FEATURE TAKING THE RETT

APPROACH
Saudi Real Estate Transfer Tax changes
PROFILE KUWAIT
Rami Alhadhrami of BDO in Kuwait (Al Nisf &
Partners)

www.lexis.ae Summer 2022

ANY QUESTIONS
Does the UAE now have income tax?
A ROUND UP OF TAX DEVELOPMENTS ACROSS THE MIDDLE EAST

TAX TIME UAE Corporation Tax

 THE TIME FOR TAX

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CONTENTS

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TAX PROFESSIONAL PROFILE p14
© 2022 Reed Elsevier. Rami Al Hadhrami> Kuwait
A Tax and Regulatory Services Partner at BDO in Kuwait (Al Nisf &
Partners) talks about tax work in Kuwait

ANY QUESTIONS p16

Does the UAE now have income tax?

| Lexis Middle East Gulf Tax | Summer 2022 | www.lexis.ae 1

 TAX CHANGE

TIME
FOR TAX
Following the announcement by the UAE authorities
that corporate income tax would be launched in 2023,
Thomas Vanhee of Aurifer explains what needs to be done
now to be ready for this groundbreaking change.

“O
n 31 January 2022, 51 years after “This Corporate Income Tax will apply on the
the founding of the UAE, a historic worldwide adjusted accounting net profits of a UAE
statement was made by the business,” states Vanhee. “An exemption will apply for
authorities - corporate income tax taxable profits up to 375,000 AED in order to support
is to be introduced,” states Thomas Vanhee. “In a small businesses and startups.”
watershed moment, the Ministry of Finance (MOF) “The standard statutory tax rate will be 9%
announced the UAE will introduce a Federal Corporate which as this is a low tax rate, will
Income Tax on business profits. The authorities mean the UAE will continue to be
hope this will help cement the UAE’s position as a highly competitive at a global level.
world-leading hub for business and investment, meet However, a different tax rate will
international standards for tax transparency, prevent apply to Multinational Enterprises
harmful tax practices and help accelerate the UAE’s (MNEs) within the scope of ‘Pillar
development and transformation in order to achieve its Two’ of the OECD Base Erosion and
strategic objectives.” Thomas Vanhee Profit Shifting project. MNEs with
“It means in a relatively short time the UAE has consolidated global revenues over
Aurifer
gone from being an almost no tax environment in EUR 750m (3.15 billion AED) will be
2016 to, what in 2023 will be a light tax environment. subject to different tax rates. Corporate Income Tax
During this time we have seen the foundation of the will apply to Free Zone businesses,” Vanhee adds.
UAE’s Federal Tax Authority (FTA), the introduction of “However, tax holidays will continue to be
Excise Tax and VAT, Economic Substance Regulations granted to businesses established within UAE free
being issued and in 2023, the UAE will have Corporate zones which comply with all regulatory requirements
Income Tax,” Vanhee adds. and do not conduct business with the UAE mainland.
“At present we do not have detailed legislation on Free Zone businesses in a VAT Designated Zone
the new Corporate Income Tax (which is currently are allowed to sell to the mainland, provided the
expected in summer 2022), but the MOF and FTA have buyer is the importer of record. Additionally, earning
issued FAQs and press releases on the subject.” passive income from the mainland is allowed, and

2 www.lexis.ae | Summer 2022 | Lexis Middle East Gulf Tax |

 TAX CHANGE

G'˙]uP l]S}lR}}

groups with their HQ in a Free Zone, can transact decided on the implementation date deadline, so
with mainland entities, but the expenses will not be implementation of Pillar Two may not coincide with
deductible for tax purposes.” the introduction of UAE Corporate Income Tax. In
“There will be no withholding tax on domestic and addition, foreign taxes will be allowed to be credited
cross border payments,” Vanhee explains. “So foreign against UAE corporate tax payable. There will also be
investors who do not carry on business in the UAE will beneficial transfer of losses and utilisation rules.”
in principle not be subject to corporate tax. Banking
operations will be subject to corporate income tax, EXEMPTIONS
even though some may already be subject to the “It is important to note a number of categories of
Emirate corporate tax at a rate of 20%. We will have to income will not be subject to Corporate Income
wait to find out more on how this legislation will interact, Tax,” states Vanhee. “These include capital gains
given the federal nature of corporate income tax.” and dividends received by UAE businesses from
“It is also important to note, the FAQs have qualifying shareholding. A qualifying shareholding is
suggested that licensed activities are subject to currently proposed to be defined as an ownership
corporate income tax, even though they could be interest in a UAE or foreign company of at least 5%
conducted by natural persons, so there may be some and for a foreign subsidiary, it has to be subject
important scoping issues to consider going forward.” to a CIT rate in that foreign jurisdiction of at least
“The new UAE regime will come into effect for 9%. This exemption is often called a participation
financial years starting on or after 1 June 2023,” exemption and it favours the incorporation of holding
Vanhee states. “Businesses will become subject to businesses in the UAE. There is currently no minimum
UAE corporate tax from the beginning of their first holding period proposed. In addition, qualifying
financial year that starts on or after 1st June 2023. intragroup transactions (presumably under the fiscal
However, the timeline for the implementation of the consolidation regime) and restructurings (presumably
Pillar Two requirement is still uncertain. The original tax neutral mergers) will be exempt too,” states Vanhee.
agreement included a 2023 deadline for Pillar Two “This exemption is important for large groups, who
but the world’s largest trade bloc, the EU has not yet will be able to consolidate their tax positions. So if

| Lexis Middle East Gulf Tax | Summer 2022 | www.lexis.ae 3

 Tax change

there are both loss making and profit part of the Base Erosion and Profit Shifting (BEPS)
WHAT TO LOOK OUT making businesses in a group they project,” states Vanhee. “With a headline 9% rate on
FOR... can offset these. While tax neutral
mergers, usually allow businesses to
taxable income, carve outs for small businesses and
free zone companies, but at same time imposing
merge, demerge and restructure in different tax rates for MNEs, the UAE is striking the
WRvRC}}}vT˘
a tax neutral way, so any taxation on right balance. The 9% is also aligned with the Subject
L`]o]RUo}}l}(}
potential capital gains related to the to Tax Rule under the Pillar Two rules, which require an
details on:
transaction is deferred to a later stage. increased source taxation for base eroding payments
● Extent non business
In addition, income from the extraction (e.g. royalties and interest) to jurisdictions where
expenses
of natural resources (relevant for this passive income would not be taxed at 9% as a
● Interest deduction
the oil and gas industry) is exempt minimum. The UAE is often used as a regional hub,
limitations
as this income will remain subject and charges to high taxing countries are sometimes
● Conditions participation
to Emirate level corporate taxation. challenged. Hopefully, the UAE will develop a practice
exemption
This is because of the importance to of awarding bilateral Advance Pricing Agreements,
● Clarifications on the Free
individual Emirates of taxes paid by oil which would involve other jurisdictions. Another
Zone regime
and gas businesses. The MOF FAQs interesting point is that although Free zone companies
● Any special regimes, e.g. for
have also clarified that businesses are seemingly outside the scope of the new corporate
transparent partnerships,
engaged in real estate management, Income tax regime, it seems that the carve out is at
collective investment
construction, development, agency least subject to certain conditions, such as complying
vehicles or investment
and brokerage activities will be subject with all regulatory requirements and not conducting
trusts
to UAE Corporate Income Tax. So business in mainland UAE. Free zone companies will
● Confirmation application of
there will not be any exemptions or also still have to file a corporate tax return. We also
the Federal Tax Procedure
special regimes which apply to the real expect the implementation of corporate income
Law (Federal Law No.
estate sector, in the same way as zero tax will have an impact on the Economic Substance
7/2017)
rates and exemptions apply for VAT,” Regulations that were implemented in 2019. In
● Transitional provisions
Vanhee explains. “Investment funds addition, the UAE’s move to becoming a light tax
● Anti-avoidance rules, e.g.
and partnerships are proposed to be jurisdiction, may be more positive in an international
on rep offices used for
transparent, in line with a number of context, as measures taken against the UAE as a tax
commercial purposes
other jurisdictions.” haven might not be necessary anymore,” Vanhee
● Existence exit tax
continues.
● Extent of Permanent
Establishments (PEs) and
TRANSFER PRICING “Although there may be some which will continue
“UAE businesses will need to comply to apply, so careful analysis is still needed on areas
profit allocation rules
with transfer pricing rules and such as will a branch exemption under Double Tax
documentation requirements set Treaties with the UAE still serve any purpose, what will
with reference to the OECD Transfer Pricing Guidelines,” be the extent of creditable foreign tax and what will be
states Vanhee. “This may mean three tiers, master the limitation on interest expenses? The UAE will also
file, local file and country by country reporting. Other continue to have a very beneficial holding company
jurisdictions in the region, e.g. KSA and Qatar have gold- regime, so we expect there to be many benefits
plated the three tiers with a controlled transactions from corporate income tax. The Public Consultation
disclosure form and a transfer pricing certification. The Document offers some clarity on the matter, but is not
UAE is also proposing to have such a disclosure form.” binding, and therefore might still be subject to change.”

ADMINISTRATION AND ENFORCEMENT NEXT STEPS

“The MOF will continue to be the competent authority for “UAE businesses will need to assess how the
multilateral/bilateral agreements and the international implementation of Corporate Income Tax will apply
exchange of information,” states Vanhee. “The FTA to their activities and ensure they are ready for its
will be responsible for administration, collection and implementation in 2023,” states Vanhee.
enforcement of the new regime. Businesses subject “They will also need to keep an eye open for the
to it will have to file a CIT return electronically for each actual publication of the Corporate Income Tax
financial period (which is generally a year).” law to understand the exact scope. There are many
“Businesses established in a free zone will also unanswered questions. The Public Consultation
have to register and file a CIT return, despite potentially Document is detailed enough nonetheless, to offer
claiming an exemption.” a number of answers, and we do not expect the
“There will be penalties for non-compliance with the final regime to greatly deviate from the proposed
new regime.” regime. It should also be noted that all restructurings
or long-term plans involving the UAE will now need
KEY POINTS to involve an analysis from a UAE point of view and
“The introduction of Corporate Income Tax in the international tax planning will be the key to ensure
UAE is a direct result of OECD’s ‘Pillar Two’ which is structures have been future proofed.”

4 www.lexis.ae | Summer 2022 | Lexis Middle East Gulf Tax |

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 LAW FOCUS

TAKING
THE RETT
APPROACH
2022 kicked off with amendments to
Saudi Arabia’s Real Estate Transaction
Tax Implementing Regulations.
Michael Camburn and Manish Bansal
of Deloitte explain the impact of
these changes and the areas where
clarifications are still needed.

6 www.lexis.ae | Summer 2022 | Lexis Middle East Gulf Tax |

 LAW FOCUS

“T
he second of two amendments
to the Real Estate Transaction
Tax (RETT) regime in Saudi
Arabia came into effect from 18
February 2022,” states Michael Camburn. “RETT
was introduced through Saudi Arabia Royal
Decree No. A84/1442 and Saudi Arabia Ministerial
Decision No. 712/1442 on 4 October 2020 when
the Implementing Regulations covering Tax
imposed on Real Estate Transfer took effect.”
“Somewhat unusually despite the
introduction of the implementing Regulations in
this area as well as two subsequent amendments
to them the RETT law itself has not yet been
formally published,” states Manish Bansal.
“However, the draft RETT Law has been
published, was subject to consultation and is
currently being finalised which means that there
could also be further changes to this area when
the law is finally published .”

WHAT IS RETT?
“Unless there is a specific exemption, this
tax applies to all land and property sales, and
associated rights, usufructs of over 50 years,
transfers and similar transactions which take
place in Saudi Arabia,” Camburn continues. “In
addition, sales of shares in property owning
companies may also attract a RETT charge. In
Saudi Arabia RETT is charged at a rate of 5% of the
value of the land, property and associated rights.”
“RETT generally becomes due there when
a relevant deal has been notarised at the
appropriate authority,” states Manish Bansal.
“Although there is an earlier tax point for
transactions which do not require notarisation
procedures such as grants of usufruct of over 50
years.”
“The primary responsibility for collecting
RETT lies with the seller but if tax is not remitted
by them, the purchaser may become liable,”
Bansal continues.
“However, there are a number of RETT
exemptions. These mostly involve property
transfers to close family members or for public
good, such as charitable purposes, and transfers
which result from inheritance,” Camburn
continues. “In addition, the Saudi government will
bear the cost of RETT when a Saudi national buys
their first home of up to SAR 1 million in value.”
“It should also be noted that both taxable and
exempt RETT transactions need to be reported
to Zakat Tax and Customs Authority (ZATCA)
and unlike with VAT, no RETT grouping is provided
for in the law, so intercompany transfers of land
and property are still liable to this tax. This can
potentially cause problems for groups, (especially
G'˙]uP l]S}lR}}

family-owned groups) which are embarking on

intra-group restructuring.”

| Lexis Middle East Gulf Tax | Summer 2022 | www.lexis.ae 7

 LAW FOCUS

RECENT CHANGES
“The amendments to the RETT Implementing
Regulations which came in at the start of this year
have brought with them some significant changes
to the RETT exemption regime, “ states Camburn.
“Apart from a couple of additions to the existing
exemptions, the main focus has been rationalising
and widening the scope of the existing exemptions
and ironing out some of the problems which were
faced in applying these exemptions. “
“It is now possible to claim a RETT exemption
when there is a real estate property transfer to a
Waqf or licensed charities at any time. Previously,
this exemption was only available if the transfer was
made at the time the Waqf or licensed charity was
originally established”.
“Generally, what we have seen
is an expansion in the scope of the
RELATED STORY available exemptions,” Bansal adds.
”For example, the donation of real
Saudi Arabia: Tax Exemption estate property to a person who is
for Real Estate Properties a relative, up to the third degree is
Transferred by Wills now exempt subject to certain of real estate in the capital of companies was
Announced conditions, when previously extended to an in-kind contribution in
S ] A ] [Z l U T˘U this exemption only applied the capital of limited liability companies,
and Customs Authority has to relatives up to the partnerships and limited partnerships as
vv}v ] R } second degree.” well as joint stock companies.”
amendments to the “Another area where “In Saudi Arabia it is common practice
IuouvvP RPo}v } there has been a change for real estate to be transferred to a
R Ro E Tv( T˘ has been to the available Michael company and appear in the company’s
L`X TR˙ o} } }R inheritance exemptions,” Camburn books although the title deed for that
amendments to the date for states Camburn. “In the Indirect Tax, property is still in the name of the original
˙]vP ˘ ]v }( R past there was a cap of Bahrain & KSA owner,” states Bansal. “This practice
v }v u (} }+rov up to one quarter of the leader Deloitte created RETT issues so a new exemption
sales. testator’s estate which has been introduced to avoid genuine
TR uvuv u ]v} could be subject to a RETT hardship in cases where beneficial
force on 18 February 2022. exemption.” ownership was transferred before RETT
TR˙ ]vo uv]vP R “This has now changed was introduced, but the title deed could
P }( o `R} so there is no cap on not be changed.”
} ˙ R ˘u}v the disposal of property
(} ˙]vP ˘ ]v `R pursuant to a legally OFF-PLAN SALES
R ] }uv P]L X certified Shariah compliant Manish Bansal “There has also been a change in the way
Uv R uvuv U will which can be exempt RETT operates for off-plan property sales
Senior Manager,
o }( } R R] from RETT.” as the due date for RETT payment is no
Indirect tax and
degree can now transfer the “However, there are RETT, Deloitte longer-linked to the date of signing the
}`v R] }( R } ˙ v also some new areas Middle East contract or sales agreement, which means
R `]oo ˘ ˘u}vX where RETT exemptions the RETT payment has now been deferred
Deloitte
H}` U R }v ]]vP have been removed,” until notarisation takes place, rather than
R P]L vv} v( R Camburn continues. “These the previous potentially earlier point for RETT to be
} ˙ vo L R include the specific exclusion of paid when signing the off-plan sales agreement.”
years to someone who is not (unincorporated) joint ventures “This has probably been one of the most
vo } R ˘u}v ]( from the scope of the exemption in notable RETT changes to have been brought in as
R } ˙ ` v( relation to in-kind contribution to the previous practice of RETT being payable when
} Ru ] o˙ ˙ R }v the capital of companies. There is signing an off-plan sales agreement could cause
P]]vP R P]L X P]}o˙U confusion on whether or not such problems as the Regulations were not clear on the
}vo˙ P]L ˙ }v P joint ventures are eligible for this due dates, so taxpayers had been following different
o }o v. (}u exemption or not.” interpretations, and having an earlier due date
R ˘u}vX “In January 2021, an exemption generally meant developers had to finance the RETT
involving the in-kind contribution amount due.”

8 www.lexis.ae | Summer 2022 | Lexis Middle East Gulf Tax |

 LAW FOCUS

G'˙]uP l]S}lR}}

MINISTERIAL DISCRETION
“Another area of change has been to a residual category
of exemptions, where a decision on the exemption of RELATED LEGISLATION
any matter could be made by the Finance Minister, has Article 13 of Saudi Arabia Ministerial Decision No. 712/1442
been deleted, possibly because of the large number Those affected by a decision issued by the Authority may object to the
of requests the Minister was getting on this subject,” Decision in line with the rules of the functioning of tax disputes and
Camburn adds. “Unfortunately, this removal of the violation resolution committees.
Finance Minister’s power to use their discretion on ~S} PL˘]M]oE Z
the application of RETT, means that new exemptions
are less likely to be introduced going forward, which
is a shame as it could have been helpful to have this “At present, the exemption on in kind contributions
flexibility as this is an area where a new law is being of real estate into estate funds could also do with being
introduced.” widened,” states Camburn.
“For example, currently this exemption is not
WHAT IS NEXT? available for funds which have been set up for the
“There has been no official confirmation from the purpose of renting real estate, which seems a little too
ZATCA on when the law itself will be published,” states prescriptive.”
Camburn. “However, it is generally expected it will be “It would also be helpful if there was further
published by the middle to end of this year.” clarification on the definition of what were real estate
rich companies and how RETT will operate on the
WHERE CHANGES COULD BE USEFUL? transfer of shares of those companies.”
“In the case of the vast majority of transactions “In Saudi Arabia, VAT no longer applies to the sale
undertaken in Saudi Arabia, particularly in the private and disposal of property and these transactions are
sector, it should be comparatively easy to identify treated as VAT exempt,” Bansal adds.
whether they are liable to RETT,” Camburn adds. “A Licensed Real Estate Developer Scheme has
“However, there will be more complicated also been introduced to allow land and property
arrangements, such as those involving Private development companies in Saudi Arabia to recover VAT
Public Partnership Projects, major infrastructure on expenses.”
projects where multiple partners are involved, as well “However, given the close interaction between RETT
as transactions involving joint ventures, property and VAT it is possible in certain circumstances both
investment companies and real estate funds which will taxes could apply to the same transaction and could
require careful and detailed review. “ impact the current and historical VAT position of the
“As a result, there are several areas where additional taxpayer. It is worth noting that an incorrect position
clarification in the finally published law would be helpful taken could lead to hefty penalties under RETT and/
including a clarification on the levying of RETT on public- or VAT legislation, so going forward close attention
private partnership projects which involve Build, Own, will be needed to both the substance and form of
Operate and Transfer (BOOT) contracts.” these types of transactions.”

| Lexis Middle East Gulf Tax | Summer 2022 | www.lexis.ae 9

TAX NEWS ROUND-UP
LEGAL ROUND-UP

COVERING RECENT KEY DEVELOPMENTS – REGION-WIDE

UAE Cabinet Decision No. 49/2021 had set this issue of the 2022 Edition of the World
VOLUNTARY DISCLOSURES deadline at 31 December 2021. Cabinet Customs Organisation (WCO)
Decision No. 49/2021 stated that the Harmonised System (HS) Nomenclature.
The UAE Federal Tax Authority administrative penalties for violations of The Notice states, the Tariff and Origin
(FTA) has updated its Voluntary the tax laws that had not been paid would Department is the referential agency
Disclosure guide which covers when such be reduced to 30% of the total unpaid which will answer any enquiries and settle
disclosures are filed for VAT groups. penalties if a number of conditions were any disputes relating to the
The provision of voluntary disclosures met. The Federal Tax Authority has also implementation of the GCC Unified
is mandatory within 20 business days after issued a new Public Clarification TAXP004 Customs Tariff.
an error has been made in a VAT or Excise on the redetermination of administrative
Tax return which has resulted in payable penalties levied prior to the effective date
tax being too low by an amount of 10,000 of Cabinet Decision No. 49/2021. SAUDI ARABIA
AED or more. E-INVOICING VIOLATIONS
In such cases the representative
member of the group needs to file ABU DHABI The Saudi Zakat, Tax and Customs
the Voluntary Disclosure and other CUSTOMS DECLARATIONS AuthoritY (ZATCA) brought in a
members of the VAT group can only reclassification of VAT violations in
view the Voluntary Disclosure and the Abu Dhabi Customs has hosted a January 2022. The most significant
outcome filed. It has also been reiterated workshop with major UAE change was that warnings will be issued
that Voluntary Disclosures can be importers, exporters and stakeholders in prior to the imposition of penalties for the
submitted against submitted VAT returns, collaboration with the IBM global supply first time.
acknowledged voluntary disclosures, or chain solution, TradeLens to show how ZATCA will also grant violators an
acknowledged tax assessments. TradeLens’ blockchain technology can appropriate time period of up to three
help ease the Custom declaration months from the date of issuing the
process. TradeLens, which is powered by penalty to correct the violation, before
REDETERMINATION OF blockchain technology, has been helping they impose a penalty if there has been

PENALTIES government authorities around the world

by offering direct connection to reliable
a repeat offence (except in cases where
there have been attempts to prevent or
Cabinet Decision No. 108/2021 supply chain data and structured Customs impede the Authority’s employees from
has extended the deadline documents. performing their duties and tasks).
taxpayers have to benefit from the 70%
redetermination (or discount) on penalties
that was introduced in April 2021 for one DUBAI VAT AND USED CARS
year. It is now stated that where a taxpayer GCC CUSTOMS TARIFF
failed by 31 December 2021 to settle Saudi Zakat, Tax and Customs
payable tax in full together with 30% of the Dubai Customs has issued Dubai Authority (ZATCA) has stated that
total unsettled administrative penalties Customs Notice No. 01/2022 those selling used cars will have to pay VAT
imposed prior to 28 June 2021, they now which implements the 2022 Edition of the if the cars are sold from a showroom or if
have the right to meet these requirements GCC Unified Customs Tariff as from 1 they are registered for the VAT system.
no later than 31 December 2022. The February 2022. The GCC Unified Customs It has also been confirmed that those who
original deadline which was detailed in Tariff has been amended following the are selling used cars but are not registered
for VAT and who are not carrying out
commercial activity will not be subject to
TAX TREATY UPDATE VAT in such cases.

Qatar: Oman and Qatar have signed a double taxation treaty. The treaty is the first
such treaty Oman has signed with a GCC country. BAHRAIN
Oman: Oman has signed a double taxation treaty with the Slovak Republic. VAT RETURN GUIDES
UAE: The UAE and India have signed a Comprehensive Partnership Agreement. Over
the next five to 10 years zero tariff access for India products to the UAE will increase to Following on from the change in
97% of UAE tariff lines. standard VAT rate in Bahrain which
Oman: Talks have been held between Oman and India on a bilateral protocol on increased from 5% to 10% on 1 January
Investment and Avoidance of Double Taxation and the Prevention of Fiscal Evasion 2022, the Bahraini National Bureau for
with respect to Taxes on Income. Revenue (NBR) has published two
manuals which explain the step by step

10 www.lexis.ae | Summer 2022 | Lexis Middle East Gulf Tax |

 TAX ROUND-UP

process for VAT returns and simplified VAT

returns under the transitional provisions.
been stated that Excise tax there will
cover tobacco and tobacco derivatives, IN BRIEF
VAT returns in Bahrain now require soft and sweetened drinks and also Saudi Arabia: The Zakat, Tax and Customs
taxpayers to detail whether they have expensive goods, such as watches, Authority has stated customs duties will
sales, purchases, imports, or adjustments jewellery, precious stones, luxury cars be imposed on personal shipments which
subject to 5% VAT which are required to and yachts. exceed 300 Riyals including shipping fees...
be declared in the VAT return. Depending Excise tax would apply to these goods Oman: Oman Decision No. 89/2022
on the taxpayer’s response, the form may instead of VAT. has added more food commodities to
display additional fields which relate to Excise tax would be levied at a rate the zero-rated list for VAT purposes
including barley, corn, wheat and
supplies, purchases, or imports made at of between 10% and 25%. In 2016 Kuwait
soybeans, poultry and animal feed...
the 5% standard rate. signed a GCC agreement under which
Alternatively the return form will excise tax had to be applied on tobacco Kuwait: The application of 100% customs
duty on shisha and related products which
indicate that a VAT rate of 10% is applicable products of all kinds and forms, energy was originally expected to come into
to all standard-rated transactions within it. drinks at 100% and soft drinks at 50%. force from 1 March 2022 has now been
postponed until 1 September 2022...
Qatar: The General Customs Authority
OMAN BAHRAIN has announced a special programme
TOURISM TAX RETURNS TAX TREATY APPROACHES which will simplify customs procedures
for giant sporting events, including
the FIFA 2022 World Cup which
From 1 January 2022 a rate of four In November 2020 Bahrain
is due to begin in November...
per cent has been used to signed the OECD Multilateral
calculate tourism tax in Oman. The Ministry Instrument (MLI) listing their provisional Oman: Oman’s Consumer Protection
Authority has annonced they have
of Heritage and Tourism (MHT) had reservations and notifications and a started investigating consumer
previously exempted all tourist facilities in wish that 44 double tax treaties be complaints about businesses which
Oman from the tax until December 2021, covered by the MLI. The MLI has now have fraudulently added VAT to products
as part of efforts to stimulate the economy been ratified by Bahrain Law No. 2/2022, which are not subject to the tax...
there following COVID 19. To Approve the Multilateral Treaty of UAE and Bahrain: The updated Belgium
Implementing Tax Conventions list of tax havens includes the UAE
Measures to Prevent Base Erosion and and Bahrain. Belgian companies must
report in their corporate tax returns
REVERSE CHARGES Profit shifting (MLI) and this law has been
direct and indirect payments over
issued in the Bahraini Official Gazette. EUR 100,000 (including payments
The Oman Tax Authority (OTA) has The MLI is an instrument which made to persons, permanent
published a new Arabic language was developed by the OECD. It aims to establishments, and bank accounts)
VAT Guide on the Reverse Charge improve international tax co-operation to a state treated as a tax haven...
Mechanism (RCM). Topics covered in the and reduce base erosion and profit Egypt: A draft of amendments to
guide include the scope of RCM, specific shifting (BEPS) risks in a synchronized Egypt’s Income Tax Law, Egypt Law
cases when it is triggered, the due date of and efficient way. No. 91/2005 has been published...
payment, and the timing of input tax The convention offers a concrete and Turkey: A range of VAT reductions have
deductions. streamlined solution for governments been announced in Turkey. VAT on
products such as detergents, soaps,
The guide also states that all GCC to close loopholes in international tax
toilet paper, napkins and diapers will also
countries are treated on a par with treaties by including the results and be reduced from 18 to eight percent...
the countries outside the GCC until conclusions from the BEPS project into
unified systems are applied among the bilateral treaties worldwide, without
GCC countries. As a result, the box on the need to renegotiate each treaty
‘purchases from the GCC countries bilaterally. Amendments to the VAT Law include
subject to RCM’ has not yet been granting goods or services exported by
activated in Omani VAT returns. It should projects in economic zones of a special
also be noted, that an RCM input tax EGYPT nature abroad, or imported into them,
deduction cannot be claimed unless the VAT AND STAMP DUTY with a change in tax treatment in order
taxable person has valid commercial to encourage investment in these zones
documents such as an invoice.
AMENDMENTS of a special nature, by not charging VAT
Egypt Law No. 3/2022 has been on goods or services imported for these
issued amending the VAT Law projects. Tax refunds will also be allowed
KUWAIT and Stamp Duty Tax Law there. for goods and services which are subject
EXCISE TAX The Law includes new and multiple to or exempted from the schedule tax
tax exemptions targeted on vital services exported abroad provided they do not
The Kuwaiti Government has which affect the lives of Egyptian exceed the credit balance for goods and
announced that it is looking at nationals and sectors which support services for which the tax deduction is
implementing Excise duty there. It has industrial and economic growth. applicable.

| Lexis Middle East Gulf Tax | Summer 2022 | www.lexis.ae 11

 Practical focus

WHAT IS ZAKAT?
Zakat (which means that which purifies) is the third of
ZAKAT
POSITION IN SAUDI ARABIA
Despite being a religious obligation, there are cases in
the five pillars of Islam and is considered a religious which Zakat is mandated and collected by the State,
obligation for all Muslims who meet the necessary including in Kuwait and Saudi Arabia.
criteria of wealth. In Saudi Arabia, Zakat is collected by the Zakat, Tax
A 2.5% (or 1/40th) Zakat is paid every year on the and Customs Authority (ZATCA), which is the same
total of a Muslim’s savings and wealth above what is authority which is responsible for collecting other
known as the ‘nisab’. taxes.
On 6 April 1951, a Royal Decree was issued in Saudi
THE NISAB Arabia, which included an order to levy Zakat.
The nisab is the Zakatable fund and is traditionally The collection of Zakat in Saudi Arabia is entrusted
calculated using either the current market price of gold to the State, and therefore the government, as
or silver. Muslims whose personal wealth is below the prescribed in Article 21 of Saudi Arabia Royal Order No.
nisab do not owe Zakat. A90/1412 (the Saudi Arabian Basic Law).
The nisab is the cash equivalent of three Zakat applies to natural Saudi persons who reside
ounces/87.48 grams of gold or 21 ounces/612.36 grams in Saudi Arabia and GCC nationals with the same
of silver. status (including minors and the legal incapable) who
So, if an ounce of silver is currently worth $15, using practice an activity with the intention of making a
the silver calculation the nisab would be $315 ($15 x 21 profit either in the form of money or business.
G'˙]uP l]S}lR}}

ounces = $315) and Muslims whose personal wealth They are subject to Zakat after completion of one
was over $315, would owe Zakat that year. year (al hawl).

12 www.lexis.ae | Summer 2022 | Lexis Middle East Gulf Tax |

 Practical focus

This is also the case for Saudi businesses and liability company which had capital of SAR 200,000
establishments domiciled in the Kingdom where Zakat had earned SAR 40,000 in profit for the year, but
applies to the shares of Saudi persons and nationals had loans of SAR 160,000 and net fixed assets of
of GCC countries which have the same status and SAR 100,000, the company’s Zakat base would be
to shares of Saudi governmental authorities and calculated as follows:
corporations.
Corporate Income Tax needs to be paid at a rate of Capital SAR 200.000.00
20%, proportional to the shareholdings of non-Saudi
and non GCC nationals. Businesses could therefore be Loans SAR 160.000.00
subject to both Zakat and income tax, often resulting Net Profit for the year SAR 40.000.00
in an overall lower taxation. Unfortunately, this mixed
regime is abused very often. Total SAR 400.000.00
Those who are liable to pay Zakat must register Minus net Fixed Assets SAR 100.000.00
with ZATCA on the ZATCA portal (www.zatca.gov.sa). deductible for Zakat
ZATCA is responsible for collecting Zakat, assessing, purposes
and reviewing data provided by Zakat payers and
Zakat Base SAR 300.000.00
also, when necessary, auditing their books. The funds
collected in this way are used for social purposes. Legal Zakat SAR 7.500.00
The regulations around the collection of Zakat
were only recently codified with Implementing In order to calculate the correct Zakat tax
Regulations issued in 2017 (Saudi Arabia Ministerial base, the Zakat payer must exclude all ordinary
Decision No. 2082/1438) and 2019 (Saudi Arabia and necessary expenses required for the activity,
Regulation No. 1/1440). whether they have already been paid or are still due
All individuals and companies with an industrial or in order to calculate the activity’s net result.
commercial activity must keep organised accounting There is a requirement that the expenditure
books which show capital, receipts and expenditure should be evidenced by supporting documents
relevant to their activity for each year which is used to or other proof that enables ZATCA to verify this
assess their Zakat liability. expenditure even if it is related to previous years.
The expenditure should also be related to
SMALL BUSINESSES the activity, and not be a personal expense or an
Following a recent reform of the deemed calculations expense for other activities.
for Zakat payers, the scope of this regime now also In addition, the expenditure should not be of
extends to businesses that do not have and are not a capital nature. If capital expenses are included
required to keep financial statements. in these expenses, the result of the activity is
The Zakat basis is at a minimum not less than amended and the capital expenditure is instead
the capital determined in the company’s corporate added to the fixed assets and addressed according
documents. It is calculated by summing up the sales to the regular percentages.
divided by eight and the sales multiplied by 15%.
The sales are determined on the basis of the sales BAD DEBTS
reported in the VAT return as a proxy, and the real It should be noted that bad debts are deemed
estate sales transactions in the most recent period. to be deductible expenses so are not part of the
Sales in the VAT return include the standard rated, zero Zakat base if they have already been declared
rated and exempt sales. within the establishment’s revenues for the year
If a tax payer has not made any sales in the period, when revenues became payable. The bad debt
then the basis used is calculated amongst other means should also result from practice of the activity. In
by multiplying the amount of imports or purchases by a addition, the establishment must also provide
factor 1.15. The applicable rate used is 2.5%. a certificate which has been issued by their
chartered accountant to the effect that these
NORMAL METHOD debts have been written off from the books as
Generally speaking, businesses will add to the Zakat result of a decision by an authorised person. It
basis a number of balance sheet items which are on should be noted too that the debts cannot be
the passive side of their balance sheet. These include payable by entities which are related to the Zakat
external sources of funding, such as equity and loans. payer and the establishment must also undertake
Assets (the active side of the balance sheet), such to declare debts within their income whenever they
as net fixed assets used in the activity and investments are collected.
in businesses themselves subject to Zakat are
deductible. The end result constitutes the Zakat basis. This article is based on a Practice Note included
This method is known as the indirect method, or the in the Gulf Legal Advisor collection in Lexis Middle
sources of funds method. For example, if a limited East Law.

| Lexis Middle East Gulf Tax | Summer 2022 | www.lexis.ae 13

TAX PROFESSIONAL PROFILE
IN-HOUSE PROFILE In association with

PARTNER - TAX & REGULATORY SERVICES – KUWAIT

KUWAITI CONSIDERATIONS
Rami Alhadhrami, Partner - Tax & Regulatory Services at
BDO in Kuwait (Al Nisf & Partners) talks about how Kuwaiti and
international tax changes and practices impact his work.

ABOUT YOU
I studied Accounting at the Victoria University
of Wellington in New Zealand and am a qualified
Chartered Accountant of the Institute of Chartered
Accountants of Australia and New Zealand. I started
my career with BDO in New Zealand and then
moved to the Gulf in 2012 and have worked with
BDO in Kuwait since then. At BDO in Kuwait, I am
responsible for the tax practice’s overall growth
and service quality. I am also the international tax
coordinator for BDO in Kuwait and link in with our
offices in about 167 countries to deal with in-bound
and out-bound assignments assisting businesses
growing internationally. BDO has offices in each of
the Gulf states. I am mostly involved in corporate tax
and Zakat compliance and related advisory matters,
including company formations and FDI. In addition, companies owned by GCC citizens, as a result of the
I work on tax disputes, including tax appeals, court OECD’s 2-Pillar deal. Kuwait is not a member of the
cases and assist with Mutual Agreement Procedures Inclusive Framework and has yet to express its views
(MAP). These include tax issues involving on the OECD Pillar 1 and 2 proposal. In Kuwait income
distributorship versus agency arrangements, capital tax has been 15% since early 2008, and the income
gains imputations and tax treaty interpretations. tax law, in practice, has been applied only on foreign
My work also includes tax projects in the Saudi- companies doing business in Kuwait or those with a
Kuwait Neutral Zone and we specialise in Automatic stake in a GCC company doing business in Kuwait.
Exchange of Information (AEOI) including FATCA, Based on the difficulties the government has faced
CRS and Qualified Intermediary (QI) compliance. in introducing VAT and Excise tax, it may be difficult
for them to apply a 15% income tax rate, or similar,
VAT AND EXCISE TAX to Kuwaiti companies particularly those meeting
The introduction of VAT and Excise Tax is on the Pillar 2’s 750m Euro turnover threshold. While with
agenda in Kuwait. It is unlikely to happen in Kuwait Pillar 1, the proposed reallocation of taxing rights
in 2022, as the Parliament has just resigned and may provide additional, but probably limited, tax
a compromise may be needed between the revenue to Kuwait, the tax authority’s administrative
government and parliament on this reform. In costs and issues around proposed mandatory
New Zealand I helped businesses get ready for an arbitration may not be rewarding enough for Kuwait
increase in GST from 12.5% to 15%, which has helped since the population is about 4.5 million. However,
me advise on the implementation of VAT in some large Kuwaiti Multinational Enterprises (MNEs) are
Gulf states. currently monitoring the international development
and I have been working with some in Kuwait on
CORPORATE TAX CONSIDERATIONS measuring the tax impact of these recent OECD
Regionally, the introduction of corporate tax in the proposals.
UAE and impact of proposed OECD Pillar 1 and
Pillar 2 are keeping us busy. It will be interesting to REGIONAL APPROACH
see if Bahrain introduces corporate tax and if tax Compared to my experience in New Zealand, in
authorities in Saudi Arabia, Kuwait and Qatar decide the Gulf I have found sometimes practice seems
to increase their applicable tax rates for local to take greater precedence than actual tax law, e.g.

14 www.lexis.ae | Summer 2022 | Lexis Middle East Gulf Tax |

 IN-HOUSE PROFILE

PRACTITIONER PERSPECTIVE
Shabana Begum of KPMG Lower Gulf Limited explains the far reaching
effect Pillar One and Pillar Two will have on GCC businesses.

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Partner – Tax & T˘~GMTZ}(æA9U`R]R R P}`R]R v]vRP]}vXWR]oR
Transfer Pricing, KPMG was reinforced on 20 December }oo}uo]v}(Rou˙uvP˙RP}[
Lower Gulf Limited `]RR.vo]}v}(R R}8URo}ov `]oo }v]o(} }vP
Go}oAvrBE}]}v~GL}BZEoXTRGMT]R }v vv}.]o]˙XTR]] oo˙ov(}R
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v}vP}.uP]v}A9Z˘o Po PRvP]ooOvv(}uv˙P}]vRP]}vU˘
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o`R]R]RIv}uIvo]}vRo~IIRZo}vP`]RRSi } XTR]]v}o oo}v]vP (}uvR
}T˘Ro~STTRZ]˘ }]uouv]vJv˙ Go}BEo]vPR˙]}(˘vU.vv]o uv
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l}o}RIIR]RUv˘P˙uvRo~UTPRZ ]v`} }(}} ˘}}lr}v(}}u }}
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u}v}(`}lu˙v (}R]vr}P}U]v} ˘}o]˙]vRP]}vXTRUAERvR. u}}
} R}. R`]oov}oo} }ul }vU.}(R]˘GCC}v]]Pv}]}R
i]]}vXTR]`]oo]v}o]v(˙]vP]vr} vv }}oXA oU`u˙(R}} ˘}o]˙
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v}vu XI`]oo ˙˙]v˙(}uv˙]vr} }voo˙}R}Z vR˘vPv (}u
P}U+} `]oov }PP v}v}]vP Ri]]}vv}ouo˙˘˙}R XTR}(
}P}˙}(P}}v ]XTR]`}(˘]vP RvP}vR }}oo}PP R˘(}uUovv]vP
v(]]vPuR}}o}P]]vPo](}ulvPv v}uo]vR]Pv].vo˙R]LP(}uov}vo
]]}v ]`]ooo} ]o}}]v˙]vv in the region.
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]]˘ vu}(P}]vRvP˙vvo }uuv] }oo lR}o Uv]v(˙]vP}]
} }u˙]u ˙P]ooOvvRvo˙] v˘ Rovv]vPU}]vPvPvP`]oo ]o
}(RR˘ ˘o]}v[}uov}vov] [ GCCr ]v (}RRvPX

although Kuwaiti tax law does not differentiate between is the 5% tax retention clause. Every entity which deals
foreign and GCC companies in practice only foreign with a supplier here has to retain 5% tax retention from
shareholders in a GCC company (to the extent of their payments made to that supplier until the supplier
shareholding) or their direct operations tend to be obtains a Tax Retention Release Letter/ Tax Clearance
subject to tax under Kuwait income tax regime. In the Certificate (TCC) from Kuwait Tax Authority (KTA).
past there was also a lack of digital compliance portals This can cause cashflow issues particularly for
in the Gulf. taxable foreign contractors or suppliers doing business
However, most Gulf tax authorities have now in Kuwait as they have to file an income tax declaration,
developed online portals to assist taxpayers with their pay income tax at 15%, and wait sometime for the tax
tax filing obligations. audit and assessment to be completed by the KTA
The main area I would like to see change in Kuwait before a TCC is obtained.

| Lexis Middle East Gulf Tax | Summer 2022 | www.lexis.ae 15

ANY QUESTIONS?

DOES THE UAE HAVE

INCOME TAX NOW?
What do the announcements on UAE
Corporation Tax mean for tax on income there?

O
G'˙]uP l]S}lR}}

n 31 January 2022, the UAE considered and therefore be subjected multinationals’. Although at present the
Ministry of Finance (MoF) to UAE Corporation Tax if an individual rate for large multinationals is expected
announced that the UAE would has (or is required to have) a business by some commentators to be 15%, as per
introduce a Federal Corporate licence or a permit, including a freelance Pillar Two of the OECD Base Erosion and
Tax on business profits. According to the licence or permit, in order to be able to Profit Shifting (BEPS) project.
implementation plan, Corporation Tax conduct such activities in the UAE.
will be levied for financial years starting In such cases a freelancer will not WHAT’S NEXT
on or after 1 June 2023. UAE Corporation be taxed on the income they generate Perhaps not surprisingly, following this
Tax will apply to all UAE businesses and as a salary, but the company or licence groundbreaking announcement by the
commercial activities except those which hosts their visa will be taxed UAE Government that Corporation
involving the extraction of natural on their net profit. There is also an Tax is definitely coming to the UAE,
resources, including oil and gas. outstanding question as to whether an there has been a lot of speculation in
The MoF announcement on the individual, say a tax adviser operating many quarters that the UAE Federal
subject, stated all activities undertaken under a profession rather than business Government could also be about to
by a legal entity would be deemed to licence would be liable. However, the MoF introduce individual income tax in the
be ‘business activities’ and therefore has already stated that an individual’s UAE.
would be covered under Corporation investments in real estate (in their However, in an interview on 21
Tax. Although, it is relevant to note that personal capacity), which does not February 2022, His Excellency Dr Thani
dividends and capital gains earned by require a commercial licence or permit Bin Ahmed Al Zeyoudi, Minister of State
UAE businesses from their specified to be carried out, would not fall under the for Foreign Trade clarified that the UAE
‘qualifying shareholdings’ will be exempt scope of the Corporation Tax. will not introduce an individual income
from it. tax for the time being. In addition, in
Foreign entities and individuals will THRESHOLDS AND RATES relation to the potential introduction of an
also only be subject to UAE Corporation As a result of the introduction of individual’s income tax, the Minister stated
Tax if they conduct trade or business in the Corporation Tax in the UAE, an that , ‘It is not at the table at all now’.
the UAE in an ongoing or regular manner. individual’s business income up to Therefore, starting from 1 June
375,000 AED will be taxed at 0%. 2023, only income which is derived from
INDIVIDUAL’S INCOME The Corporation Tax rate will then activities undertaken by legal entities or
UAE Corporation Tax will not apply to an increase to 9% for taxable income above by individuals in possession of a licence
individual’s salary and other employment 375,000 AED. This rate of 9% which is will be subjected to the UAE Corporation
income (in both the public and private currently been cited would position the Tax. In addition, those foreign entities
sector). In addition, interest and other UAE as the lowest rate of Corporation Tax and individuals which conduct trade
income which has been earned from in all Middle East countries. or business in the UAE in an ongoing or
bank deposits or saving schemes will not There will also be a special rate regular manner will also fall under the new
be subject to the Corporation Tax regime. which will be applied to so called ‘large UAE Corporation Tax regime.
Similarly, dividends, capital gains multinationals’.
and other income earned by individuals These ‘large multinationals’ will be This article was co-written by Alessandro
from owning shares or other securities defined as having consolidated global Valente, International Tax Services and
Transfer Pricing Manager at Crowe UAE,
in their personal capacity would also be revenue exceeding Euro 750 million Dubai.
treated as being outside the scope of UAE equivalent to 3.15 billion AED).
Corporation Tax. However, the UAE MoF has yet
Contributor
Nevertheless, it is understood to announce the tax rate which will Ml S]o}
that an individual’s activities could be be applied to these so-called ‘large Pv}`
C UAU
E ]D

16 www.lexis.ae | Summer 2022 | Lexis Middle East Gulf Tax |

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