Tax Services

PHISHING ALERT: UAE VAT

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“We are aware that a number of clients have been sent emails and letters from fraudsters pertaining to be the Federal Tax Authority or Banks and requesting for certain details from them.

The Federal Tax Authority would generally only communicate with registrants through emails from the domain tax.gov.ae sent to the registered email address, or via your eservices.tax.gov.ae portal and registered number.

If you are uncertain as to the genuineness of communication received, please feel free to contact our VAT services team for guidance.”

OFFSHORE COMPANIES IN THE UNITED ARAB EMIRATES

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An ‘Offshore Company’ is a type of legal business entity available for businesses looking to establish in the UAE with the intention of either operating outside the UAE or for the purposes of acting as a holding company (for example for the purposes of holding Real Estate, Intellectual Property Rights, Shares in other Operating Businesses or other Financial Investments).

Offshore Companies are a relatively inexpensive structure (in comparison to the other types of legal entities available in the UAE) that are attractive for foreign investors to form entities for the purposes of holding Capital or Assets, both within or outside the UAE, or conduct business outside the UAE.

Whilst Offshore Companies may differ to a degree depending upon the corporate law in the relevant jurisdiction or Free Trade Zone in which they are incorporated in the UAE, the main advantages of setting up a UAE offshore company are as follows:
  1. Offshore companies are, broadly, not subject to Corporate Income Tax in the UAE;
  2. They promote business flexibility and anonymity at a lower comparative cost (for instance there is no requirements to maintain an office space for an Offshore Company);
  3. They provide asset protection for Real Estate purchased in the UAE.
The two principal jurisdictions offering Offshore Companies in the UAE are Jebel Ali Free Zone (JAFZA) and the Ras Al Khaimah (RAK).

Both jurisdictions are “Tax Free” jurisdictions that levy no UAE income tax or UAE corporate tax on companies operating within the jurisdiction, allow 100% foreign ownership and enable registered businesses to open multiple currency accounts in the UAE and carry out business internationally.

Note that conducting business with persons resident in the UAE and having physical presence within the UAE (other than interactions that are considered of a holding company / subsidiary nature) are not allowed.

Offshore Companies must appoint an approved registered Agent.

JAFZA Offshore Company Incorporation


The JAFZA was created in 1985. It is an industrial area surrounding the Jebel Ali Port, one of the world’s biggest shipping ports, which allows the international companies based there to enjoy the special privileges of the free zone. These include exemption from corporate tax for 15 years, no personal income tax, no import or export duties, no restriction on currency, and easy labour recruitment.

Jebel Ali is located just outside Dubai and is about an hour’s drive from Abu Dhabi, the UAE’s capital city. Al Maktoum International Airport, which is planned to be the largest airport in the world in both freight and passenger volume, is constructed just outside the port area.

The Jebel Ali Free Zone Authority (JAFZA), in conjunction with the Dubai Government, introduced the Offshore Company in 2003 under the Jebel Ali Free Zone Offshore Companies Regulations 2003 and recently JAFZA has issued its new JAFZA Offshore Companies Regulations 2018 (‘New Regulations” to replace the previous regulations for the Offshore Companies.

Key features of a JAFZA Offshore Company:

  • Shareholders– A minimum of one shareholder is required and corporate shareholders are permitted. International corporate shareholders are required to have all company documents attested;
  • Directors– A minimum of one director is required, details of directors are not available on the public register.
  • Secretary – Every company must have a secretary. A company director may also act as company secretary;
  • Share Capital – No minimum share capital requirements;
  • Annual Reporting – Every company must keep accounting record and the company must appoint an approved auditor.

Key benefits of an offshore company registration in JAFZA:

  • 100% Foreign Ownership– The JAFZA Offshore Companies Regulations require no local shareholding;
  • Local Real Estate Ownership – The JAFZA Offshore Company is permitted to directly own local Dubai real estate. Most properties in Dubai can be owned by JAFZA offshore companies but both Free Zone and developer approval are required;
  • Shares in Local Companies– Despite a general prohibition on Offshore Companies conducting business with persons resident in the UAE, the authorities do allow Offshore Companies to hold the shares of both Free Zone and Onshore (LLC) Companies.
  • Local Bank Account– An Offshore Company can hold multi-currency bank accounts in the UAE to carry out routine international transactions;
  • Shareholder/Director details – The names of shareholders and directors do not have to be disclosed on a public register;
  • Inspection – The registrar has the rights to inspect or appoint inspectors to examine the affairs of an Offshore Company.
UAE Offshore Companies should not be confused with UAE Free Zone Companies. Free Zone Companies are onshore entities permitted to carry out business in Dubai with certain restrictions. They are similarly subject to the 0% rate of UAE corporate tax, but they enable their shareholders, directors and employees to obtain residency in the UAE

Offshore Company Formation – FAQs

  • How long will it take to register a UAE Offshore company?
A JAFZA Offshore company will take approximately 3 weeks to register.
  • Am I required to visit the UAE to register a UAE Offshore Company?
Yes. For a JAFZA Offshore Company, the shareholders and directors are required to sign in the presence of the authorities in Jebel Ali.
  • Is it possible to obtain UAE residency visa through a UAE Offshore company?
With the new implementing regulations for a JAFZA Offshore Company, it is possible for a Company which owns a property in a designated free hold area in the United Arab Emirates, but approval of such application is subject to the Authority’s eligibility requirements.
  • Can an Offshore Company lease office space in the UAE?
No. However, each company must have a registered address and can use this address to receive mail and perform other secretarial services.
  • Can I convert an Offshore Company to an Onshore Free Zone Company?
Yes, a JAFZA Offshore Company can be converted to a Free Zone entity, to be able to conduct business and trade in the U.A.E.
  • Am I required to have my bank account located in Dubai or can I have an international account?
UAE offshore companies are typically incorporated to utilize the local banking services and 0% rate of tax. However, it is possible for these companies to have accounts elsewhere in the world.

FTA WARNS BUSINESS OWNERS OVER VAT REFUND SCAM

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The UAE’s Federal Tax Authority has issued a warning to business owners to be wary of phishing emails from scammers.

The new scam came to light after emails were sent to customers of local banks requesting their personal banking details so that their VAT refund can be processed.

The Authority has revealed that some bank customers have received phishing emails “from unidentified sources impersonating banks and financial institutions and asking recipients to provide personal data” in order to help the businesses to recover the VAT refund from FTA. The personal data requested includes names, credit card numbers and bank account Personal Identification Numbers (PINs).

The Authority emphasized that the VAT refund process can only be performed by logging into the secure online portal which is available to each VAT registered individual and business.

The FTA added that the process is safely executed on the official portal by utilizing International Bank Account Number (IBAN) and that the system is under the authority of the Central Bank of the UAE.

In November last year, ENBD issued a similar statement warning its customers to be careful of such requests made by fraudsters.

The FTA has urged all business owners to remain vigilant and maintain confidentiality of their data.

It is important that all business owners seek advice only from reliable service providers.

Affiniax Partners has been providing Professional Services to its clients for over 25 years. We have a team of VAT specialists in the region who can assist you through the process. For more information, please contact us at mail@affiniax.com

PROCEDURE FOR VAT REFUND IN DUBAI – FOREIGN BUSINESSES

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The 6 months deadline for VAT Refund for Foreign businesses is expiring on 1 October 2019.

The refund scheme for the calendar year 2018 started from 2 April 2019.

For the calendar year 2019, the refund scheme will start from 1 March 2020 and will last till 31 August 2020.

As a special exception, the above timeline does not apply to foreign businesses registered in GCC countries.

Foreign Businesses must assess whether they fall under the criteria, and if they do, they can submit an application to the Federal Tax Authority (FTA) on a special form to claim a refund for any business-related UAE VAT incurred in the relevant periods. The FTA has defined the following criteria (among other parameters) for a foreign business to qualify for this scheme:
  1. No Place of Establishment or Fixed Establishment in the UAE
  2. Not a taxable person in the UAE
  3. Not carrying out business in the UAE (unless the customer applies RCM)
  4. Must be carrying on a business and registered for VAT in a foreign jurisdiction
  5. Minimum VAT amount claimable is AED 2,000
Some of the conditions where VAT is not refundable to foreign businesses are as follows:
  1. Input Tax is not recoverable as per FTA laws (e.g. non-business expenses)
  2. Foreign business is from a jurisdiction which does not provide similar refunds (except for GCC registered businesses)
  3. Non-Resident Tour Operators
Below are the list of countries where businesses may be eligible for this refund:
  • Austria
  • Bahrain
  • Belgium
  • Denmark
  • Finland
  • France
  • Kuwait
  • Iceland
  • Isle of Man
  • Lebanon – in certain circumstances
  • Luxembourg
  • Namibia – refunds only available for business goods that are exported and not for services consumed in the UAE.
  • Netherlands
  • New Zealand
  • Norway
  • Oman
  • Qatar
  • Saudi Arabia
  • South Africa – refunds only available for expenses relating to goods that are exported from a designated UAE port within 90 days and does not apply to services.
  • Sweden
  • UK
  • Zimbabwe
  • Switzerland
Affiniax Partners has a team of VAT specialists in the region who can assist you through the process. For more information, please contact us at mail@affiniax.com

TRANSFER PRICING AND UNITED ARAB EMIRATES

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Transfer Pricing (TP) is a practice that allows for pricing transactions internally within businesses and between companies that operate under common control or ownership, including cross border transactions.

The United Arab Emirates (“UAE”) joined the OECD Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”) on 16 May 2018.

Through joining the Inclusive Framework, the UAE has (for now) committed to implementing the following four BEPS minimum standards:

Action 5: Countering Harmful Tax Practices More Effectively, Considering Transparency and Substance

UAE Progress

The implementation of VAT in the UAE as of 1 January 2018 (which requires taxpayers’ registration with the UAE’s Federal Tax Authority and in doing so, furnishing information to a central tax administration agency) has allowed the UAE to make progress in this regard.

Action 6: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances

UAE Progress

It remains to be seen what approach the UAE may adopt in this respect.

Action 13: Transfer Pricing Documentation and Country-by-Country Reporting (“CbCR”)

UAE Progress

We do not yet have visibility as to whether the UAE will sign the CbCR MCAA or choose one of the other mechanisms for implementing CbCR. It is currently also unclear whether the UAE will adopt the OECD CbCR Model legislation or enact its own tailored legislation.

Action 14: Making Dispute Resolution Mechanisms More Effective

UAE Progress

Other jurisdictions such as Singapore, Netherlands and Luxembourg have signed up to the MLI to implement the MAP-related changes rather than enter into a bilateral renegotiation of their existing DTAs. It remains to be seen on the official approach the UAE may adopt in this respect.

Latest Developments

During the second week of March 2019, European Union governments updated a blacklist of tax havens this week, adding the United Arab Emirates.

Blacklisted states face stricter controls on transactions with the EU, although no sanctions have yet been agreed by EU states. Though, experts believe that such restrictions could include increased audit risks and denial of certain benefits.

Abdulaziz al-Ghurair, the banking group’s chairman, told reporters during a banking conference in Dubai. “I’m sure in the near future this will be solved.” “Because we have chosen to be an international financial center, we have to comply with the world’s regulations …” Al-Ghurair said. “We had issues like this in the past and they’ve been solved.”

Key Takeaways & opportunities

Whilst the UAE has only become a member of the Inclusive Framework on 16 May 2018, the UAE has already been making strides into ensuring its compliance with the four BEPS minimum standards through its participation in various Conventions issued by OECD that are designed to facilitate the implementation of the four BEPS minimum standards. Further, the UAE has already in place in its domestic rule’s certain information collection mechanisms.

As a next step, the UAE would need to review, update and put in place domestic legislation to comply with the minimum standards.

With several transfer pricing regulations going to be introduced in MENA over the next few years, this should be viewed as an opportunity to introduce a structured intra-group pricing framework to align with investment strategies and overcoming risks by implementing technology solutions that align with existing business systems.

A recent survey suggests that 82% of respondents agree that transfer pricing structures are under critical evaluation in the MENA region.

KINGDOM OF SAUDI ARABIA AND UNITED ARAB EMIRATES DOUBLE TAX TREATY – OFFICIAL PUBLICATION

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In its official gazette (Umm Al-Qura) the Kingdom of Saudi Arabia (KSA) on 1 March 2019 published its Double Tax Treaty (DTT) with the United Arab Emirates. This marks the first DTT among the Gulf Cooperation Council (GCC) countries. It is considered as the foundation for the accelerated cross-border trade between these two countries. The official notification on the UAE gazette for the treaty is still awaited which will ultimately set the DTT in force. The DTT will be effective on the first day of the second month in which UAE will issue the DTT in its official gazette.

The DTT was officially signed on 23 May 2018 between UAE & KSA. The DTT is in line with the Organization for Economic Co-operation and Development (OECD) Model Tax Convention. Both UAE and KSA resident individuals and companies will be subject to the provisions of the DTT.

Some important features of the treaty are as follows:
Permanent Establishment
The treaty follows the OECD definition for Permanent Establishment (PE) i.e. a fixed place of business through which the enterprise is engaged, in whole or in part.

Under the DTT, if services are carried out by an establishment of a Contracting State through employees in the other contracting state for a period of 183 days in a 12-month period, the establishment will be considered to have a PE in that other state.

Dividends: Dividends will be taxed in the source country, with a maximum 5% Withholding Tax rate (which is the current statutory Withholding Tax rate in KSA for dividends) if the recipient is resident of the other country.

Royalties: Royalties will be taxed at a maximum rate of 10% in the source country if the recipient is the resident of the other country. Which is a reduced rate (compared to 15% domestic rate of KSA).

Interest: KSA Withholding Tax on interest income will be exempt if the recipient is resident of another country, i.e. interest will be taxable in the source country (statutory rate of Withholding Tax on interest income in KSA is 5%).

Capital gains: Income derived by a resident of a Contracting State from immovable property situated in the other Contracting State will be taxed in that other country. Such that the income will be taxed in the country of origin. Disposal of shares will continue to be subject to KSA capital gains tax rate of 20% where appropriate.

Business Profits: The profits of an enterprise shall only be taxable in the source country unless the enterprise is carrying out business in the other Contracting State through PE. Accordingly, the income from services which are not delivered through PE in another country will be exempt from Withholding Tax in that country. The domestic Withholding Tax rates on business profits in KSA are between 5% and 20%.

If you wish to better understand the DTT and how it would affect your business or circumstances, Contact us at mail@affiniax.com Download: Unofficial Translation of Double Tax Treaty – KSA and UAE

IMPLEMENTATION OF CBCR IN UAE

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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

ViolationsPenalty
Failure to retain documentation for 5 years from the year of reportingAED 100,000
Failure to provide specified information to the MinistryAED 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 informationAED 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

OBTAINING TAX RESIDENCY CERTIFICATE FOR A COMPANY

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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.

VAT: IMPACT ON BUSINESSES IN BAHRAIN

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One of our resident VAT experts, Adnan speaks about how VAT can have an impact on businesses in Bahrain by highlighting the following key points:-

  • Impact on Revenue
  • Procurement and Input Tax
  • Contracts & Policies
  • Record Keeping, IT & ERP Systems
  • Compliances

He also emphasized that Affiniax can help in the following ways :-

  • VAT impact assessments
  • Advise on tax-efficient structuring/
  • Drafting of Sample Tax Invoices & Tax Credit Notes
  • Registering and filing VAT returns
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