SLG Newsletter: June – July 2021

Dear Friends and Clients,

After delays and some waiting time, the first guideline has been published in Dubai on how to apply for the advantages of the new direct investment rules. Also the first companies have already been established in the UAE mainland with 100% foreign participation. Among them a hotel, kindergartens, primary schools, jewelry and watch stores as well as general trading companies.

But this law number 26 of 2020 offers much more than just the 100 percent ownership in onshore companies. So foreign companies can establish branches in mainland UAE without the necessity of a service agent. This advantage also applies to free zone companies opening mainland branches.

There are bad news for our German readers. The Federal Republic of Germany has informed in a diplomatic note to the government of the UAE, that the current double taxation agreement which expires at the end of 2021 will no longer be extended. As we all know this double taxation agreement had already brought only relatively few advantages to the German taxpayers but also these few advantages may be extinguished at the end of the year. I will report on this in more detail in our next newsletter.

The future of the UAE lies in renewable energy. The UAE has a 2050 strategy to produce half its power from renewables and nuclear energy, and is forging ahead with plans to reduce consumption in both electricity and water. We succeeded in winning as a client a first investor who plans to build a solar power plant for the production of hydrogen in the desert of Ras al Khaimah. In a first step, a test facility will be built. The experiences gained from this shall be used to build large-scale plants. We look forward to the new opportunities in this area. Our new senior lawyer in the office in Ras al Khaimah, Dr. Paul Nimmerfall, is about to complete his studies of renewable energy at the technical university of Vienna so we have not only (another) highly educated lawyer but also an expert in this promising field in our team.

Thailand tried to cope with the Covid crisis by introducing new investment laws. The crisis led to the loss of hundreds of thousands of stores, restaurants, hotels, and other tourism businesses, as well as millions of unemployed people. Foreign investors are offered special incentives such as long term visas, 100% foreign owned companies, owning real estates and a low taxation of 17% (same as in Singapore).  This makes Thailand, the second largest economy in the ASEAN region, attractive not only for retirees and tourists. Although the wages are higher than in some other Asian countries, the Thai people are highly praised for their diligence and perseverance at work and therefore also a popular workforce.

Never mind if you start or continue your business in the Middle East or set foot in Thailand, Singapore or Cambodia, we are here for you in both parts of the world.

Wishing you a moderate heat in Arab and a not too wet rainy season in Far East, I remain.

Yours,
Theodor Strohal

100% Foreign ownership in commercial companies

Dubai Economy has issued guiding principles clarifying the procedures for full ownership for foreign investors that started since June 1, in accordance with the Federal Decree-Law No. (26) of 2020 regarding ownership of commercial companies. As per the guidelines published by Dubai Economy on its website, 100 percent foreign ownership is available for more than 1,000 commercial and industrial activities, excluding economic activities with a strategic impact, which are in seven sectors only.

The full list of activities open for 100 percent foreign ownership can be viewed on: https://ded.ae/DED_Files/ded_other/Full_Foreign_Ownership_Activities.pdf.

A total of 59 investors in Dubai have already taken advantage of the new rules. The commercial activities in which full ownership was sought include general trade, contracting, jewelry, gold, pearls, luxury watches, foods, as well as cars and trucks trading. In the industrial category, full ownership was sought in the metals and construction, flooring, building materials, foods, water production and paints sectors. A kindergarten, an elementary and middle school, and a hotel also sought 100 percent ownership.

The status of existing business licenses, where full ownership of the activities is available, and that include an Emirati partner, remains unchanged as per the Memorandum of Association (MOA) and the partners’ decision. A reduction of the percentage share of the Emirati partner from 51 percent or his/her withdrawal from the partnership is possible according to the legal procedures, and/or the side agreements concluded with the local partner.

Full ownership does not bring any change to current procedures or requirements for licensing, except that it’s no longer mandatory to have an Emirati partner or specify a fixed quota ratio for him/her. The guidelines also state that no additional fees, guarantees or capital is required for full foreign ownership.

It is not possible to convert the legal form of a company from LLC (Limited Liability Company) to a Sole Proprietorship under a foreign name as per the existing law, but the license can be transferred to a one-person company with limited liability. Full ownership does not apply to commercial agencies, as they are regulated by the Commercial Agencies Law. Branches of foreign companies do not require an Emirati agent.

Dubai Digital Authority (DDA)

The Ruler of Dubai issued a law establishing the Dubai Digital Authority (DDA). DDA will be Dubai’s official body responsible for all matters related to information technology, data, smart and digital transformation and information security. The Smart Dubai Department, the Smart Dubai Government, the Dubai Data Establishment, the Dubai Electronic Security Center and the Dubai Statistics Center will operate under the new authority. The DDA has both its own judicial identity and legal authority. It will aim to further enhancing Dubai’s smart and digital transformation, providing high-level digital services to both individuals and businesses, and maintaining the highest standards of cyber security. DDA’s main objectives are to accelerate technological advancement and adopt the latest ICT advancements that support social and economic prosperity and improve the people’s living standards. DDA is mandated to drive the digital transformation of the government across key areas including government services, shared government solutions, data management, cyber security, and ecosystem and governance.

Far East:

Cambodia implements new free trade agreements

According to the Ministry of Commerce in Cambodia, all members of the Eurasian Economic Union (EAEU) have voiced support for formal talks on a Cambodia-EAEU free trade agreement (CEFTA), except for Kazakhstan, as Russia plans preliminary negotiations. On June 1, Cambodian ambassador to Turkey his Kyrgyz counterpart met to discuss prospects for trade and economic cooperation under the potential CEFTA, and separate deals between the Kingdom and Kyrgyzstan on free trade, double tax avoidance and visa-free regimes.

Thailand

The Finance Ministry is studying ways to implement corporate income tax on the overseas multinational online companies offering services in Thailand. It aims to stop competition among countries to bring in multinational companies by offering them low tax rates. Under Thai law, the country can only collect corporate income tax from companies that have a permanent establishment in Thailand. Thailand has the right to tax the profit of multinational digital companies in Thailand if they transfer profit to their entities here.

Earlier, the ministry introduced an e-service tax law in Thailand. Starting on Sept 1 this year, overseas businesses providing online services in Thailand will be required to register for 7% value-added tax (VAT).

New investment law in Thailand

Thailand’s Finance Ministry is still resisting the high tax reduction proposal on new investment measures including a plan to allow rich foreigners to enjoy a long-stay visa for up to 10 years, own land and property, and pay a 17% personal income tax on local earnings are yet to be settled. The proposed measures will be offered mainly to four target groups comprising rich global citizens, wealthy retirees, rich professionals who work from Thailand and highly-skilled professionals.

Eligibility criteria on four target groups:

  1. Global citizens
    • no limitation on age
    • required to invest at least US$500,000 in government bonds or property or foreign direct investment;
    • has at least $80,000 in income over the last two years, and
    • has $1 million in assets and $100,000 in health insurance.
  2. Eligible retirees
    • required to be 50 or over,
    • with an annual income of $40,000,
    • $250,000 worth of investment in government bonds or real estate, and
    • $100,000 health insurance.
  3. Professionals
    • retirees would get a 10-year visa and be allowed to buy property and land,
    • work 20 hours a week without a work permit, and
    • pay a 17% tax rate on local earnings.
  4. Highly skilled work-from-Thailand professionals, which includes people who work in digital media or employees of large companies who are close to retirement
    • they must have $40,000 a year income,
    • $100,000 in health insurance cover.

Thailand subsidizes unemployed

The government is set to roll out a fresh 50% co-payment subsidy for the monthly salary of employees of small and medium-sized enterprises (SMEs) to deter mass layoffs in the country. Qualified SMEs for the new co-payment scheme comprise those that could not acquire a soft loan from the central bank’s 250-billion-baht package. The measure could last 3-9 months and shall be implemented as soon as possible to aid SMEs retain employment.

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