SLG Newsletter: September 2019
Dear Friends and Clients,
The UAE is giving us new administrative tasks with its Economic Substance Rules. Before you get down to work on these new tasks, check to see if your business is really affected. We have listed this in detail in the 1st item of our newsletter.
In general, UAE seems to be taking a somewhat unusual route: While visa requirements are relaxed throughout, the conditions to make doing business in the country seem to become more and more difficult. Not only the unspeakable obstacles to get a bank account here discourage investors, but also extensive administrative expenses for every business owner. An exception seems to be RAKEZ as they offer now special low cost business incentives for women.
We tend more and more towards consulting societies, like Europe or the USA, where every medium-sized company needs one (or more) lawyers, tax consultants, business consultants, compliance auditors, CFOs etc. I shouldn’t complain – because we consultants earn more – but we are perhaps one of the few consultants to whom the well-being of clients is more important than their own fees. And in the 46 years I’ve worked in this profession, I’ve done quite well with this attitude.
The glorious times of the free Middle East are over. But ultimately this over-regulation also contributes to the security of the local economy.
Remarkable – at least for us who studied in classical law schools – is the introduction of smart courts, which offer purely electronic court proceedings. But since the principle of direct jurisdiction, such as the examination of witnesses, is the exception in the civil courts, the difference to the smart court should not be too great.
Singapore – as a common law jurisdiction – certainly has the most efficient courts and arbitration tribunals in the entire continent and it is no coincidence that Singapore’s highest judges are also active in the DIFC Court.
Now the Mediation Convention in Singapore was signed by over 40 states, which for the first time means that a settlement reached through mediation should also be enforceable in these states. A very courageous step to get the decision-making away from the often overburdened courts.
And with regard to our concentration on international taxation – and in addition to my words about BEPS – I must mention the EU Council directive on administrative cooperation in the field of taxation 2011/16/EU of 15 February 2011 (amended by EU Council Directive 2018/822 of 25 May 2018).
In brief, the EU Directive 2011/16/EU has introduced the mandatory reporting of cross border arrangements that are indicative of potentially aggressive tax planning models. The amendment follows BEPS Action Point 12 (disclosure of aggressive tax planning models) and builds on the Common Reporting Standard. According to the amendment, intermediaries must report potentially aggressive tax planning models with a cross-border component to the national authorities. Intermediaries are persons (such as tax consultants), who are responsible for the design, marketing, organization, administration or implementation of such a model. The relevant disclosure requirements must, in some instances, also be followed by the taxpayers themselves.
We –as intermediaries – would have to report on aggressive tax planning, but (i.) we are not under EU jurisdiction (likewise we only have associates in EU, but no branch or subsidiary) and (ii.) We never recommend aggressive tax planning to our clients, but DEFENSIVE tax panning. Because the taxpayer must DEFEND his honestly earned revenues and assets against AGGRESSIVE TAX POLICIES of high tax countries!
In this sense – trust your advisors – we know the way out of the jungle of new regulations.
Have a chill-out Autumn!
UAE: Economic substance rules
The UAE Cabinet has issued Cabinet of Ministers Resolution No. 31 of 2019 which requires companies established in the UAE that carry out ‘Relevant Activities’ to maintain economic substance (ES) in the country whether onshore or within the free zones (financial free zones included). As the UAE joined the OECD Inclusive Framework on ‘Base Erosion and Profit Shifting’ (BEPS) in May 2018 and their standards, one of the requirements, which had to be adopted by the UAE were to prevent businesses from setting up corporate structures (by relocation activities) to jurisdictions with a privilege tax system for the sole purpose of benefiting from a more advantageous tax regime. The ‘Core Income Generating Activities’ (CIGA) are the key essential and valuable activities that generate the income of the company. Businesses with the below mentioned activities as its Core Income Generating Activities (CIGA) should act in accordance with the requirements of the Economic Substance Regulation:
- Investment fund management
- Finance leasing
- Headquarter companies
- Intellectual Property services
- Holding company activities
- Distribution and service centre activities
Companies in the above sector have to meet the Economic Substance Test. The three tests are laid out as follows:
- Directing and managing the company within the UAE
- Carrying out of CIGA within the UAE
Employment of sufficient number of qualified full-time employees, retaining adequate physical assets and operational expenditures in the UAE to conduct CIGA.
The Economic Substance requirements to be submitted by companies should be included in the compliance report and must contain specific information, which we will gladly provide if demanded.
The report has to be submitted within 12 months from the end of each Financial Year to the Ministry of Finance. Failure to meet the Economic Substance requirements can result to administrative penalties, suspension, revocation or non-renewal of the commercial license of the company, or non-issuance of a Tax Residency Certificate which is essential for tax treaty reliefs.
New UAE work permit rule: Rule grants work permits to both men and women sponsored by their families
The Ministry of Human Resources and Emiratisation (MOHRE) announced that they have started issuing work permits for the employment of male workers sponsored by their families. Work permits which were only previously given to women, can now be obtained by men on wives’ visa. Fees in securing a 2-year permit should be paid by employers amounting to AED 300 for all categories of businesses of skilled and limited skilled workers under the ministry’s group classification. The below is list of persons who are eligible to obtain a work permit:
- Men sponsored by their wives,
- Women sponsored by their husbands,
- Men, women sponsored by parents,
- Sons and daughters aged 18 and above on family’s residence visa.
Update from the Federal Tax Authority (FTA): New electronic system in place
A new electronic system has been launched by the Federal Tax Authority for registering excise goods. Producers, importers, and stockpilers need to follow the process and make sure all required documents are submitted upon registration. Businesses need to visit the e-services of the FTA website, request to add a new product and upload all the information and documents required. Various data are needed such as details of the product (brand, net content, country of origin, etc.), details of ingredients and nutritional facts, details of marketing campaigns (if requested), lab report (if requested), and details about the price. Moreover, excise taxable persons need to comply with the new declaration and tax return forms and report requirements. With another new directive, it shows that FTA continues to ensure accuracy and transparency to improve the UAE tax system.
UAE cabinet to expand list of taxable products
The UAE Cabinet has announced that it will expand the list of excise taxable products to be effective on January 2020. A tax of 50 percent will be levied on any product with added sugar or other sweeteners, whether in a form of a beverage, liquid, concentrate, powders, extracts or any product that may be converted into a drink. A tax of 100 percent will be levied on electronic smoking devices whether they contain nicotine or tobacco as well as the liquids used in electronic smoking devices. The decision made by the cabinet is to eliminate chronic diseases caused by tobacco and sugar and to improve the health of the public.
JAFZA established smart court to handle labour cases
Jebel Ali Free Zone Authority (JAFZA) and Dubai Courts have signed a Memorandum of Understanding (MOU) for the establishment of a Virtual Reality Smart Court. The Smart Court will operate at the free zone and is equipped with a high security system to handle litigations between companies and its business units. Sessions are initiated by a legal assistant and will be held through live direct transmission without requiring the concerned parties to be physically present at the Dubai Court. The establishment of a smart court at JAFZA encourages practical and efficient approach on legal processes and helps save time that benefits the litigants.
RAKEZ: First-ever business package designed for women
RAKEZ has launched its Business Women Package this August and has plans starting from AED 6,200 with instalment plan options. The new package gives free use of shared workstations and business cards, 1-year or 3-year option, and eligibility for a residence visa. The 3-year package cost starts from AED 3,950 and comes with a free investor visa. There are eight free zone license types that can be applied for in this package – Commercial, Educational, E-commerce, General Trading, Individual/Professional, Media, Service, and Freelancer permit. The documents needed for the application are: application for registration and license, business plan, passport copies (Shareholder/s and General Manager, original NOC (if appointed GM has a valid UAE residence visa).
Ajman Free Zone replaces bank guarantee system for employees
The Ajman Free Zone has signed a Memorandum of Understanding with Dubai Insurance Company to provide insurance services to the workers employed by companies operating at the free zone. This initiative will replace the current bank guarantee system and will cover all the dues of workers, including the end of service gratuity, annual leave unpaid salaries and the cost of return ticket home. Ajman Free Zone commits into protecting the rights of all the workers and safeguarding the interests of investors by implementing the new service.
Saudi Arabia: End of guardianship system
The Government of Saudi Arabia has made multiple changes on laws about women, putting an end to the guardianship system. The new law which was already published by the country’s official gazette came in effect by the end of August 2019. The changes in the law include:
- Any person aged 21 and above, regardless of their gender can travel abroad without consent.
- Any citizen can apply for a passport on their own.
- Women are now given the right to register child birth, marriage, or divorce.
- Women are now eligible to act as guardians for minors.
In addition to this, the Ministry of Labour and Social Development called upon the equality of men and women in the workplace. Employers are not allowed to issue notices of job dismissal to women while on maternity leave. Women who fall ill because of pregnancy or delivery cannot be terminated from work or issued any warning letter as long as their illness is attested and supported by a medical report with not more than 180 days of continuous or intermittent absence from work.
Myanmar: Again proposes tax amnesty on undisclosed income
The Government of Myanmar made another proposal to reduce tax rates on undisclosed incomes to the Assembly of the Union on August 7. The proposal was part of the Union Tax Bill submission for 2019-2020 fiscal year and the government believes that it will likely encourage tax payers to pay taxes they owed for undisclosed sources of income. If approved, tax payers will be required to pay lower tax dues and will exempt them from being convicted of tax evasion. Tax relief will only be allowed for expenditure in acquiring capital assets, establishing a new business and extending a new business. It will not be given to illegal possession of property and to matters related to Anti-Money Laundering Law. Moreover, the Union Tax Bill also increased the prize money for whistle blowers with information about citizens who evade paying taxes when acquiring commodities and goods. Gemstones and jewellery have also been removed from the list of special commodities in the new bill since it is already part of the new Myanmar Gemstones Law which came into effect earlier this year.
Singapore: New International Treaty on Mediation was signed
A total of 46 states signed the New International Treaty on Mediation that will enable the enforcement of mediated settlement agreements among the signatory countries. The signing took place at the Singapore Convention Signing Ceremony and Conference attended by 70 countries and 1,500 delegates. The treaty also known as Singapore Convention on Mediation is the first treaty named after Singapore and it will provide for the cross-border enforcement of mediated settlement agreements, give business security, and help facilitate international trade and commerce. During the event, the UN and Singapore also signed a Memorandum of Understanding (MOU) to liaise for the development of an UNICTRAL (United Nations Commission of International Trade Law) Academy in the country.
Laos: Ministry resolves trading licence issue
International firms do not need a domestic license to export goods to Laos but need to obtain trading rights from the Export and Import Department as posted on the Lao National Gazette website. This was the government’s remedy following several complaints made regarding a ministerial decision that was signed last 6th of June.
Requirements to obtain trading rights:
- International firms must be enterprises registered in countries that are members of the World Trade Organization.
- Companies must show evidence that they operate businesses in line with laws and regulations.
- Firms should have not been convicted, or being investigated for any trading or financial crimes.
Documents required for request application:
- Passport or enterprise registration certification.
- Crime-free record certification.
- Letter of authorization from foreign company.
All the documents mentioned above should be certified by Lao embassies or at the authorized representative offices in the countries where companies are registered.
Cambodia: Thailand and Cambodia sign MoU to connect their capital markets
Thailand’s securities and Exchange Commission (SEC Thailand) and the securities and Exchange Commission of Cambodia (SECC) signed a memorandum of understanding (MoU) to cooperate and exchange information on cross-border equity offerings and the issuing of depository receipts. The aim of the MoU is to push for the successful implementation of cross-border offerings of securities that link both countries capital markets. The deal is the result of a fruitful discussion between the two agencies early last month and is being seen as an important milestone to reflect strong bilateral ties as well as to further strengthen a previous MoU signed in 2014.
The latest MoU covers the establishment and setting up the functions of a task force to work on the process of implementing cross-border equity offerings and the issuing of debt receipts. It also covers guidelines for those who wish to offer securities both in Cambodia and Thailand.