KPMG in the United Emirates (UAE) recently hosted a successful tax conference titled Changing Tax Landscape in the UAE. Highlights are set out below, along with updates on the new Abu Dhabi free zone and UAE’s most recently signed tax treaties.
KPMG in the UAE’s conference was attended by over 150 of the firm’s key clients and received extensive media coverage. The event focused on the Ministry of Finance’s July 2015 announcements that value added tax (VAT) and corporation tax regimes, are likely to be introduced in the UAE. As prospects of these tax reforms gain momentum, organizations need to review a number of aspects, including financial systems to assess their overall tax readiness, and address possible changes to their own accounting systems.
Nilesh Ashar, Head of Tax, KPMG in the UAE, sums the event’s key message: “While it may be premature for businesses to start making widespread changes to supply chain functions or to operating and business structures, there are a number of measures that companies must start to actively consider even before the introduction, in order to effectively transition to a tax payable environment.”
Ashok Hariharan, Head of Tax for KPMG Middle East and South Asia region added, “We encourage all UAE organizations to continue monitoring tax developments and updates, and model the financial impact of corporate tax and VAT in their business plans. Internal stakeholder communication and awareness are also key, as both corporate tax and VAT are likely to impact other functions of the business such as finance, legal, IT and strategy.
Abu Dhabi Global Market (ADGM), the latest addition to UAE’s wide network of free trade zones, was declared open for business on 21 October 2015. ADGM is regarded as an essential element of Abu Dhabi’s long-term strategy of economic diversification, as set out in the Economic Vision 2030. Initially the zone will focus on private banking and wealth and asset management, but it is designed to ultimately accommodate the full spectrum of the financial services industry.
ADGM has been established with an initial core focus based on Abu Dhabi’s strength of wealth management, asset management and private banking. However, it has the flexibility to grow into a broad-based center, attracting a wide spectrum of financial institutions. Several big regional and international banks are believed to be weighing applications for ADGM membership.
Establishing ADGM in Abu Dhabi is expected to create more opportunities similar to those available in Dubai at Dubai International Financial Centre (DIFC) Free Trade Zone.
While the announcement that ADGM is open for business is an important milestone, the process of preparing and considering applications and granting membership to financial firms could take some months. The first member firms are not likely to formally start operations in the ADGM headquarters on Al Maryah Island in Abu Dhabi until early 2016.
One key advantage of ADGM is that a large portion of its management and administration team are experienced European executives, including the appointment of a Supreme Court judge as chief justice.
After this appointment, ADGM published its latest draft regulations, which are modeled principally on the English judicial system with some additions from Scottish and Australian law. The draft regulations provide for the establishment of a common law court and cover civil evidence, judgments, enforcement and judicial appointments regulations, and arbitration regulations.
The UAE-Liechtenstein tax treaty was signed on 1 October 2015 and is expected to take effect on or after 1 January 2016. Under the treaty, a company will be UAE resident if it is incorporated or has its place of effective management in the UAE. The tax treaty includes an exchange of information clause based on the OECD model.
UAE also signed tax treaties with Mauritania on 21 October 2015, and with Senegal on 22 October 2015. These treaties are not yet in force and the details are not yet available.
In addition to its vast network of tax treaties, the UAE has concluded about 38 investment protection agreements. Main partners include Austria, Belarus, China (People’s Rep.), the Czech Republic, Egypt, Finland, France, Germany, Italy, Lebanon, Korea (Rep.), Kuwait, Malaysia, Morocco, Poland, Romania, Russia, Sweden, Switzerland, Tunisia, Ukraine and the United Kingdom.