Elizabeth Garrett for tax role at troubled Treasury Department |
| On 28th March, President Obama announced his intent to nominate Helen Elizabeth Garrett as the new assistant secretary for tax policy at the Treasury Department. Garrett is currently the vice president for academic planning and budget at the University of Southern California (USC), and also serves as a co-director of the USC-Caltech Center for the Study of Law and Politics.
She was appointed to President George W. Bush's Advisory Panel on Federal Tax Reform, which issued its report in November 2005. Garrett, a graduate of the University of Oklahoma and the University of Virginia Law School, clerked for Justice Thurgood Marshall on the U.S. Supreme Court, and served as legal counsel and legislative assistant for tax, budget and welfare reform issues for former U.S. Senator David Boren.
Media reports maintain that numerous financial and tax experts have already declined interest in the new Treasury jobs, due to the surrounding controversies, intense public examination, political pressures, and the financial sacrifices involved in government roles. Commentators have been suggesting over recent weeks that the new administration might be better served to look towards the academic corridors for their future recruits. |
Japan to give tax breaks to SWFs
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The Japanese government has stated in February that it will provide a tax exemption for interest accrued on some assets held by sovereign wealth funds (SWFs), and it is widely thought that Middle Eastern institutions will be the first to benefit.
Since Japan's banks are growing increasingly wary of extending new loans, as the financial crisis continues, the Japanese government is taking aim at attracting more in the way of foreign investment. Overseas investors normally pay a 15% tax on interest income, with the rates reducing to between 5% and 10% for investing countries that are tax treaty partners.
For sovereign funds of treaty partners, the government plans to exempt the interest from bond-holdings, deposits and loans. Both corporate and government bonds are expected to be covered, but the exemption is not expected to cover stock dividends.
Japan has already reached a basic agreement with Kuwait on a tax treaty, but negotiations are ongoing with the United Arab Emirates (since November 2006) and Saudi Arabia. |
Vietnam signs Double Tax Agreement with UAE, Qatar & Kuwait
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 On February 17th in Dubai, the Ruler of Dubai H.H. Sheikh Mohammad Al Maktoum met with Vietnamese Prime Minister Nguyen Tan Dung and they signed an agreement on the avoidance of double taxation. Dubai's leader requested local businessmen to consider investment opportunities in Vietnam and stressed particularly the sectors in real estate, infrastructure construction, agriculture, finance, banking and labour. Qatar signed a DTA with Vietnam on the 8th of March in Doha. Kuwaiti Finance Minister Mustafa Jassim Al-Shimali and Vietnamese Minister of Foreign Affairs Pham Gia Khiem met in Kuwait on 10th March, and signed several agreements, including an agreement for the avoidance of double taxation. Both of the delegations also signed cooperation agreements between the Vietnam State Capital Investment Corporation (SCIC) and the Kuwait Investment Authority (KIA), including one to increasing agricultural cooperation. Trade between Kuwait and Vietnam has recently increased from just over US D 44mill in 2007 to US D 150 mill in 2008. | |
| Tax treaty updates |
Iran & Azerbaijan
Tax treaty signed on the 10th March
Syria & Austria
Signed tax treaty on 3rd March
Libya & Slovak Republic
Treaty signed in Bratislavia on 20th February
South Africa & Mexico
Signed treaty on 19th February in Capetown
Syria & Slovak Republic
Treaty signed in Damascus on 18th February
Kuwait & Azerbaijan
Treaty signed on 10th February in Kuwait |
Treaty controversy in India re UAE
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On the 13th of February, The Delhi High Court ruled in the matter of UAE Exchange Centre Ltd, and decided that the Authority for Advance Rulings (AAR) had wrongly ruled that the activities carried out did not fall within the preparatory and auxiliary services identified in the Tax Treaty. Furthermore, the court concluded that since there was no real contribution to the earning of profits for the UAE tax payer by the liaison offices in India, there was therefore no permanent establishment (PE) in India under the India UAE tax treaty. The activities of the liaison offices, in India, were seen to be only supportive of the transaction that was done in the UAE and as such would not justify a PE status. |
GCC update
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EU - GCC FTA
Following the news reports in mid-December that Anne-Marie Idrac, France's junior minister for trade, stated that an EU-GCC trade agreement had become unlikely, the GCC's Secretary General finally announced suspension of talks just before the year end. Negotiations commenced in 1998, and though the Qatari Prime Minister had reassured press that it would be signed by the then EU President (Nicolas Sarkozy) during a November visit, he has now indicated that the EU retracted at the last minute, and further dismissed the talks by saying to the media that such discussions could simply not have gone on indefinitely.
Monetary union In the meantime the GCC have approved a Monetary Union agreement amongst their Member states, the precursor to a GCC Central Bank. No decision on location has yet been made, though the Secretary General of the GCC has said over recent months that the 2010 deadline for a single currency launch is still being maintained (despite Oman dropping out in 2007). Nasser al-Kaud, the deputy assistant general for economic affairs at the GCC, did however admit on Tuesday 26th of March that: "Given the preparation and technical requirements that you need for setting up and establishing the central bank, you can't do all these things this year."
GCC income tax?
It has been reported by one leading global investment bank in a recent market update (February), and also by one UAE based newspaper (December/January) that the GCC have not only agreed in principle to implement corporate and individual income tax by 2012, but that they are now discussing ways to accelerate this. The IMF welcomed the earlier Dubai proposal to push for the implementation of VAT from 2010, though this has not gained ground since. Previously in May 2006, Kuwait's cabinet had said it would study a proposal to introduce income tax (without regard to the nationality of the taxpayer), at a flat rate of 10 per cent, though nothing has progressed recently. Though in August 2007, Bahrain said it would deduct one per cent from salaries to pay for unemployment programme, becoming the first Gulf state to tax residents' income. However, with regard to the latest GCC tax rumour, so far no GGC sources appear named in the recent public media reports. |
| Djibouti tax changes |
| VAT has been introduced at a standard rate of 7%. Exports and international transport of passengers getting a reduced 0% rate. Exemptions include banking operations, direct sales to consumers of untransformed agricultural products and basic alimentary products.
The most significant tax provisions from the 2009 budget, which are active from 1st of January, include a decrease of 7 percentage points on the consumption tax rates for products subject to VAT, and extending the scope of VAT to include free trade zone companies, and employees of such companies now being subject to a salaries tax. The country's investment code has also been updated to reduce the exemption period for business income tax and real estate tax to seven years (previously 10 yrs). Withholding tax has also been introduced on some services. |
| UAE & Germany
Germany's Ministry of Finance stated in late December 2008 that the negotiations for a new income and capital tax treaty between Germany and the United Arab Emirates were concluded. Details are however yet to be disclosed, but the new treaty is meant to replace the previous tax treaty from 1995 - which ceased to exist at the beginning of this year (January 2009). | |
Notes from America: The G-20 Takes Shape
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 As world leaders prepare for the G-20 summit in London, they face the risks that the recent trends toward "deglobalization" in world markets spirals toward a repeat of the worst political excesses of the Great Depression. Unreasonably high expectation for the summit, however, may be dashed by incendiary proposals on currency management and conflicting opinions on fiscal stimuli among key members of the G-20. At best, the summit may suffice to manage tensions, and reinforce the political will necessary for responsible collective action on the global economy. But concrete results will remain elusive.
U.S. Diplomacy at the Summit
Stimulus: The U.S. will return to its calls for greater coordinated stimulative actions by G-20 governments. Officials will continue to press for agreement on the IMF recommendation of fiscal stimuli of 2 percent of aggregate GDP for each of the next two years.
The U.S. will make significant efforts to persuade Germany, above all other EU members, to expand stimulative efforts in both Western and Eastern Europe. Japanese cooperation on broader stimulus is largely assumed in Washington, but there are muted fears among policy officials that the political straits of Japan's LDP may prevent meaningful Japanese support on the global financial crisis.
Monetary & Currency: The U.S. will strongly defend the Federal Reserve's recent move to "quantitative easing" and the following inflationary risks to the economy. Officials will strive to link any discussion of monetary easing with the new bank rescue package, and thus present the injection of capital as a necessary - and temporary - move to rebuild the balance sheets of U.S. banks and thus break through the credit freeze gripping the nation.
We expect the United States will seek to channel Chinese and Russian proposals regarding a new global currency into negotiations regarding an expansion of SDR rights, and IMF lending capacity - both of which are previously stated U.S. objectives.
Trade: Despite instructions to trade ministers at the November G-20 to proceed with the WTO Doha round, there has been no forward progress to date. The U.S. will not present concrete plans for restoring momentum to the round, but will instead be forced into a position of defending the current systems against drastic change. On the round itself, the U.S. may be expected to temporize through the spring months, until the Administration formulates a semblance of a trade policy.
U.S. policymakers have, however, begun to realize the dramatic risks posed by chronically depressed aggregate demand in the trading system. This will lead the U.S. delegation to stress the need for short-term trade finance assistance to the developing world, and re-emphasize the need for collective stimulative actions to address the sharp declines in global demand that hamper trade flows.
Regulatory Reform: Politically and in many ways, substantively, the U.S. already shares several common objectives with the EU regarding global financial reform. The U.S. will offer support for expanding the Financial Stability Forum to include all G-20 nations, and to elevate the FSF's institutional standing to that of the IMF and World Bank. The U.S. will also push for an additional $500 billion grant to the IMF, an increase in voting shares for countries that increase their contributions, and an expansion of the Fund's mandate. The U.S. expects a general degree of agreement at the summit regarding reform objectives and to establish a process to move forward.
Animating Concerns & Ideas
Heading into the summit, U.S. officials are preoccupied with several deep-seated concerns and ideas that will motivate diplomacy.
- Fears that major global surplus countries maintain unrealistic assumptions about the return of a growth pattern fed by U.S. consumption. Unwillingness by Asian and European exporters to visualize new models of growth -- models whereby other nations create domestic sources of demand -- will lead to prolonged disagreement about economic policies, and delay global recovery.
- Recognition that China has moved faster and further on stimulative actions than any other G-20 nation may lead to new levels of cooperation between Washington and Beijing; causing friction with other longstanding U.S. partners.
- Concern that the IMF will not receive sufficient tangible support from the summit to respond forcefully as the global recession impacts the developing world.
- Anxiety that G-20 countries will only agree on improvements to the IMF, and that the summit will lack the political will to develop meaningful coordination on stimulus.
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. |
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Namibia WHT |
| With effect from 1st of March, a 10% withholding tax will apply on any interest earned by any person, the withholding will be a final tax (so simply the 10%, instead of interest at marginal tax rates). Exceptions include:
- Namibian pension, provident, retirement annuity and benefit funds
- local companies, closed corporations, body corporates and associations
- Unit trust funds
- Public benefit organisations
- Local authorities and government
- Namibian non-profit organisations
Other exempt entities, include amateur sporting associations, charitable and educational institutions of public character, trade unions, chambers of commerce or industries (or an association of such chambers), mutual savings banks, fidelity or indemnity funds, local publicity associations, non-proprietary stock exchanges, and mutual loan associations. |
DFSA signs MoU with UAE Central Bank
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 Finally after many years, the Dubai Financial Services Authority (DFSA)has, on the 23rd of February, managed to sign an MoU with the country's Central Bank. The agreement relates to the co-operation and exchange of regulatory information, and in particular seeks to have a working relationship with Anti-Money Laundering Suspicious Cases Unit (AMLSCU) of the Central Bank of the United Arab Emirates (CBUAE). The AMLSCU investigates fraud and suspicious transactions in the UAE. The DFSA, which acts as the regulator for the Dubai International Financial Centre, now has MoUs with over 30 jurisdictions, but until now the UAE one had been noticeably conspicuous by it absence. Paul Koster, the new Chief Executive of the DFSA stated: "The signing of today's MoU has formalised arrangements for cooperation and information sharing that already exists between us. It recognises that both regulators place reliance on the quality of regulatory standards administered in the other's jurisdiction". |
| Benin reduces taxes |
| Law No. 2008-09 of 2 January 2009 has been enacted with the 2009 budget, applied from 1st January 2009. Changes of noticeable importance:
Direct tax reductions
- Corporate tax reduced from 38% to 30% for non-industrial corporate entities;
- From 35% to 25% for individuals, industrial entities, and mining companies;
- From 55% to 35% (or 45% depending on the clause of the contract) on profits related to prospecting, production and sale of natural hydrocarbons;
- Newly-incorporated companies gain exemption for first year's activities, corporate and pay roll tax; and
- Payroll tax from 8% to 4%.
Indirect taxation Exemption from VAT and customs duties from 1 January 2009 to 31 December 2009 for:
- New equipments and materials used for petrol stations;
- Computer equipment, including software and printers; and
- Vehicles used for collective transport. | |
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] |
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| 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:
Reggie Mezu
(Tax Leader)
Over 20 years tax and legal experience: including roles from the UK, Nigeria, Singapore, The Netherlands, and the UAE; within Andersen, Price Waterhouse, and Shell (most recently serving as regional tax manager for the Middle East, Caspian, and South Asia).
Mark Stevens
(Strategic Adviser)
Over 20 years tax and legal experience within "big 5" audit firms, including 10 years based in the Middle East. Formerly part of the original Ernst & Young International Tax Services team in the region, then serving with Arthur Andersen, and later also heading tax and legal for PwC in the Lower Gulf.
Robert E. B. Peake
(Strategic Adviser)
International tax advisor experienced in advising global investors on managing tax risks and maximizing investment return by reducing tax liabilities. Formerly, Director and Partner of International Tax Services with Ernst & Young Middle East and Head of Tax and Legal Services for Lower Gulf with Arthur Andersen. Subsequently, senior tax advisor to a government investment institution and a member of the UAE Free Trade Agreements negotiation team with particular responsibility for matters relating to investment and dispute settlement. |
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