6th Asia/Africa IFA Regional Conference - May 10-11

Report
Taxes, Investments and
Opportunities in the Middle East
6th Asia/Africa IFA Regional Conference - May 10-11, 2012,
Mauritius
Thomas Hanzély
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General
• Taxes in the Middle East
• Political Developments and the Economic
Situation – impact on tax policy
• Focus on the GCC (in particular Bahrain, Qatar
and the UAE) – attractive for foreign investors
• GCC as an economic union?
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Corporate Tax Rate Changes in the Middle
East
Source: Ernst & Young, Tax Treaties - Recent Applications in the Middle East, 2010
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General II
• Corporate Taxation
– Different tax rates for the hydrocarbon industry
• VAT – any harmonization of indirect taxes in the
GCC in the near future?
• Personal Income Tax
• Growing Treaty Network – availability of treaty
benefits, dispute resolution, aggressive approach
in various matters (e.g. Permanent
Establishments)
• Withholding Tax Regimes applied by most of the
MENA countries
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General Issues III
• Lack of service-oriented administration?
– However I: Ease of Doing Business report (World Bank, 2012)
places Saudi Arabia overall 12th, the UAE 33rd, Qatar 36th,
Bahrain 38th
– However II: Index of Economic Freedom (Heritage Foundation in
cooperation with the WSJ 2012) places Bahrain 12th, Qatar
25th, UAE 35th
• Communication with authorities
– Interpretation of tax rules
– Language
• No bankruptcy laws, no credit rating system
• Anti-Fronting Laws
• Still a safe haven for business?
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Economic Substance in GCC Structures
• ES is an emerging trend
• ES can be implemented in the region – place
of effective management and control can be in
GCC countries
• There are plenty of non-tax reason to establish
a company in the GCC
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COUNTRY PROFILES
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BAHRAIN
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Bahrain – Tax Profile
• Only GCC country without any (statutory) tax
– No corporate income tax (CIT), no capital gains tax
(CGT), no withholding tax (WHT), no personal
income tax (PIT), no VAT
– Except a 46% corporate income tax levied on oil
and gas companies
• Treaty network (25, in force, 8 pending)
– a.o. Austria, China, France, Ireland, Netherlands,
Singapore
– Pending treaties with Belgium and the UK
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Bahrain – at a Glance I
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Historical financial and trading hub in the ME
Not considered as a tax haven
100% foreign ownership allowed
Business friendly environment
Good infrastructure
Costs
Political situation?
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Bahrain – at a Glance II
• Free Trade Agreement with the U.S. (2006)
• Bahrain International Investment Park (BIIP)
– 0% Corporate Tax with a 10 year guarantee
– Duty free access to the markets of the Gulf Cooperation Council
(Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United
Arab Emirates)
– 100% Foreign Ownership
– Availability of serviced industrial land at extremely competitive
rates
– Renewable 50 year leases
– No recruitment restrictions for the first 5 years
– Dedicated assistance of a professional management team
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QATAR
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Qatar – Tax Profile
• New tax law effective since 1 January 2011
• CIT and CGT 10% (flat rate); petroleum
companies are taxed at not less than 35% or
as determined in the production sharing
agreement (PSA)
• No personal income tax, no VAT
• Anti-avoidance measures
• Transfer pricing
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Qatar – Overview
• One of the fastest growing country worldwide –
economy is based on the revenues from liquefied
natural gas (LNG)
• Restricted foreign ownership (49/51) – 100% foreign
ownership only in exceptional cases
• Role of the Qatar Financial Centre (QFC) –
separate/parallel from Qatari legal system based on
common law principles
• Qatarization laws
• Costs
• Treaty Network (37 in force, 7 pending)
– Many OECD countries, India, Singapore, China, Mauritius
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Qatar – Withholding Tax vs Contract
Retention
• WHT at 5% (royalties, technical fees or
management fees) or 7% on any other payments
(e.g. director´s fees, brokerage fees, commissions,
etc.)
• Contract retention applies if a company is not
incorporated in Qatar or only for a period of less
than a year and for a specific project. Contract
retention it will be the greater of i) 3% of the
contract value excluding the supply value and
value of work done outside Qatar and ii) the final
payment.
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UNITED ARAB EMIRATES
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UAE – Tax Profile
• Statutory CIT exists, but not enforced, currently
0% CIT
• Petroleum companies are taxed based on
individual agreements – tax rates are not
disclosed
• Branches of foreign banks are also taxed
• No personal income tax, no CGT, no VAT
• Treaty Network (47 treaties in force, 10 pending)
– Many OECD countries, India, China, Singapore,
Mauritius, Mozambique
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UAE - Free Zones
• Free Zones
– 100% foreign ownership only in free zones – new
company laws on the agenda
– guaranteed tax holiday
– no restrictions on hiring foreign professionals
– State of the art infrastructure
– Professional local authorities / procedures put in
place
• More than 30 Free Zones in the Emirates
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UAE – Free Zones & Economic Substance
• Dubai International Financial Center (DIFC) Jebel
Ali Free Zone (JAFZA) most well known
– Most Free Zones allow for the implementation of
economic substance
• Anti-avoidance provisions in tax treaties
– limitation of benefits
– subject-to-tax / liable-to-tax (unclear whether UAE
residents are liable to tax in the context of the treaty)
– Conclusion: bona fide business at least required in
order to benefit from tax treaties
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India – UAE DTT
Article 29 - Limitation of Benefits
An entity which is a resident of a Contracting
State shall not be entitled to the benefits of this
Agreement if the main purpose or one of the
main purposes of the creation of such entity was
to obtain the benefits of this Agreement that
would not be otherwise available. The cases of
legal entities not having bonafide business
activities shall be covered by this Article.
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UAE – Recent Developments
• Ras Al-Khaimah (RAK) – new offshore
jurisdiction / is the UAE (still) promoting
offshore structures?
• Since 1 January 2011 offshore companies may
not acquire real estate in the UAE anymore
– A result of the fight against money laundering and
a move towards greater transparency
– Only entities registered with the Jebel Ali Free
Zone are eligible to register real estate
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GENERAL ISSUES
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General
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Greater Arab Free Trade Agreement (GAFTA)
Pan-Arab free trade greement (1997)
14 signatory states
Full liberalization of goods with full exemption of
customs duties and charges
• key benefits: reduction of usual 15/20% import duty
imposed by many MENA countries
• To benefit from the GAFTA, the imported products
must be enhanced in one of the signatory states – the
UAE is often used as a gateway to other GAFTA
countries, since it has low import duties (5%)
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Legal Issues
• Legal Systems / Dispute Resolution
– civil law (based on Egyptian law)
– common law (e.g. DIFC and other free zones)
– Shariah law (GCC countries have a dual system)
– Arbitration
– DIFC courts can be competent for disputes from
other GCC countries (since October 2011)
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Indian Double Tax Treaties
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Kuwait (in force, 2007)
Oman (1997)
Qatar (2000)
Saudi Arabia (2006)
UAE (1997, amended in 2007)
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CONCLUSION
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THANK YOU
ADDRESS
BBD Enterprises WLL
Level 22, West Tower
Bahrain Financial Harbour
King Faisal Highway
Manama, Kingdom of Bahrain
PHONE
+973 17502909 (Office)
Sunday to Thursday, 8:30AM to 5:30PM
Standard time zone: UTC/GMT +3 hours
FAX
+973 17502910
E-MAIL
[email protected]
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