Middle East Tax and Legal Newsletter

Middle East Tax and Legal Newsletter / July 2015
Country updates p2 / Regional indirect tax updates p11 / Impact of CRS p13 /
BEPS p14 / Double tax treaty updates p17 / Managing Global Mobility p19
Middle East Tax and Legal
Newsletter
In this edition, we highlight tax and legal updates as well as fiscal policy developments within the
Middle East region over the last 6 months.
Introduction
Over the last six months we have seen
significant developments from a taxation
and legal point of view across the region.
Egypt has seen substantive changes in
taxation and investment laws, with a near
term introduction of VAT still on the table.
Investment laws and company codes have
also been on the agenda in Kuwait, Qatar
and UAE. Saudi Arabia of course has
opened the Tadawul to foreign investors.
In addition, the practical impacts for
Middle East based groups from the G20
sponsored Base Erosion and Profit
Shifting project are becoming clearer.
Country by Country reporting, permanent
establishment rules and transfer pricing
are central to the issues all tax functions
need to be considering.
We hope you find this summary of key
developments helpful.
Dean Kern,
Middle East Tax and Legal Leader
T: +971 4 304 3575
E: [email protected]
www.pwc.com/me
Country Updates
Bahrain
Foreign Account Tax Compliance Act (“FATCA”)
The Central Bank of Bahrain (“CBB”) issued a circular on 29 August 2013 to the Chief
Executive Officers and Compliance Officers of all CBB licensees informing them that the
government of the Kingdom of Bahrain has decided to pursue a Model 1 intergovernmental
agreement regarding the US’s Foreign Account Tax Compliance Act (“FATCA”). To date, the
agreement has yet to be signed.
United States Free Trade Agreement
With effect from 1 January 2015 tobacco and alcohol products manufactured in the US
should be exempt from customs duty when imported into Bahrain according to the Bahrain
– United States Free Trade Agreement (“BH – US FTA”). However, the Bahraini competent
authorities still have not issued relevant instructions to confirm its application.
The customs duty exemption of US tobacco and alcohol products may have, if enforced,
significant effects on the local market, where non-US tobacco and alcohol products currently
face severe competition given the high customs duty rates applied on those products.
In practice, it is unclear if the provision in the BH – US FTA will be enforced, especially as
other FTAs signed by Bahrain such as the GCC Customs Union or the Greater Arab Free
Trade Agreement expressly exclude alcohol and tobacco products from the preferential
treatment. In any case, Bahrain specifically reserves the right to apply fees or excise charges
pertaining to the distribution, sale, or consumption of alcohol and tobacco products,
provided they are consistent with the terms of the BH – US FTA and the World Trade
Organisation (“WTO”) Agreement.
Egypt
Introduction of dividend withholding tax
During March 2015, the Egyptian government issued several amendments to the Egyptian
Income Tax Law including the introduction of a 10% withholding tax (“WHT”) on dividends
income and capital gains realized by resident and non-resident companies.
Capital gains tax suspension
Subsequently, on 18 May 2015, the Egyptian Cabinet of Ministers announced that the
application of the 10% non-resident capital gains tax on the sale of Egyptian shares will be
put on hold for 2 years, however the dividend WHT remains. This announcement came soon
after the executive regulations concerning the 10% withholding tax on dividend income and
the capital gains tax were published on 6 April 2015.
In addition, WHT on dividends paid to Egyptian resident recipients will become a final tax.
Details concerning the application of the announcement are expected to be issued shortly.
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Anticipated VAT introduction
As part of its five-year fiscal strategy launched in October 2014, Egypt is envisaged to shift
from the current Sales Tax system to a Value Added Tax (“VAT”) system, which is expected
to happen in the second half of this year.
The proposed VAT system would apply on a broader range of goods and services with
significant changes to the input VAT deduction and refund principles in alignment with
international standards.
There is still no certainty on a possible implementation date and we understand that the
Ministry of Finance is looking at introducing some amendments to the current sales tax law
as an alternative to the issuance of a new VAT legislation.
New Customs Law
The final draft of the Egyptian New Customs Law (“NCL”) has been finalized and is expected
to be released in the second half of this year.
According to press conferences held by the Egyptian Minister of Finance and the Head of the
Egyptian Customs Authority, the draft NCL is expected to toughen penalties on customs
violations and smuggling acts, and it will aim to enhance the control mechanisms at the ports
and limit smuggling attempts that harm the Egyptian national industry and local consumer.
The NCL will allow customs duty to be paid in instalments, subject to certain guarantees and
additional fees, and will allow release of goods prior to the payment of customs duty in
certain cases and in exchange of customs documents only.
The draft NCL suggests an increased collaboration of the public and private sector, including
the possibility for stakeholders to address inquiries to the Customs Authority regarding tariff
customs codes, international trade agreements, rules of origin, import and export controls or
the customs rules that should be applied on goods.
The objective of the NCL is to update the Egyptian customs rules and regulations, which date
back to 1963, aligning them with international best practice and the World Trade and World
Customs Organizations’ principles, guidelines and standards.
Amendments to the Egyptian Investment Law
The Egyptian Investment Law (“Law”) was first issued in 1997 aiming to attract foreign
investors to the Egyptian market. It provided simplified incorporation procedures and tax
and customs exemptions for companies established under its umbrella, and offered land
necessary for projects at attractive prices. The Law was amended on 12 March 2015,
introducing new incentives for investors.
Notable examples of the new incentives under the amended Law include reduced customs
duties and improved administration. For projects meeting certain criteria there is also the
possibility of reduced energy prices and social security costs, and low cost or even free land.
Executive Regulations (“Regulations”) concerning the Law’s application and providing
clarity on those areas where the Law is not detailed are expected shortly.
Iraq
New sales tax law
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A new sales tax law was issued early 2015 whereby a sales tax of 300% will be imposed on
alcohol and tobacco, 15% on travel tickets, 15% on cars, and 20% on mobile phone prepaid
cards and internet charges. These are in addition to services rendered by deluxe and first
class restaurants and hotels which were already subject to a 10% sales tax.
Jordan
New tax law
On 31 December 2014, the Jordanian government published a new tax law which became
effective on 1 January 2015. The key changes include amendments to individual and
corporate income tax rates, withholding tax rates and various tax administration changes
(including amendments to advance tax payments, fines and penalties and the abolishment of
thin capitalization rules).
In addition, executive regulations have been published providing: instructions for the
withholding of income tax; the methods of paying and remitting installments of income tax;
the mechanism of registering at the income tax department, information regarding
outstanding interest, murabaha and commissions and information on administrative
assessment decisions.
Kuwait
New Foreign Direct Investment Law
Following the introduction of the new Foreign Direct Investment (“FDI”) Law in June 2013
covering foreign investment in Kuwait, Executive Regulations have now been issued
concerning its application.
The new law offers foreign investors several incentives, including the ability to own or
increase ownership in a Kuwaiti company to 100% (normally restricted to 49%), to operate
through a 100% foreign owned branch, and to benefit from income tax and customs duty
exemptions.
The new FDI regime can be considered for both existing and new operations and
investments, except for sectors included in the “negative list” that was recently issued in
which foreign investment is prohibited or restricted.
Lebanon
New corporate income tax law
The new corporate income tax law, which has been in force since 22 April 2014, exempts
50% of the income earned from Lebanese industrial exports from corporate income tax
(“CIT”).
On 4 June 2015, a decision was issued allowing taxpayers entitled to the exemption who
already filed their CIT declaration for the fiscal year ending on 31 December 2014 to file an
amended CIT declaration to benefit from the exemption.
Lebanon – European Union Free Trade Agreement
The Lebanon – European Union Free Trade Agreement (“FTA”)) was fully implemented as of
1 March 2015.
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Since the enforcement of the FTA, most industrial and agricultural products manufactured
in Lebanon and imported into the EU are exempt from customs duty, except for certain
specified goods.
In addition, industrial products manufactured in the EU and imported into Lebanon are
exempt from customs duty from 1 March 2015. Certain EU goods such as wine or wood
crafting will still be subject to customs duty on import into Lebanon to protect the national
production.
Given the recent full implementation of the FTA, importers are recommended to confirm any
specific conditions imposed by the Customs Authority concerning the full application of the
FTA.
Libya
Potential new legislation
Due to the continued political uncertainty, there have been no significant corporate tax
developments in Libya since 2011. We are aware that the relevant authorities are drafting
new legislation with respect to the Income Tax and Petroleum Law; however there has been
no confirmation as to whether these drafts will become legislation.
Extended filing deadline
The tax department has extended the submission of tax returns for foreign companies for the
years 2012, 2013 and 2014 to 30 September 2015.
Oman
Tax authority practices
The Omani tax authorities have become noticeably more aggressive in recent months,
particularly with respect to withholding tax, assertion of permanent establishment status,
and transfer pricing adjustments.
Tax payers should ensure they have robust tax controls and that documentation and
information standards are sufficient to mitigate any arbitrary adjustments from the tax
authorities.
Assessment Cycle – Large Taxpayers
The authorities have made efforts to accelerate the assessment cycle, particularly within the
Large Taxpayer Unit (“LTU”) of the Omani tax authorities. Previously the assessment cycle
could extend to 5 years or more (the maximum statutory period for the issuance of tax
assessments). Now, large taxpayers can expect their assessments to be issued within 2 years.
Small and Medium Enterprises
The Government is showing an increasing interest in developing the Small and Medium
Enterprise (‘SME’) sector in Oman. The Ministry of Manpower recently issued Ministerial
Decision 103 of 2015 which exempts qualifying SMEs from Omanisation requirements for a
period of 2 years. In order to qualify, an SME must meet the following conditions:

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The employer owns the enterprise
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


The employer runs the enterprise on a full time basis
The employer is registered with the Public Authority for Manpower Register as an
employer, and:
The employer is insured with the Public Authority for Social Insurance
‘One Stop Shop’ – Ministry of Commerce and Industry
The Ministry of Commerce and Industry has established a ‘One Stop Shop’ (OSS) to expedite
the process of establishing companies in Oman, while also reducing costs and paperwork
requirements. The central feature of the OSS is a shared database within the e-Government
architecture. All applications and governmental processes involved in company registration
and approval are now possible online.
Qatar
Wage Protection System
There has been an amendment in the labour law which requires employee salaries to be paid
in Qatari Riyals and into a Qatari bank account. This is likely to impact arrangements where
salaries are currently partly paid to offshore accounts by parent entities.
Updates on Commercial and registration requirements for Qatar entities
The updates include the introduction of a more efficient application approval and appeal for
registering Qatari entities system. Appeals are now made directly to the Ministry of Economy
in the event of an unsuccessful application, where appeals previously would have to be
brought before the courts.
Other updates include higher penalties for non-compliance with the Commercial
Registration Law and changes to the minimum capital requirements of Qatar Limited
Liability Company.
Taxation of non-resident capital gains
There has been no change in the Qatar State tax law in relation to the taxation of capital
gains (including those realized by non-residents) however there have been some recent
changes in relation to the interpretation of the law and the associated practical aspects.
Non-residents are subject to Qatar income tax on gains that are "Qatar-sourced". Previously,
there was no established mechanism in place for the collection of tax on such gains. Due to
the introduction of an online tax filing system in Qatar, non-residents should now be able to
file a corporate income tax return and pay the respective tax.
Whilst the practical barrier has been removed, non-residents should still consider whether
they have realized Qatar-sourced income and hence are subject to capital gains tax and
related filing requirements.
Introduction of TAS (Tax Administration System)
The Qatar Ministry of Finance introduced a new Tax Administration System (“TAS”) with
effect from 28 September 2014. The TAS provides an electronic basis for taxpayers to comply
with their tax obligations (i.e. corporate income tax and withholding tax), and communicate
with the tax authority. The main objectives of introducing the new system are to modernise
and transform tax administration function, enhance the performance of the tax authority by
reducing processing time and increase transparency.
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The new TAS should increase scrutiny of violations of proxy laws and corresponding
disallowance of certain expenses such as commission and sponsorship fees which have
recently been subject to more challenges by the Qatari tax authorities. The tax authorities
consider that these payments are against the laws in Qatar (i.e. proxy law) and should
therefore be disallowable for tax purposes.
Qatar Financial Centre (“QFC”) updates
The QFC has recently introduced a number of changes to expand and strengthen its existing
regulatory and tax framework.
Similar to the Qatar State changes, the QFC has also introduced the Tax Administration
System for the entities in Qatar Financial Centre.
In addition QFC Authority has expanded the scope of its companies’ regulation and rules to
include limited by guarantee entities.
Saudi Arabia
Fees on unexploited land in KSA
On 23 March 2015 the government of Saudi Arabia announced measures to encourage the
development of “unexploited” lands. These measures will take the form of a fee imposed on
the landholder. The details for the calculation of the fee, the application date and the land it
applies to are yet to be published.
Opening of the Tadawul to foreign investors
The Saudi Arabian Capital Market Authority (CMA) has announced that Qualifying Foreign
Financial Institutions (“QFIs”) will be allowed to invest in shares listed on “Tadawul”.
Shortly thereafter, the Department of Zakat and Income Tax (“DZIT”) issued a memo on the
WHT obligations of listed Saudi Joint Stock Companies.
QFIs will be allowed to invest in shares listed on “Tadawul” from the 15th June 2015.
Previously, foreign investors could only buy and sell shares listed on “Tadawul” indirectly
through “swap arrangements” using registered Saudi brokers.
It is advisable for potential QFIs to begin planning their entry into the Saudi Stock Market
from a tax perspective, and for Saudi listed companies to assess if the change in capital
markets regulations may affect their tax/zakat status. More detail on this matter will be
provided once the CMA regulations are issued.
In relation to the above, the DZIT issued a memo confirming that the obligation to withhold
tax on dividends paid to foreign investors will be the responsibility of the Joint Stock
Companies as per the Saudi tax law.
DZIT guidelines on Permanent Establishments
The Department of Zakat and Income Tax (“DZIT”) has issued “virtual PE” guidelines to its
branches and divisions when processing withholding tax (“WHT”) refund claims filed by
non-residents who do not have a legal registration or PE in KSA. The guidelines contain
positions which are not consistent with accepted international interpretation and application
of the permanent establishment (“PE”) concept under double taxation treaties.
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The DZIT has ruled that a non-resident party providing services in KSA under a contract that
meets or exceeds the duration threshold (e.g. 183 days in any 12-month period) as per the
relevant double tax treaty with KSA has a taxable PE in KSA, regardless of whether the
services are physically rendered in KSA.
The Preliminary Appeal Committee (“PAC”) has rejected this position although The DZIT
has now filed an appeal with the Higher Appeal Committee (“HAC”) against the PAC’s ruling.
Non-resident service providers should consider the “virtual PE” issue and associated
implications when claiming KSA WHT relief under double tax treaties.
KSA Compliance Gate program
Following the efforts made by the World Customs Organization and its members to
harmonise and facilitate trade in a safe environment across the globe, the Customs Authority
of the Kingdom of Saudi Arabia (“KSA Customs”) has introduced the Compliance Gate
program, also known as the Authorized Economic Operator (“AEO”) program. The AEO
program is an attempt to increase the voluntary compliance with the customs rules and
regulations to enhance the security of the international supply chain.
Based on discussions with KSA Customs, it is expected that the program at this initial stage
will be limited to importers and exporters who are engaged in significant international trade
activities. In a later stage, all parties in the international supply chain who interact with the
KSA Customs may apply for the program.
The KSA Customs have issued certain conditions and criteria an importer/exporter must
meet in order to be able to apply for the AEO program, and provides for three categories of
AEO benefits that include release of shipments following reduced inspection procedures and
time required to clear the goods, priority in obtaining customs facilities, provision of latest
customs procedures and updates, assignment of a customs service liaison officer and other
benefits that are additionally granted according to the category applied for.
The AEO program is expected to bring considerable benefits to importers and exporters that
would contribute to the enhancement of their supply chains’ security and to the facilitation
of their customs transactions within KSA. The KSA Customs has not confirmed the exact
official launching date, as the local AEO regulations and requirements are still being
developed.
United Arab Emirates
New UAE Commercial Companies Law
After years of speculation regarding an overhaul of commercial companies law in the UAE,
Federal Law No. 2 of 2015 concerning Commercial Companies (“New CCL”) will come into
force on 1 July 2015, replacing the existing Federal Law No. 8 of 1984 concerning
Commercial Companies (“Old CCL”).
All companies are required to amend their existing memoranda and articles of association to
reflect, and comply with, the changes introduced by the New CCL, and any companies that
fail to make the requisite amendments by 30 June 2016 will be automatically dissolved. This
list highlights 10 key changes in the New CCL which will affect all types of companies
operating in the UAE.
i.
Holding companies – LLCs and JSCs are now permitted to be established as holding
companies in order to conduct business activities solely through their relevant
subsidiaries (article 266 of the New CCL).
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ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
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Companies Registrar – The Minister of Economy shall issues a regulation setting out
the activities and functions of the Companies Registrar. In particular, the Companies
Registrar shall supervise the trade name register (to avoid double registration), hold
company records and enable concerned parties to inspect the relevant company
records (articles 33 – 38 of New CCL).
Accounting requirements – All companies are required to keep accounting records at
their relevant head offices for a minimum period of five years (article 26 of New
CCL). In addition, all companies shall apply international accounting standards and
practices when preparing their relevant accounts in order to give a clear and accurate
view of the profit and loss of the relevant companies.
Free zone companies – Generally, the New CCL shall not be applicable to free zone
companies. However, if the laws of the free zone permit certain free zone companies
to operate outside the relevant free zone (i.e. onshore), then the New CCL shall be
applicable to such free zone companies (article 5 of New CCL).
Sole shareholder – Subject to the foreign ownership restrictions, one natural person,
or corporate entity, may be the sole shareholder of a LLC (article 71 of the New CCL),
and one corporate entity may be a sole shareholder of a Private JSC (article 255 of the
New CCL).
Share pledges – Shareholders in LLCs are now permitted to pledge their shares, and
such pledges must be made in accordance with the company’s memorandum and
articles of association, and be notarized. Such pledges shall only be valid (against the
company and/or relevant third parties) from the date of its entry on the commercial
register (article 79 of New CCL).
Valuation of shares for non-cash consideration – The New CCL stipulates the
valuation of shares can be assessed in kind either by:
(a) Agreement with all of the shareholders, and subject to the approval of the DED; or
(b) By a financial consultant approved by DED (article 78 of New CCL).
Share capital (Public JSC and/or Private JSC) – Key changes under the New CCL
include:
(a) Only 30 per cent. of a Public JSC’s share capital must be offered to the public in
an IPO, and the New CCL also stipulates that the Securities & Commodities Authority
may issue resolutions concerning underwriting and / or book-building activities
(articles 117, 123 and 129 of New CCL);
(b) Minimum share capital of AED 30 million for a Public JSC (article 193 of New
CCL), and minimum share capital of AED 5 million for a Private JSC (article 256 of
New CCL);
(c) A Public JSC may have an authorised share capital not in excess of twice the
issued share capital (article 193 of New CCL);
(d) More than one class of shares is now permitted as the Federal Cabinet may issue a
resolution determining rights, obligations and conditions of different classes of
shares (article 206 of New CCL); and
(e) JSCs and their subsidiaries may not provide financial assistance to any
shareholder to hold shares, bonds and sukuk issued by the company (financial
assistance includes loan, gifts, donations, company’s assets as security or provision of
security / guarantee of the obligations of another person) (article 222 of New CCL).
Protection of minority shareholders – New measures introduced by the New CCL
include:
(a) Subject to the consent of board of directors / managers and general assembly of
the company, a Public JSC may not undertake transactions, with related parties, of a
value in excess of 5 per cent. of the share capital of such company (article 152 of New
CCL);
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x.
(b) Shareholders with 5 per cent. or more of a Public JSC may apply to the Securities
& Commodities Authority and / or a competent court claiming that the affairs of the
company are, or have been, conducted to the detriment of any of the shareholders
(article 164 of New CCL); and
(c) Voiding any resolutions passed for, or against, a certain class of shareholders, or
to bring a special benefit to a related party, without consideration of the interests of
the Public JSC as a whole (article 170).
Auditors’ rotation – All Public JSCs must have one or more auditors nominated by
the board of directors / managers, and approved by the general assembly of the
relevant company. In addition, the general assembly may appoint one or more
auditors for one renewable year, provided that such term does not exceed three
successive years (article 243).
Foreign Account Tax Compliance Act
The UAE, represented by the Ministry of Finance, has announced the signing of a Model 1
inter-governmental agreement with the US to facilitate the implementation of the FATCA.
The law requires foreign financial institutions to submit reports directly to the US Treasury
Department or via the UAE government, providing information about financial accounts
held by US persons or by UAE companies which have any US shareholders owning more
than 10% of the company.
Under the intergovernmental agreement, the first report, for 2014, must be submitted to the
United States by September 30, 2015.
The Dubai Technology and Media Free Zone Authority ("DTMFZA") re-branded
The Dubai Technology and Media Free Zone Authority ("DTMFZA") has re-branded by
changing its name to "Dubai Creative Clusters Authority" ("DCCA") under Law No. 15 of
2014 concerning the Creative Clusters in the Emirate of Dubai. The name change reflects the
free zone's intention to lead the development of creative industries in Dubai to support the
Dubai Strategy for Innovation. The authority hopes to develop the creative industry in Dubai
by promoting innovation and attracting talented individuals within the field.
The DCCA will continue to be responsible for licensing, visa and zoning regulations for all
the free zones that previously fell under the DTMFZA.
Jebel Ali Free Zone - Minimum share capital requirement
Until now, the rules governing the Jebel Ali Free Zone have required companies to deposit a
minimum share capital of AED 1,000 if the company is to be owned by one shareholder, and
AED 500,000 if the company is to be owned by 2 or more shareholders (up to a maximum of
5 shareholders) at the time the company is being set up and before the final trade license is
issued. From recent discussions with the Jebel Ali Free Zone Authority, we understand that
the free zone authority have relaxed these requirements, both in terms of the minimum
share capital and the time when it needs to be deposited. As regards the former (the
minimum amount of share capital), JAFZA appear to have adopted the same position as that
applied by the Dubai Department of Economic Development who impose no specific
minimum but, rather require that the share capital be sufficient to meet the company's
requirements on a case by case basis. Since these changes are still new, we recommend that
this is confirmed with the authorities at the time of incorporation.
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Regional indirect tax updates
GCC
Introduction of VAT
The GCC countries have been discussing the possible implementation of a VAT system for
some time now and they seem to have recently reached an agreement on a common
framework to introduce VAT. The recent drop in oil prices as well as other current economic
and political circumstances may have led to a further push to introduce VAT.
While it seems that there is an agreement on a common GCC VAT framework, each GCC
country would need to issue national legislation in application of this framework. There has
not been any official announcement confirming a VAT implementation date.
Introduction of Excise Duties
The GCC countries are also considering the introduction of excise duties. As in the case of the
potential introduction of a VAT system, there has been no official announcement to
introduce excise duties in the near future. We understand that excise duties may potentially
be imposed on tobacco, alcohol, and other products that the GCC authorities may consider
harmful for the human health or the environment protection.
Implementation of the GCC-Singapore Free Trade Agreement
The GCC-Singapore FTA aims to reduce or eliminate trade barriers and facilitate the cross
border movement of goods and services between the GCC and Singapore.
The FTA was entered into force on 1 September 2013. However, only the Dubai Customs
Authority and The Qatari Customs Authority have formally confirmed the practical
implementation of the FTA as of 1 January 2015.
In order to qualify for the preferential tariff treatment under FTA, goods must meet the rules
of origin requirements as well as the so-called direct consignment rule, which requires direct
transport of goods between the two parties, or transport through a third territory under
certain conditions.
Given the recent implementation of the FTA, importers are recommended to ensure that the
local customs authorities involved in the transactions in each of the GCC countries are a
position to accept the preferential duty treatment for goods originating in Singapore.
The GCC-European Free Trade Association Free Trade Agreement
The GCC-European Free Trade Association (“EFTA”) FTA entered into force in July 2014
and covers a broad range of areas including trade in goods, trade in services, government
procurement and competition.
Since the entry into force of the FTA both parties have been working to solve the problems
associated to the practical implementation of the Agreement. The GCC countries earlier this
year had set 1 July 2015 as the implementation date for the FTA.
Trade between the GCC and EFTA countries is expected to increase further with the
implementation of this agreement, benefitting the exchange of goods and services among ten
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countries. Over the last five years, trade between EFTA and the GCC countries has increased
by an annual average of 9%.
Introduction of the GCC Unified Guide for Customs Procedures at First Points of Entry
As part of the efforts to complete the implementation of the GCC Customs Union, the
Customs Affairs Department of the Division of Economic Affairs of the GCC Secretariat
General has recently issued the GCC Unified Guide for Customs Procedures at First Points of
Entry. The Guide is applied as of 2015 across all the GCC first points of entry, and aims to
facilitate and harmonize the customs procedures across the GCC Customs Union. This
document is a step forward towards the full implementation of the GCC Customs Union.
We understand that the application of the Guide may not achieve the full alignment of all
customs procedures and formalities across the GCC States with an immediate effect as
importers and exporters may still face some discrepancies when completing customs
formalities at the different GCC borders.
Arab League
Arab Customs Cooperation Agreement
The Customs Directors of the Arab countries held their 34th meeting on 5 May 2015 and
agreed on, among other topics, the Draft Arab Customs Cooperation Agreement
(“Cooperation Agreement”). The Customs Directors requested that the Arab League submit
the Agreement to the Arab Finance Ministers for approval and further ratification from the
member countries.
The Cooperation Agreement will allow for exchange information related to importers and
exporters of record, customs values, customs classification and origin of goods. In addition,
customs administrations will be able to request from the other customs administrations
copies of customs documentation related to any shipment took place between the parties.
In view of the increased collaboration anticipated among the Arab customs authorities,
businesses should expect increased scrutiny of their international trade transactions and an
additional burden to ensure compliance with the customs laws and regulations applicable in
the Arab countries.
Tripartite Free Trade Agreement
On 10 June 2015 the Eastern African Community (“EAC”), Common Market for Eastern and
Southern Africa (“COMESA”) and Southern African Development Community (“SADC”) met
in Egypt and launched the largest Free Trade Area Agreement in the continent, with 16
countries having now signed.
The agreement includes 26 member states and has access to 626m consumer. The aim is to
promote the intra-regional trade among the African countries by bringing together three of
Africa’s major regional economic communities.
The actual implementation process of the agreement is expected to be challenging given the
scope and the lengthy process that it may take to agree on the outstanding issues. The
agreement representatives are yet to discuss and agree on a significant number of matters,
including the elimination of import duties, trade remedies and rules of origin.
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Impact of Common Reporting Standards (“CRS”) on
the Middle East
The common reporting standard is a framework between governments to exchange
information obtained from local financial institutions to combat tax evasion.
CRS is inspired by the FATCA Model 1 Intergovernmental Agreement; however, the rules
and requirements are different. For example:
i.
ii.
iii.
For due diligence for individual accounts, there are no individual thresholds
exemptions, widening the population in scope.
There is no penalty for non-compliance, such as the 30% withholding on withhold
able payments existing under FATCA.
The concept of Responsible Officer doesn’t exist and the information to be reported is
different as CRS focuses on identifying the tax residency of account holders and not
nationality.
The CRS came into force in October 2014 under the OECD global forum where more than 50
early adopters committed to be compliant with CRS policies and procedures to be CRS from
1 January 2016 and meet the first reporting deadline in 2017.
Governments joining CRS will need to put in place the framework allowing the exchange of
information with other governments if not already existing, commit to CRS and to the
exchange of information with other joining governments under CRS.
Once governments are committed to the standards, local financial institutions in joining
countries will need to identify account holders’ tax residency in order to identify which
accounts are reportable accounts under CRS.
Information on individual accounts and certain entity accounts and their controlling persons
should be transmitted to the local tax authority, which, in turn, will transmit the information
to the jurisdictions where the account holder resides.
In the Middle East, CRS will have an impact on the financial institutions in the region as
some countries within the region already committed to CRS, with Qatar, Saudi Arabia and
the United Arab Emirates having joined the second waive with new procedures to be
implemented in 2017 and the first reporting to be done in 2018. Bahrain committed to CRS
without committing to a specific timeline yet.
Financial Institutions in non CRS countries having subsidiaries or branches in countries that
have committed to CRS will also be impacted. They will need to make sure that their related
entities will be CRS compliant.
Financial institutions should take the time to consider the following points on how they may
be affected by CRS:
i.
ii.
iii.
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What is the budget needed to be compliant?
Do we have the adequate resources?
When should we start?
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Base erosion and profit shifting (“BEPS”)
BEPS updates
There has been continued focus by the OECD on the BEPS agenda, and the expectation is
that all 15 Action’s will be completed by December 2015.
The BEPS project is likely to spur the most significant changes to the taxation of
international business in nearly 30 years. Multinational companies may see an increased tax
burden around the world, and there’s a strong likelihood that rule changes will affect the
optimal structure for companies’ global operations. While the OECD BEPS project will be
finalizing recommendations through December 2015, some countries have already begun
implementing changes to their tax systems. Companies will need to begin assessing the
impact on business operations now.
During the last 6 months, the OECD has issued further discussion drafts with respect to the
action points below.
Action 3: Strengthening Controlled Foreign Company regimes (draft issued on 1 May 2015)
Controlled Foreign Company (“CFC”) rules look at the taxation of foreign income, derived
directly or via a foreign subsidiary. There are CFC regimes in all G20 member states;
however the OECD has done little work on this area in the past.
The draft discussion draft sets out the recommended domestic rules to counter profit shifting
to low taxation jurisdictions. There are suggestions that countries could introduce further
rules which may apply to income earned by CFC s that did not give rise to sufficient CFC
taxation in the parent jurisdiction.
The additional rules would introduce a secondary form of taxation in another jurisdiction.
These considerations are being looked at as part of Actions 8-10 (transfer pricing).
Action 4: Interest deductions (draft issued 6 February 2015)
In action 4 of its BEPS Action Plan, the OECD seeks to target a broad range of what it
describes as ‘excessive’ interest and other financial payments.
The OECD has not reached a conclusion on how to limit all ‘excessive’ interest deductions
but has proposed two general rules:
i.
ii.
Group-wide interest allocation or ratio approach
A fixed ratio test operation to restrict interest expenses to a specified proportion of a
company’s earnings, assets or equity.
Action 6: Treaty abuse (draft issued on 22 May 2015)
According to the OECD, it is inefficiencies in tax treaties that have triggered double nontaxation in a number of situations. The OECD plans to develop model treaty provisions and
recommendations for domestic law measures to counter the granting of treaty benefits in
what it refers to as 'inappropriate circumstances'.
Current considerations include:
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i.
ii.
An anti-abuse rule is under consideration based on the limitation of benefits
provision currently included in most US tax treaties. This rule would focus on
sufficient presence in a country and would operate based on the nature, ownership,
and general activities in a country.
The OECD are currently looking at whether to include a ‘derivative benefits’ clause to
allow a treaty country to look through to the shareholders where they would also be
entitled to benefits under a treaty.
Action 7: Permanent Establishment status (draft issued on 15 May 2015)
More countries have recently been challenging overseas companies on the presence in their
jurisdiction of a Permanent Establishment (“PE”).
The updated draft discussion reflects comments provided to an earlier draft. The proposed
changes include:
i.
ii.
Commissionaire arrangements - broadening the current recognition of the conclusion
of contracts to include wider negotiations and extending it beyond those carried out
in the name of the enterprise to those on the account and risk of the enterprise, with
exclusions for independent agents only where they act for a wider group of people.
Issues relating to the specific activity exemptions - including the operation of the
“preparatory or auxiliary” test and the ability of companies to fragment activities.
Action 8: Hard to value intangibles (draft issued 4 June 2015)
The revised discussion draft on transfer pricing aspects of intangibles shows the direction in
which the OECD had been travelling even before the BEPS Action Plan was published. The
ultimate goal of the OECDs approach seems to be that functional value creation remains the
key, with an analysis of the group global value chain to show how intangibles interact with
other functions, risks and assets.
The revised guidance takes into account public comments in December 2014, explains the
difficulties faced by tax administrations in verifying the arm’s length basis on which pricing
was determined by taxpayers for transactions involving a specific category of hard to value
intangibles.
The Discussion Draft also proposes an approach based on the determination of the arm’s
length pricing arrangements, including any contingent pricing arrangements, which would
have been made between independent enterprises at the time of the transaction. This
approach is applied when specific conditions are met and it is intended to protect tax
administrations against the negative effects of information asymmetry.
Action 13: Country by country reporting (draft issued 8 May 2015)
Action 13 is aimed at re-examining the transfer pricing documentation requirements and in
particular providing for more information from taxpayers.
On 8 June 2015, the OECD released a "Country-by-Country Reporting Implementation
Package." The package includes model legislation the OECD suggests could be used by
countries to mandate filing of country-by-country reports. The model legislation does not
attempt to address the filing of the so-called master file or local file reports. The
implementation package also includes three model competent authority agreements that
could be used by each country, depending on how it intends to effect exchange of country-bycountry reports.
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Action 14: Dispute resolutions (draft issued 16 January 2015)
The goal of action 14 is make dispute resolution mechanisms more effective. As it is unlikely
that there will be a general consensus on binding arbitration, a three tiered approach has
been suggested for mutual agreement procedures (“MAP”):
i.
ii.
iii.
political commitments to effectively eliminate taxation not in accordance with the tax
treaty in question
a monitoring mechanism (peer review by competent authorities) to ensure proper
implementation of the political commitment
new measures to improve access to MAP
BEPS impact
Whilst all 15 Actions of the OECD’s BEPS agenda are likely to have a significant impact on
doing business in the Middle East, we have highlighted below some key expected effects of
Action 11 (Country by Country Reporting) and a process companies might consider
undertaking concerning Action 7 (Permanent Establishment Status).
Country by Country Reporting
The additional reporting requirements of Action 11, Country by Country Reporting (“CbCR”)
is the targeted collecting and analysing data on BEPS, and to focus on actions to address this.
Whilst the CbCR packaged released on 8 June including model legislation and other details
did not address all of questions outstanding including the data requirements, the current
OECD thinking on important areas have been set out - such as how multi-national groups
should report (e.g. which entity will be expected to file the CbCR). The diagram below shows
what reporting requirements are likely to be required once BEPS has been fully implemented
encompassing CbCR, together with the so-called local and master files.
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Permanent Establishment Status
More countries have recently been challenging overseas companies on the presence in their
jurisdiction of a Permanent Establishment (“PE”). The illustration below highlights what
actions can be taken now to manage future potential tax exposures.
Please follow the link to PwC’s global BEPS webpage to read more.
Double tax treaty updates
The following double tax treaties have been ratified or brought into force since the start of
the year:
Countries
Dates
Key information
Oman :
Switzerland
Ratified on 22
May 2015.
Under the treaty, dividends are taxable at 5 percent if
the beneficial owner is a company (other than a
partnership) that directly holds at least 10 percent of the
payer's capital.
Due to be
brought into
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Countries
Dates
Key information
force on 1
January 2016.
In all other cases, the maximum rate is 15 percent.
Interest is taxable at a maximum rate of 5 percent, and
royalties are taxable at a top rate of 8 percent.
To become generally effective for tax years commencing
after the DTA comes into force. To become effective for
WHT for amounts paid or credited after the DTA comes
into force.
To become effective 1st day of January following the date
the DTA comes into force
The agreement applies to taxes on income imposed by
either country.
Oman :
Spain
Approved by
Spanish Senate
on 27 May 2015
Oman :
Portugal
Bahrain :
Cyprus
Signed 27 April
2015
Brought into
force 9 March
2015
In Cyprus, this includes income tax, corporate income
tax, Special Contribution for Defence (SDC tax) and
capital gains tax.
Bahrain : Sri
Lanka
Brought into
force 11 July
2014
Bahrain :
Belgium,
Hungary
and Sudan
KSA :
Portugal
Treaties signed
but not yet
brought into
force
Treaty signed
but not yet
brought into
force
Qatar : Fiji,
The
Gambia,
and Latvia
Brought into
force on 1
January 2015
Qatar :
Kenya
Qatar :
Ecuador
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Ratified on 25
May 2015 by
Qatar.
Due to be
brought into
force on the date
of the later of
ratifications.
Ratified on 14
April 2015 by
Qatar.
The agreement closely follows the 2010 OECD Model
Tax Convention.
The agreement applies to taxes on income imposed by
either country.
The agreement closely follows the 2010 OECD Model
Tax Convention.
The treaties will enter into force after exchange of
ratification instruments.
Officials from Portugal and Saudi Arabia signed an
income tax treaty on April 8 in Lisbon, according to a
Portuguese government release. The treaty is the first
agreement of its kind between the two countries. It will
enter into force after exchange of ratification
instruments.
Dividends and interest will be taxable only in the
beneficial owner's state of residence, other than for the
Latvia treaty where they are exempt if the beneficial
owner is a company other than a partnership.
Royalties will be taxable at a maximum rate of 5 percent.
Both countries generally use the credit method for the
elimination of double taxation.
Under the treaty, dividends are taxable at 5 percent if
the beneficial owner is a company (other than a
partnership) that directly holds at least 10 percent of the
payer's capital.
In all other cases, dividends, interest and royalties will
be taxable at a maximum rate of 10 percent. Both
countries generally use the credit method to eliminate
double taxation.
Dividends are taxable at a maximum rate of 5 percent if
the beneficial owner is a company that holds at least 10
percent of the voting stock of the payer company.
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Countries
Qatar :
Kyrgyzstan
Qatar :
Kazakhstan
Dates
Due to be
brought into
force on the date
of the later of
ratifications.
Ratified on 14
April 2015 by
Kyrgyzstan
Due to be
brought into
force on the date
of the later of
ratifications.
Ratified on 30
January 2015.
Brought into
force 30 days
after the date of
the later of
ratifications.
Key information
In all other cases, dividends, interest and royalties will
be taxable at a maximum rate of 10 percent. Ecuador
uses a modification of the credit and exemption methods
for the elimination of double taxation, while Qatar uses
the credit method.
Under the treaty, dividends and interest are taxable only
in the recipient's state of residence.
Royalties are subject to a 5 percent withholding tax rate.
Both countries generally apply the credit method to
eliminate double taxation.
Dividends are taxable at a top rate of 5 percent if the
beneficial owner is a resident that directly holds at least
10 percent of the capital of the payer company.
In all other cases, dividends, interest and royalties will
be taxable at a maximum rate of 10 percent. Both
countries apply the credit method to eliminate double
taxation.
Managing Global Mobility
The changing nature of mobility
Based on a global PwC survey of mobility professionals representing 193 organizations, the
nature of mobility is changing but still the need exists to effectively manage compliance and
other risks. The survey considered the mobility challenges currently faced and priorities over
the coming two years ahead.
Middle East view
A number of Middle East headquartered companies participated in the survey and the key
insights for local companies in the region include:

Many Middle East companies are doing very little to effectively manage their globally
mobile employees. As a result, they can be unaware that their internationally mobile
employees are often exposing them to unnecessary compliance risks and tax costs in
overseas locations

Organizations that do have structured global mobility program are using them as part of
a talent management program. Overseas experience is viewed as vital for developing
future leaders and often forms part of their nationalization program

The HR technology platforms currently being used by organizations do not adequately
support or provide meaningful data to manage the globally mobile workforce
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
Employers want to be able to understand the real costs of global mobility and to
demonstrate the value that the global mobility program delivers to the company
Here’s a preview of three of the global findings from the survey:
1. Mobility activity is increasing and becoming more diverse
Companies say they plan to move more people to more locations, with short term and
business traveler moves seeing the biggest increase in use. The most common new types of
mobility that will be adopted are talent swaps, developmental, strategic and local plus moves.
2. Mobility teams want and need to become more strategic
Over the next two years mobility teams need to shift their focus from day-to-day,
transactional activities to undertake a more strategic role. But this isn’t without challenges.
With mobility set to increase, yet only 8% able to accurately quantify costs today and over
30% not sure how many mobile employees they have, a transformation of operations,
processes, policies and systems will be required in order to get the basics right in a
sustainable way.
3. ‘High tech, high touch’ approaches can put you ahead of the game
Over the next two years mobility teams want to use metrics and innovative technology to
support the assignee experience more effectively. Companies who are leaders in mobility are
using these new technologies to the best of their ability, while securing the right buy-in and
aligning more closely to business goals.
Download your copy of the findings in our report, Modern mobility: Moving people with
purpose here.
**********
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Further information
Please follow the link to PwC’s Middle East Tax and Legal news webpage to access all the
latest updates and webcasts.
Our services
PwC helps organizations and individuals create the value they’re looking for. We’re a
network of firms in 157 countries with more than 195,000 people who are committed to
delivering quality in assurance, tax and advisory services.
Established in the Middle East for 40 years, PwC has firms in Bahrain, Egypt, Iraq, Jordan,
Kuwait, Lebanon, Libya, Oman, the Palestinian territories, Qatar, Saudi Arabia and the
United Arab Emirates, with over 3,000 people.
We provide a comprehensive set of services covering
 Assurance and Audit
 Consulting
 Deals
 Family business
 Tax and Legal
PwC Tax and Legal
The Middle East Tax practice offers expertise in jurisdictions across the region with over 500
staff. We can provide assistance with the following areas:
 Indirect taxation (VAT, customs and international trade) and fiscal reform
 International taxation
 Global mobility and Human Resource Services
 Legal services
 Mergers and acquisitions / private equity
 Services for U.S. citizens and Green Card holders
 Tax and Zakat advisory
 Tax compliance, management and accounting services
 Transfer pricing
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Let’s talk
For a deeper discussion of how any of these issues might affect your business, please contact:
PwC’s Middle East country leaders
Ebrahim Karolia, Bahrain
+973 1754 0554
[email protected]
Russel Aycock, Oman
+968 2455 9122
[email protected]
Abdallah El Adly, Egypt
+20 2 2759 7700
[email protected]
Wael Saadi, Palestinian territories
+970 532 6660
[email protected]
Stephan Stephan, Iraq & Jordan
+962 6 500 1300
[email protected]
Neil O’Brien, Qatar
+974 4 419 2812
[email protected]
Sherif Shawki, Kuwait
+965 2227 5777
[email protected]
Mohammed Yaghmour, Saudi Arabia
+966 2 667 9077
[email protected]
Wadih AbouNasr, Lebanon
+961 5 428 600
[email protected]
Jochem Rossel, United Arab Emirates
+971 4 304 3445
[email protected]
Husam Elnalli, Libya
+218 21 3609830/32
[email protected]
PwC’s Middle East specialist network leaders
Dennis Allen, HRS / Global Mobility
+ 974 4419 2830
[email protected]
Leonie Kerswill, Private clients
+971 4 304 3084
[email protected]
Jochem Rossel, M&A / International
Tax
+971 4 304 3445
[email protected]
Scott Hamilton, M&A Private Equity
+971 4 304 3039
[email protected]
Jeanine Daou, Indirect tax / Fiscal
Reform, Customs
+971 4 304 3744
[email protected]
Mohamed Serokh, Transfer Pricing
+971 4 304 3956
[email protected]
Waseem Khokar, Legal
+971 4 304 3181
[email protected]
Ron Barden, Tax Reporting & Strategy
+971 4 304 3129
[email protected]
© 2015 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate
legal entity. Please see www.pwc.com/structure for further details. This publication has been prepared for general guidance on
matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this
publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the
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