UAE – updates on corporate tax and VAT, EFTA-GCC free trade agreement, FATCA, free trade zones, and tax treaties

UAE – updates on corporate tax and VAT

KPMG in the United Arab Emirates (UAE) presents the updates on recent UAE tax developments.

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KPMG in the United Arab Emirates (UAE) presents the updates on recent UAE tax developments related to:

  • the UAE’s proposed corporate tax and VAT regime
  • entry into force of the free trade Agreement  between the European Free Trade Association and the Gulf Cooperation Council
  • the newly signed intergovernmental agreement between the UAE and US on the US Foreign Accounts Tax Compliance Act
  • the establishment of Dubai World Trade Centre as a free trade zone
  • the UAE’s expanding tax treaty network.  

Corporate tax and VAT to be introduced

In its Annual Report for 2014, the UAE’s Ministry of Finance provided an update on its initiatives and progress, including its plans to establish a tax system within the UAE.

The report says the regime aims at “developing and ensuring the sustainability of the federal government's financial resources.” The report highlights that the following progress has been achieved:

  • A draft corporate tax law was prepared and reviewed by government entities.
  • A draft law establishing a federal tax authority was prepared and referred to government entities. 
  • A draft law on tax procedures was prepared and reviewed by government entities.
  • The basic principles of a common value added tax (VAT) system within the Gulf Cooperation Council (GCC) member states (i.e. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) were agreed upon, a draft common framework VAT law for the GCC countries was prepared, and a draft VAT law for the UAE was prepared and reviewed by government entities.
  • Studies on the impact of introducing direct and indirect taxation in the UAE continued to be conducted. Previous studies were conducted in 2008, 2010, 2012 and 2014. Another study is scheduled for 2015.

The Ministry of Finance has not yet disclosed the proposed corporate tax or VAT rates, or the extent of their coverage. It is expected that UAE corporate tax could be introduced at a lower rate initially to accustom the government to running a national tax system. Expectations are that the initial VAT rate could also be low (at or under 5 percent). 

There is still no firm timeline for implementing either the corporate tax or the VAT law. A media report1 suggests that laws should be finalized by the end of the third quarter of this year, and while the UAE Cabinet has approved the corporate tax policy, there are still many stages to go through before the laws are signed by the President and published in the official gazette.

Source: IBFD and KPMG Tax Alert.

EFTA-GCC free trade agreement applies from 1 July 2015

The EFTA-GCC FTA entered into force on 1 July 2014. While the European Free Trade Agreement (EFTA) states (i.e. Iceland, Liechtenstein, Norway and Switzerland) have fully applied the agreement since the date of entry into force, technical issues have prevented implementation by the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE). These issues were connected to the use of the certificate of origin (COO) [i.e., Form EUR 1]. 

The GCC member states have now informed EFTA they will fully apply the EFTA-GCC free trade agreement (FTA) as from 1 July 2015.

Under the FTA, importers of goods originating in an EFTA state will be able to claim preferential treatment in the GCC states, from 1 July 2015, when using the COO. Exporters of goods originating in the GCC member states may use the COO of the GCC countries and claim preferential treatment in the EFTA states. 

Goods covered by this agreement include industrial products, processed agricultural products and fish and other marine products. Certain goods deemed as highly sensitive and some processed agricultural goods are excluded from the agreement.

The FTA covers a broad range of areas, including trade in goods, trade in services, government procurement and competition. The EFTA-GCC Joint Committee, established by the FTA, will supervise its application. The FTA also provides for dispute settlement through arbitration.

With the FTA now in effect, Dubai Customs has issued a policy2 that sets out the terms and conditions for implementing the FTA agreement in the UAE.

Source: http://www.efta.int/free-trade/free-trade-agreements/gcc

US-UAE FATCA agreement signed

The UAE signed the Model 1 Intergovernmental Agreement (IGA) with the United States on 17 June 2015. The date for submission of Ministry of Finance’s first report to the US Treasury Department in relation to financial year 2014 will be 30 September 2015.

The Ministry of Finance’s Version 1.0 of the FATCA guidance notes for implementing the IGA provide a detailed explanation of the FATCA as it ought to apply under the IGA. The guidance also provides details on the terms and conditions for relevant financial institutions operating in the UAE banking, insurance and financial services sectors.

The MoF also set the reporting deadline for all ‘foreign financial institutions’ (FFI) in the UAE at 30 July 2015.UAE financial institutions are required to provide information in relation to US reportable accounts to the UAE Central Bank, the Securities and Commodities Authority, Insurance Authority, or the Dubai International Financial Centre / Registrar of Companies (DIFC/RoC). Subsequently, the relevant local authorities will provide the information to the Ministry of Finance, who will then supply it to the IRS. 

UAE Financial Institutions can access the FATCA reporting portals at the following links:

Entities that are not licensed by these authorities (e.g. those entities regulated by free zones) can register via the Ministry’s designated FATCA webpage at https://moffatca.mof.gov.ae/fatca.

Following registration, financial institutions need to provide:

  • a copy of their work permit
  • data for any subsidiaries
  • audited financial reports for 2014. 

They must also submit copies of US citizens’ passports, visas and Emirates IDs to their compliance officer.

Based on the guideline notes, UAE financial institutions having no US reportable accounts to report for financial year 2014 must submit a ‘nil report’.  

Sources: 

MoF article: http://www.mof.gov.ae/En/AboutMinistry/News/Pages/1572015.aspx

UAE-US IGA: 

http://www.mof.gov.ae/En/OpenData/Pages/Rulesandpolicies.aspx

Guideline Notes:

http://www.mof.gov.ae/En/OpenData/Pages/Rulesandpolicies.aspx

Dubai World Trade Centre declared free trade zone

Dubai World Trade Centre (DWTC) has been declared as a free zone3. The decision is intended to boost the exhibition and conference industry in the emirate, as well as target local and international investments. DWTC includes the Dubai International Convention and Exhibition Centre, which hosts a number of leading international and regional exhibitions.

The DWTC’s zones include free zones and districts managed and supervised by Dubai World Trade Centre Authority. The geographical domain includes the current facilities of Dubai World Trade Centre, the under-developing facilities and the Dubai Trade Centre at Jebel Ali.

Since 2008, DWTC was considered as part of mainland UAE, and so any entity incorporated in the DWTC area would require a UAE national owning 51 percent of the shares in the company. However, due to the recent developments, any entity incorporated in the DWTC free zone could have a foreign ownership of 100 percent.

Source: http://www.technicalreviewmiddleeast.com/business-a-management/business-a-management/dubai-world-trade-centre-declared-a-free-zone

http://gulftoday.ae/portal/b5148738-e6e6-40be-b5bd-f731243269f7.aspx

RAKIA FTZ signs tax information exchange agreement with Ministry of Finance

The Ministry of Finance signed a memorandum of understanding with Ras Al Khaimah Free Trade Zone with the aim of working toward ensuring international standards of transparency in the exchange of information for tax purposes. 

The MOU will enable entities established in RAKIA FTZ to obtain tax residence certificates from MoF.

Source: http://gulfnews.com/business/economy/ministry-of-finance-signs-mou-with-rak-ftz-1.1413872

Update on UAE’s expanding tax treaty network

To date, the UAE has concluded treaties with 64 countries, all of which are in force. Negotiations for new treaties with Australia and Argentina are ongoing, while two tax treaties have been signed and four tax treaties ratified as follows: 

New tax treaties were signed by the UAE with:

  • Uganda on 9 June 2015.
  • Romania on 5 May 2015; on entering into force, this treaty is intended to replace the existing tax treaty between the two countries dated 1993

New treaties were ratified as follows: 

  • On 24 July 2015, Kyrgyzstan approved a bill ratifying its tax treaty with UAE signed in 2014. 
  • Hong Kong ratified its new tax treaty with UAE on 3 July 2015
  • UAE ratified its new tax treaty with Uruguay on 27 July 2015
  • UAE ratified its new tax treaty with Albania on 27 May 2015. 

Footnotes

1 “UAE to finish drafting corporate tax, VAT laws this quarter,” Gulf News Economy, 2 July 2015. 

2 Dubai customs policy No. (2015/42).

3 As part of new laws and decrees issued by HH Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE, and Ruler of Dubai.

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