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Issue:# 7 NEWSLETTER

September, 2009

EID MUBARAK
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UAE looks at part-timers

Following recent changes by Bahrain and Kuwait in looking at their sponsorship systems, it appears that the UAE is now also looking at the labour market amidst the continued financial crisis. Currently it is possible to get a temporary 90 day work permit, however in reality this is both rare and in most cases unhelpful. The UAE Ministry of Labour announced to the press that they are looking at new guidelines that might be more appropriate and useful to the current population whilst also cutting down on the number of illegal workers. Whilst working mothers have been quoted as an example of those that might benefit, it is also assumed that many of those unable to work full time jobs, or even those recently made redundant but with several consulting or part-time roles, may also be able to benefit from such changes.

Switzerland and Qatar initial double taxation treaty

Switzerland and Qatar have concluded negotiations on a double taxation agreement (DTA). Whilst the initialed text is still confidential the agreement comprises an article on administrative assistance in accordance with Article 26 of the OECD (Organisation for Economic Co-Operation and Development) Model Convention. Article 26 creates an obligation to exchange information that is foreseeably relevant to the correct application of a tax convention and for the purposes of administration and enforcement of domestic tax laws. It is expected that this agreement will be signed quickly.

Switzerland has been racing to quickly build its DTA network which will facilitate its exit from the OECD's most recent tax haven list.

ifaUAE chapter officially recognized by IFA's General Council

During the 63rd Annual Congress of the International Fiscal Association in Vancouver, the UAE was officially recognized as the 60th chapter on September 2nd 2009.

The executive committee which consists of tax experts representing a wide range of economic players such as Multinational Companies, Accounting and Law Firms, are based primarily in Abu Dhabi and Dubai.

IFA membership now stands at more than 12,000 from more than some 100 countries including individuals and corporations alike, seeking to study and advance international and comparative law in regard to public finance, specifically the financial and economic aspects of taxation.

Marking its official establishment, the UAE chapter is to hold its first technical Event on the 25th October, at the Capital Club located within the DIFC (Dubai International Financial Centre).

If anyone would like to attend please contact [email protected] for further information.
imfIMF Praises Bahrain's macroeconomic policies & financial oversight
The Executive Board of the International Monetary Fund (IMF) have praised Bahraini authorities for their strong financial oversight and robust macroeconomic policies in light of the global economic crisis.

Directors noted the measures taken by the Bahraini authorities to address the current downturn in real estate by safeguarding the bank exposure to this and dealing with the susceptibilities arising from the recent rapid bank asset growth.

An increase in investor friendly reforms and a privatization drive have encouraged Bahrain's growth as a preferred investment destination within the Gulf Region.

Bahrain's Crown Prince and Economic Development Board chairman Sheikh Salman bin Hamad Al Khalifa said "the kingdom's ability to overcome the crisis had set an example for others to follow".

Bahrain is expected to witness a new economic growth cycle despite the global financial situation.

The financial services sector, including banks and insurance segments, represents nearly 16% of the total GDP of Bahrain which is home to more than 400 Global banks and financial institutions but it is the foreign investment into real estate and infrastructure projects which attracts billions of dollars.

Despite the global crisis which seems to have undermined many regional economies within the Gulf, it is Bahrain's move towards independence of its oil wealth that has seen it transform in recent years. IMF directors also emphasized the importance of diversifying the revenue base and supported the plan to introduce VAT, corporate income tax and to reduce the budget's dependence on oil revenue.

UAE removes start up capital requirement for new companies

The President of the United Arab Emirates, His Highness Sheikh Khalifa bin Zayed Al Nahyan, has issued a decree abolishing the minimum capital requirement for setting up a limited liability company in the UAE.

The decree amends Federal Law No 8 of 1984 UAE Companies Law provided that the minimum share capital of a limited liability company must be no less than Dh150,000.

The amended law will come into affect on publication but is retroactive to companies established on or after June 1st 2009 allowing new businesses to determine the capital required for the establishment and continuation of their companies.

Business leaders have widely welcomed the move which reflects the federal government's stance to improve the current investment climate.

The removal of the minimum capital requirement is believed to be of particular benefit to the smaller and medium sized companies seeking the benefits of limited liability lacking the financial start up funds.

The amended law is also expected to encourage new entrants into the market and whilst it is important to note that all companies will still have to adhere to all other aspects of the Companies Law, it is an important step forward.

Sultan bin Saeed Al Mansouri, UAE Minister of Economy called the move "a positive step to attract more investments to the country".

Kuwait follows Bahrain to change sponsorship laws

The Kuwaiti Minister of Social Affairs and Labour has announced a new degree giving expat workers similar freedoms held currently by Bahraini Nationals. As of August 1st, Bahrain became the first Gulf State to abolish its existing "Kafala" sponsorship system in favour of allowing workers to switch jobs without the consent of their previous employer.

Kuwait Trade Union Federation praised the decision stating that it would help Kuwait to improve its human rights record.

In July, Amir Al Tamimi, Secretary General of the Kuwait Human Rights Society said: "the sponsorship system damaged Kuwait's reputation internationally", and called for the amendment of the labour law to provide more security and rights to all expatriate workers.

The suggested amendments to the private sector labor law however has stirred controversy. Some International organizations continue to criticize Kuwait and other Gulf countries calling for new regulations that are more labourer friendly. The Kuwaiti government has repeatedly assured that it is doing all that it can to abolish the current Kafeel system and improve quality of life of foreigners in Kuwait.

Hady Al-Enizy, the head of the business relations department at the Ministry of Social Affairs and Labor, told the Kuwait Times that after implementing the recent change to the sponsorship law that "We've witnessed a growing awareness among Kuwaiti sponsors that the ministry is serious in regard to cancelling the Kafeel system.

qatQatar and Malta sign double taxation agreement

On the 26th August 2009, following official talks lasting two days, Qatar and Malta have signed bilateral agreements aimed at increasing cooperation. These include a double taxation agreement and an air transportation agreement.
The DTA is currently being ratified by both governments. Currently Malta has 5 treaties in place in the Middle East, including the UAE, Kuwait and Egypt.

Signing on behalf of Malta in the presence of President George Abela, Deputy Prime Minister and Minister of Foreign Affairs Tonio Borg said in January 2009;

"This agreement will extend the double taxation treaty network which enables Malta to develop trade relations, attract inward investments and serve as an important platform for Maltese residents doing business in partner countries".

World Bank / "Doing Business 2010" Report: UAE advances, but Saudi remains ahead

Following the recent decision by the UAE to scrap the minimum capital requirement for starting businesses, the UAE has risen sharply from 47th to 33rd place in a recent survey from the World Bank and the IFC (International Finance Corporation) measuring business regulations - the survey covered 131 nations globally.

The anticipated abolition of the Dh150,000 minimum capital and more simplified registration and application processes is the latest measure taken by the UAE to liberalize its economic system intended to attract capital and lessen the previous reliance on unpredictable oil export earnings.

The reforms have already paid off in terms of higher inflow of foreign direct investment with the UAE ranking second in the region in the past two years, second only in the Middle East to Saudi Arabia.

Qatar was ranked at 39th, Bahrain at 20th, Kuwait at 61st, and Egypt who is among the world's 10 most active reformers for the forth time, was ranked at 106.

Saudi Arabia is positioned in 13th place; this also confirms the recent World Investment Report 2009, released by the United Nations Conference on Trade and Development (UNCTAD) which showed a 57% rise in FDI into Saudi Arabia (receiving a total of US$38 Billion last year).

GCC Clients concerned by fresh attacks from UK tax man
As the UK's HM Revenue and Customs (HMRC) have renewed their efforts to crack down tax evasion legal experts predict that a substantial amount of Financial Institutions as well as Arabs who currently hold money in the UK, could be severely affected.
In light of the recent economic downturn UK authorities who have previously only targeted specific organizations are set to widen their search.

Banks and financial institutions who are served with a compulsory disclosure notice have 30 days in which to appeal after which they must surrender all required details of every customer with a UK address. Individuals have a six month reprieve period which began September 1st to declare any unpaid taxes or they will face harsher penalties.

Bahrain Sponsorship system reforms

Bahrain's move to reform its current Kafala sponsorship system will dramatically improve the current system which has been critized as being exploitative of most migrant workers. Bahrain's labour minister Majeed bin Mohsen al-Awali said that the reforms to the system for hiring foreign workers would allow the government more control over expatriate numbers.

"There is a real conflict between the bodies responsible for the labour market and traders (middlemen) who handle residency" al-Awali said.

The kafala system currently ties migrants' work visas and immigration status to their employers, enabling employers to prevent workers from changing jobs or leaving the country.

Under the improved system as of August 1st 2009, government's Labor Market Regulatory Authority (LMRA), rather than employers, will sponsor migrants' work visas, allowing migrants to apply to the authority directly to change employers.

In 2007 Bahrain's population grew to just over 1 million on an influx on foreign workers. Large numbers of foreigners hired to build the modern Gulf States have caused concerns however that there may be a call for political rights with the sudden change in demographics. 85 percent of the UAE's population are foreigners as is 1 third of Saudi Arabia's 25 million.

Plans for further regulations are expected amidst speculations that unskilled and semi-unskilled workers will not be allowed to stay beyond five years in the country.

Currently the reforms also do not protect the some 70,000 migrant domestic workers who will stay under the sponsorship of their employer. Whilst the Human rights Watch has greeted the move with caution, they said "Bahrain deserves credit for being the first to make concrete reforms".

At present the LMRA requires all business to pay tax on expats employed, and businesses have spoken out about growing concerns that they will be financially hit further and are calling for increased government protection fearing that employees can leave the workplace after a shorter amount of time. Companies are calling for a minimum work period of six months for employees to protect their own financial liabilities.

Notes from America: Washington's September spirit

The United Nations General Assembly, the G-20, fears of a US-China trade war, missile defense, and new revelations of secret Iranian nuclear plants. Pair those developments up with a domestic U.S. legislative agenda that includes the ambitious reform of the health care sector and a crack at a wide-reaching climate change bill, and September has proven once again to be a chaotic month in Washington. But what to make of it? Are the Obama Administrations domestic ambitions too great? Is US foreign policy in the process of collapsing under the weight of unrealistic expectations? I'd offer that it's both too early and unhelpful to consider these questions. Let's just focus on what we know:

* Domestic politics take a toll on foreign policy. No one has ever accused the House of Representatives of being the bastion of strategic thinking, but its Members know a street fight when they see one. No where has that been clearer than on health care. By summer's end, both parties in Congress were locked in a struggle over so-called "health care reform", which has really amounted to reform of the most popular means of financing health care - insurance. The Holy Grail for the left wing of the Democratic Party, a public option of government-provided insurance, is anathema to much of the GOP. President Obama, seeking middle ground for a compromise, eliminated plans for a public option in a nationally televised speech to the Congress on September 9th. The very next day, senior leaders of the president's own party, include House Speaker Nancy Pelosi, retaliated by barring further funding for military operations in Afghanistan. Key Democrats are seeking retribution in other areas as well, in an attempt to create leverage to reactive the public option on health care.

* There is no formal trade policy. The Administration continues to define its approach to global trade on the fly. Policy has not been defined, so much as revealed in a series of disconcerting moves since January. The Administration has been so passive on trade as to be nearly supine before protectionist forces within the Democratic Congress and core constituencies. The White House has failed to resist Buy American provisions in the stimulus, allowed the Congress to pressure Panama, Colombia and Korea to renegotiate portions of concluded free trade agreements, temporized on the WTO Doha Round talks, and most recently issued punitive tariffs on Chinese tires at the behest of organized labor. All the while, the President and key aides have touted publicly their commitment to open markets, and exhorted world leaders to resist protectionism. At a certain point in the not too distant future, the divorce between rhetoric and reality will have significant consequences for the Administration's international credibility. Domestically, the perception among key groups is that the White House may be rolled on trade. Following in the wake of the tire decision, labor unions are preparing now to file additional 421 petitions calling for higher tariffs on Chinese textiles and steel products.

* Changes to missile defense might be the Administration's best foreign policy move yet. The revelation September 25 of another hidden Iranian nuclear facility cast fresh light on the Administration's decision last week to shelve the Bush era plan for ground-based interceptor missiles in Central Europe. Initially criticized as reckless, the new plan should win support from a variety of US allies. The Administration, following recommendations from the armed forces and taking advantage of existing technology, will create a mobile sea, air and land-based system of missile defense, highly mobile, and deployable to multiple theaters of operation. Testifying before the Senate Armed Services Committee September 24, Administration officials noted pointedly that the new system would be readily adapted for use by allies in the Persian Gulf - and by Israel - to provide an integrated, multi-layered approach to the threat from Iranian short and medium range ballistic missiles. The October 1st negotiations between Iran and the P-5 group now take on greater import, as Tehran's may now be seeing for the first time a restriction to its range of movement imposed by the major powers.

For conclusions then, we're left with thin gruel. The U.S. president, despite his totemic treatment by much of the Western media establishment, is being revealed day by day as a mere mortal politician, facing significant political problems. As the law of diminishing returns applies itself to President Obama's rhetorical skills, the challenges will become more severe, frequent, and dynamic. The level of political infighting is increasing, while external skepticism rises as well. One wonders how long the White House will continue to operate as if it does not realize how tightly it is about to be constrained by reality.

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]

In This Issue
UAE looks at part-timers
Switzerland and Qatar sign double taxation treaty
IFA recognizes UAE chapter
IMF praises Bahrain economic policies
UAE removes Dh150,000 start up capital
Kuwait to change sponsorship laws
Qatar and Malta sign double taxation treaty
World Bank Report: UAE advances
GCC concerns over UK tax man
Bahrain reforms sponsorship system
Notes from America
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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/Contacts:
Dominic Treays

Reggie Mezu

Catherine Le Bourgeois

Mark Stevens
(Strategic Adviser)
Dr. Robert E. B. Peake
(Strategic Adviser)

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