IMPLEMENTATION OF CBCR IN UAE

Preamble

United Arab Emirates committed to the implementation of ‘minimum standards’ to prevent Base Erosion Profit Shifting (BEPS) by joining OECD’s Inclusive Framework on BEPS on 16th May 2018.

Minimum Standards on BEPS & UAE’s progress

  • Action 5: Countering Harmful Tax Practices More Effectively, Considering Transparency and Substance.
    • UAE Progress: Application of a VAT system including setting up of a central administrative authority for taxation, i.e. Federal Tax Authority, has allowed UAE to make progress in this area.
  • Action 6: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances
    • UAE Progress: UAE Signed Multilateral Convention (MLI) on June 27, 2018 to implement Tax treaty related measures to prevent BEPS. On  May 29, 2019, the UAE deposited its instrument of ratification for the MLI to OECD.
  • Action 13: Transfer Pricing Documentation and Country-by-Country Reporting (“CbCR”)
    • UAE Progress: By implementing Cabinet Decision no. 32 on CBCR, in the month of July, the UAE has made significant progress in this area.
  • Action 14: Making Dispute Resolution Mechanisms More Effective
    • UAE’s approach remains to be seen.

Introduction of Country by Country Reporting in UAE

Implementation of Cabinet Decision no. 32 on County by Country Reporting is an important step for the implementation of Action 13 which is one of the four minimum standards. Through this resolution, the Ministry of Finance (MOF) has instructed Multinational companies, operating in the United Arab Emirates, to submit CBCR reports.

After Saudi Arabia and Qatar, UAE is the third country in the region to introduce CBCR in GCC. This step shall further enhance international confidence in the UAE’s financial sector.

Reporting Responsibility

The implementing regulation has specified responsibility of CBCR reporting or notification for the following entities as per the prescribed format and timelines:

  • The Ultimate Parent Entity of a Multinational Group which is a UAE resident for Tax purposes
  •  The Constituent Entity of a Multinational Group which is Resident in UAE for Tax purposes

Reporting Threshold

A consolidated revenue of the Multinational Group, equal or above AED 3.15 Billion, is required to report under this regulation. 

Mechanism

  • If the threshold is met, then either the Ultimate Parent Entity or the Constituent Entity must submit a report to the Ministry of Finance in the specified format. 
  • The above threshold will be applied at the end of the Fiscal Year of the Multinational Group.
  • The Ultimate Parent entity or its surrogate for Tax purposes will submit the CBC report within 1 year of the end of its Fiscal year.
  • Where the Constituent Entity in UAE is not the Ultimate Parent Entity or the Surrogate Entity, it shall notify the Ministry, the identity and Tax Residence of the Reporting Entity. This notification must be done before the end of the fiscal year of assessment.
  • The first reporting obligation has taken effect from January 1, 2019.
  • The submission will be done considering the format and definitions specified by Chapter 5 of the OECD guidelines.

Penalties

Violations Penalty
Failure to retain documentation for 5 years from the year of reporting AED 100,000
Failure to provide specified information to the Ministry AED 100,000

Failure to:

  • Submit the Report
  • Submit the notification within specified timeline
AED 1,000,000 plus AED 10,000 for each day of delay up to a maximum of AED 250,000
Failure to accurately report information AED 50,000 to AED 500,000

 

Affiniax at your service

We can: 

  • conduct a detailed study whether your business shall be assessed under this resolution by the Ministry;
  • compile CBC report or Notification to the Ministry; and
  • assess your compliance of the general requirements of the regulation.

Why Affiniax

‘Affiniax Partners’ has been providing Professional Advisory Services to its clients for over 25 years. We have a team of Specialists in the region who can assist you for the optimization of your Business Processes. For more information, please contact us at mail@affiniax.com

Dubai International Financial Centre Introduces New Licensing Categories

Dubai International Financial Centre (DIFC) is the leading financial capital in the Middle East, Africa and South Asia (MEASA) region.

As one of Dubai’s independent free-zones, with its own legal and regulatory framework and judicial system, global financial exchange, tax-friendly regime, and a large business community, DIFC is persistent in supporting its businesses to grow by introducing new licensing categories under its operating Laws and Regulations.

The newly introduced categories come with reduced license fees and allow more firms to start conducting business in the DIFC.
  1. Short Term License: Under this category, it is now possible for retail businesses and other non-financial companies to operate from DIFC at a competitive cost, depending on the duration of license required.
  2. Restricted License: This license is applicable to firms interested in developing or testing out new, innovative products and services in the DIFC. These initiatives are encouraged by DIFC as this would allow incubators and startups to flourish within the DIFC environment.
  3. Commercial Permissions License: This license would allow both DIFC and non-DIFC entities such as event companies, promotion companies, retail outlets, seminars and educational services to conduct their business activities within the DIFC for a competitive fee.
  4. Dual Licensing: This license will allow the firms which are under the license of Department of Economic Development (DED) such as law firms, audit consultancy firms, family businesses, holding companies and corporate service providers to operate in the DIFC with an affiliate
To know more, please contact our Corporate Services team at mail@affiniax.com.

THE BENEFITS OF MOVING TO A CLOUD ACCOUNTING PLATFORM IN THE UAE

The benefits of moving to a cloud accounting platform in the UAE

The world we live in is rapidly moving towards digital for all aspects of business, one of the most aggressive moves is that of the accounting world. With your company’s financials at stake, what are the real benefits of moving to a cloud accounting platform? Here are the top reasons you should be considering a move to cloud based accounting.

Reduced Capital Expenditure

The move to cloud not only offers an operational cost option for the software. It also reduces the need for infrastructure to support it. Costly hardware and backup solutions are not required as they are now provided as a part of the software as a service offering. The scale of the infrastructures offered by the service providers will generally far exceed an in-house operation, so it will also increase your business’ accounting security and availability.

Reduced Total Cost

Not only does your online accounting system reduce your capital expenditure, it actually reduces the overall cost. Cloud accounting solutions can enter the market on a freemium model (base levels of the software are offered free with the choice to upgrade for more advanced features) and can be up-scaled on users and requirements as necessary.

There is now no need to invest in an all-encompassing system of which you will use a minor selection of the functions.

Scalability

A cloud-based system scales to fit your company. Entrepreneurs have a very cheap but limited system, this can grow to add users and functionalities as per the requirements of your business and team. The system will grow alongside your company and it will allow for the addition of functions and resources as required.

Staffing efficiency

With the use of technology, manual tasks can almost be eliminated. This opens a business’ options to allow outsourcing of technical and operational functions. Functions such as the capture of expenses receipts can now be eliminated by using application based functions on one’s phone. A simple photo is taken and it is assigned to the correct account. This means that no longer are you counting through endless receipts at the end of the month and you can easily ascertain the cost and value of each client’s activities.

Real-time information updating

From your accountants to your C suite, the information is available as live. The system will allow you to build dashboards and reports which are tailored to the person using it. A C-level may want to see more of an overview whilst an accountant may need more transactional level information. With the connection of bank accounts to the systems you achieve real-time, live accurate data.

Access from anywhere

Part of the success of cloud computing is the ability to access information from practically anywhere. The rise of smartphone adoption has allowed business officials access to key company information as long as they have a form of Wi-Fi connection.

Security

Cloud solutions often face the issue of security and people often think that because a system is out of the office it is less secure. However, exactly the opposite is the truth. The following shows just a few of the key security enhancements that migration to cloud-based accounting will offer:

  • User authentication – two-step authentication for logins and transactions ensure that with the use of 2 personal devices only can you access the account.
  • Data encryption – industry-level encryption services ensure that information is delivered and translated to correct areas only. 
  • Network security and data center – economies of scale allow a much higher level of infrastructure and the security that runs within it. This can offer governmental levels of security at a fraction of the price.

Immediate Fixes

Most softwares offer an uptime guarantee of >99%. Their vast teams ensure that updates, patches and fixes are completed before issues occur. They are also often very responsive to system improvements and thrive on critical feedback. The systems can literally change and improve in front of your eyes.

Data Backup and Restoration

One of the largest investments in accounting is the backup of the data. If you do not have a backup of your software offsite you run the risk of losing your data. It is said that 60% of companies that complete data loss will be shut down within 6 months. With cloud accounting, you have servers based in environmentally perfect surroundings, these will be replicated in similar environments, often in other countries. Only severe disasters could disrupt these types of systems, and at this point, we probably wouldn’t be worried about our accounting.

There are many benefits to promote the adoption of a cloud-based accounting system in the UAE and beyond. It is vital that you choose the right team to help you set up or migrate the services, and to see if it is a viable option in the first instance. Speak to one of our team to understand the benefits to you and your business and grow with the best.

OBTAINING TAX RESIDENCY CERTIFICATE FOR A COMPANY

Why should I obtain a Tax Residency Certificate for my UAE company?

Tax Residency Certificates are crucial in substantiating your UAE company’s tax residence in the UAE.

They are particularly important where the shareholders and / or directors of the company have a non-UAE connection or international tax exposures, and in certain circumstances can be a powerful tax planning tool for companies who are able to obtain these certificates from the Ministry of Finance.

Tax Residency Certificates are essential for the purposes of benefiting from the large number of double tax treaties in force between the UAE and other jurisdictions and confer a number of additional benefits to holders.

You can also apply for Tax Residency Certificates as an individual, and these certificates can help reduce your tax exposures on certain international investments.

How is it possible for a UAE company to obtain a Tax Residence Certificate from the Ministry of Finance?

There are a number of requirements that your UAE company must meet for you to obtain a UAE Tax Residency Certificate from the Ministry of Finance.

One requirement which has recently come into the spotlight is the need of a physical office space.

Whilst in the third quarter of 2018 we still managed to obtain Tax Residency Certificates for companies operating from Flexi Desk offices (or similar facilities) across the various free zones in the UAE, the Ministry of Finance are now scrutinizing such cases in further detail.

Due to various international jurisdictions’ stringent requirements on substance, amongst other considerations, when determining the tax residency of companies incorporated in foreign jurisdictions, the Ministry of Finance is now getting stricter when reviewing Tax Residency Certificate applications from companies and are generally requiring such companies to have a physical / permanent office space. We have witnessed a number of recent applications being rejected where companies simply maintain a Flexi Desk office or similar space.

For more information on the benefits of obtaining Tax Residency Certificates and how we can assist you in obtaining this, please feel free to contact our Tax and Corporate Services team at mail@affiniax.com.