Middle East newsletter - 2015 - edition 6

Middle East Newsletter 2015 - Edition 6 The Loyens & Loeff Middle East Newsletter is produced by Loyens & Loeff in Dubai. It is designed to alert those (interested in) doing business in the Middle East region to recent international tax developments in the region. Such developments are discussed in brief terms and are based on generally available information. The material was assembled based on information available as at 1 November 2015. 2 In this edition • Bahrain • Kuwait • Oman • Qatar • Saudi Arabia • United Arab Emirates 3 3 Dear Reader, During the past months, we have been amidst a storm of international tax developments. The OECD has published its final reports on its BEPS project, the European Commission has progressed on its Action Plan for fair and efficient corporate taxation in the EU, and has issued a press release on its final conclusions in the FIAT and Starbucks state aid cases. Without doubt, more is still to come. In the meantime, whilst the discussions regarding the introduction of VAT in the GCC are pending, the GCC countries have continued their efforts to gradually expand their tax treaty networks. As an internationally oriented tax and corporate law firm, we follow these international developments closely. Through this Middle-East Newsletter we aim to keep you abreast of the recent international tax developments in the GCC, in particular with respect to the conclusion of bilateral tax treaties, as these are of relevance for any multinational when considering its cross-border investments. Providing specialized international tax advice requires expertise and experience. Our firm’s tax capabilities are highly regarded by many clients and rewarded by reputable organizations, like Chambers & Partners, the Legal 500 and others. About Loyens & Loeff As you may know, Loyens & Loeff has a longstanding experience of providing high quality tax and legal advice. The firm’s history dates back to the early 20th century. At present, Loyens & Loeff has 13 offices, which are spread out over Asia Pacific, the Middle East, Europe and the US. Loyens & Loeff is an independent full service firm of civil lawyers, tax advisers and notaries, where civil law and tax services are provided on an integrated basis. Over 1400 people work for the firm, including 820 civil lawyers, tax advisers and notaries. Our size and range make the firm unique in our home markets Luxembourg, the Netherlands, Belgium and Switzerland. We hope that the content of this Middle East Newsletter is useful to you. Should it give rise to any questions, please feel free to contact us or your contact person within Loyens & Loeff. Yours sincerely, Jan Bart Schober Tim Dopmeijer Tax partner Tax associate Bahrain Bahrain – Portugal tax treaty approved by Bahrain 11 October 2015 – The Council of Representatives of Bahrain (the Lower House of the Bahraini National Assembly) approved the Bahrain – Portugal tax treaty that was concluded between the countries on 26 May 2015. We have reported about the contents of this treaty extensively in the previous edition of this newsletter (edition number 5). The treaty will enter into force when the national procedures are fulfilled in both countries and the ratification instruments have been exchanged between the countries. The articles of the treaty can be applied from 1 January of the year following the year in which the treaty enters into force (article 29). Bahrain – Hungary tax treaty entered into force 19 June 2015 – Further to treaty developments reported earlier in this newsletter, the tax treaty between Bahrain and Hungary entered into force on 19 June 2015. Consequently, the provisions of the treaty take effect from 1 January 2016. For more information on the treaty contents, we refer to the edition number 2 of this newsletter. Tax treaty between Bahrain and Tajikistan concluded 1 June 2015 – It has been reported by IBFD that on 26 May 2015 the Bahraini Lower house (lower house of the Bahraini National Assembly) approved the tax treaty between Bahrain and Tajikistan. The treaty was concluded on 28 May 2014. Please refer to edition number 3 of this newsletter for information about the characteristics of the treaty. Kuwait Treaty negotiations between Kuwait and Kazakhstan concluded 22 October 2015 – Based on a statement by an official of Kuwait, treaty negotiations to come to a tax treaty between Kuwait and Kazakhstan have been concluded. Hence, it is expected that a tax treaty between the countries will be concluded (formalized) in the near future. More information and developments will be reported once available. 4 5 At this stage no treaty details are made public, but will be reported in future editions of this newsletter once available. Tax treaty between Oman and Switzerland ratified by Oman 14 October 2015 – Further to our report in the previous edition of this newsletter about the conclusion of the tax treaty between Oman and Switzerland (on 22 May 2015), it has now been reported that (i) the Swiss Federal Council approved the tax treaty and submitted it to Swiss parliament and (ii) that Oman ratified the treaty as per the adoption of Royal Decree No. 31/2015 on 14 July 2015. For the main treaty characteristics, please refer to the previous edition of this newsletter (i.e. edition number 5). Tax treaty between Oman and Spain entered into force 19 September 2015 – The tax treaty between Oman and Spain entered into force as per 19 September 2015. According to article 29 of the treaty, the articles of the treaty take effect as of 19 September 2015. Please refer to edition number 3 of this newsletter for an overview of the main characteristics of this treaty. Tax treaty between Oman and Portugal ratified by Oman 2 July 2015 – Further to our report in the previous edition of this newsletter (i.e. edition number 5) about the conclusion of the tax treaty between Oman and Portugal (on 28 April 2015), it has now been reported that Oman ratified the treaty as per the adoption of Royal Decree No. 27/2015. In the meantime, the characteristics of the treaty have become public. Hereafter, we set out the most noteworthy treaty characteristics: • Withholding tax on dividend payments in the source state is permitted, however such tax is capped at: (a) 15% (general cap), or (b) 10% in case the beneficial owner is a company (other than a partnership) which holds directly at least 10 per cent in the capital of the company paying the dividends, or (c) 5% in case of certain specified beneficiaries (mostly government linked or national banks). Reportedly there is a change in the ‘permanent establishment’ concept for Kuwait tax purposes 22 October 2015 – IBFD (Mr. Salah Gueydi) reported that the DITC (Kuwaiti Department of Inspection and Tax Claims) – in a number of cases – adopted an interpretation of the concept of permanent establishment (PE) that substantially deviates from the international standard of the PE concept as defined by the OECD and UN Models. According to the alternative interpretation followed by the DITC, a non-resident company will have a PE in Kuwait if: • it renders services to an entity with respect to the latter’s activity in Kuwait, regardless of where the services are performed; and • the duration of the contract under which the services are rendered equals or exceeds the period provided for in the relevant tax treaty. It must be noted that under the alternative interpretation of the PE concept as reportedly followed by the DITC, it is possible that a non-resident company has a PE in Kuwait even if all the activities are performed outside Kuwait. Such a PE is then also referred to as a “virtual PE”. Tax treaty negotiations between Kuwait and Sweden commenced 13 October 2015 – Following a recent meeting held between officials of Sweden and Kuwait in Stockholm, Sweden, negotiations to come to a tax treaty between the countries have commenced. As soon as there are noteworthy developments, these will be published in this newsletter. Oman Negotiations between Oman and Estonia on tax treaties on the way 22 October 2015 – Following a meeting between officials held from 20 until 22 October 2015, it has been reported that negotiations to come to a tax treaty between Oman and Estonia have commenced. A tax treaty between the countries is expect to be concluded in the near future. 5 6 7 Qatar – Japan tax treaty ratified by Qatar 24 June 2015 – It has been reported that the tax treaty between Qatar and Japan was recently ratified by Qatar’s Emir as he issued an instrument approving the ratification of the tax treaty. For the main characteristics of the tax treaty, we refer to the previous edition of this newsletter (i.e. edition number 5). We will update you of any relevant developments in future editions of this newsletter, once available. Qatar – South Africa tax treaty ratified by both countries 24 June 2015 – It has been reported that the tax treaty between Qatar and South Africa was recently ratified. On 20 May 2014, the South African parliament ratified the tax treaty. On 24 June 2015, Qatar’s Emir issued an instrument approving the ratification of the tax treaty between Qatar and South Africa. For the main characteristics of the tax treaty, we refer to the previous edition of this newsletter (i.e. edition number 5). If the formal procedures for the ratification will be completed this year (e.g. the exchange of ratification instruments), the treaty will enter into force still in 2015. Only in that case the provisions of the treaty will become effective as per 1 January 2016 (reference is made to article 26 of the treaty). Gambia ratified the tax treaty with Qatar 23 June 2015 – Further to the ratification of the treaty by Qatar (on 10 May 2015), Gambia recently ratified the tax treaty with Qatar. If all formalities (e.g. exchange of ratification instruments) are complied with before the end of the year, the treaty will enter into effect as per 1 January 2016. We refer to edition number 4 of this newsletter for an overview of the main characteristics of the treaty. Negotiations for tax treaty between Qatar and Tajikistan 10 June 2015 – Following a meeting between officials from Qatar and Tajikistan, which was held in Dushanbe, Tajikistan on 10 June 2015, the countries have expressed their intentions to negotiate and sign a tax treaty with each other. More details are not know yet but will be reported once available. • Withholding tax on interest payments in the state in which the debtor is a resident is permitted, however such tax is capped at: (a) 10% of the gross amount of the interest, or (b) 5% in case the payment is made to certain specified privileged beneficiaries (mostly government linked parties or national banks). • Withholding tax on royalty payments is capped at 8% of the gross amount of the royalty payment. • Capital gains realized on shares in a company which is resident in the other country may be taxed in the state in which the alienator is a resident. However, when the company it regards derives its value for more than 50 percent directly or indirectly from immovable property situated in a country, the capital gain is taxable in the latter country. • The protocol to the treaty contains a provision to combat anti-abuse. This article states among others that: - the countries remain allowed to impose their national anti-abuse measures under the treaty; - treaty benefits will not be granted to parties who are not the beneficial owner of the income; and - the treaty shall not apply if it was the main purpose or one of the main purposes of any person concerned to take advantage of the treaty. Qatar Qatar – Spain tax treaty signed 10 September 2015 – Officials of Qatar and Spain concluded a tax treaty in Madrid, Spain on 10 September 2015. Details of the treaty are not yet public, but will be reported once available. Qatar – Iraq tax treaty authorized for signature by Iraq 27 July 2015 – The Council of Ministers of Iraq authorized its Minister of Finance to negotiate and sign a tax treaty with Qatar. Further details or developments are not public yet, but will be reported once available. 7 • Capital gains realized by the non-resident shareholder upon the shares of a company resident in the other country are generally taxable in the country in which the alienator is a resident. However, in case the disposal regards shares whose value is derived mainly (for more than 50 per cent) directly or indirectly from immovable property situated in the other country, such gains may be taxed in that other country. However, irrespective of the previous sentence gains from the alienation of shares forming part of a substantial participation in the capital of a company resident of a country and not listed in a stock exchange in any of the countries, may be taxed in that country. A person is considered to have a substantial participation when this participation is, at least, 25 per cent of the capital of that company. • The treaty provides for a detailed anti-abuse provision (article 28 – miscellaneous provisions). We will update you in future editions of this newsletter about relevant developments with respect to this treaty such as on the ratification procedures. Tax treaty between Saudi Arabia and Gabon authorized for signing by Saudi Arabia 7 September 2015 – The Cabinet of Saudi Arabia authorized the Ministry of Finance to conclude a tax treaty with Gabon. The details of the treaty are not yet but will be reported once available. Tax treaty between Saudi Arabia and Kyrgyzstan approved by Kyrgyzstan 20 July 2015 – Further to the adoption of the bill ratifying the tax treaty by the parliament of Kyrgyzstan on 17 June 2015, the tax treaty with Saudi Arabia (concluded on 2 December 2014) has now been ratified by Kyrgyzstan following the signature of the President of Kyrgyzstan. As far as we are aware the tax treaty has not been ratified by Saudi Arabia yet. We will update you of development in future editions of this newsletter. Qatar – Latvia tax treaty entered into force 1 June 2015 – The tax treaty between Qatar and Latvia, which was concluded on 26 September 2014 in New York, entered into force. According to article 29 of the treaty (‘entry into force’) the provisions of the treaty enter into effect as per the beginning of the calendar year following the year in which the treaty entered into force (i.e. as per 1 January 2016). For the main treaty characteristics of this treaty, we refer to edition number 4 of this newsletter. Saudi Arabia Tax treaty between Saudi Arabia and Morocco approved by Morocco 22 October 2015 – Further to our report in the previous edition of this newsletter (in which we reported that Saudi Arabia concluded a tax treaty and where we set out the main characteristics of that treaty), it has now been reported that the Moroccan Council of Government approved the tax treaty. More information about the ratification procedure and other relevant developments will be reported by us once available. Tax treaty between Saudi Arabia and Sweden concluded 19 October 2015 – A tax treaty was concluded between Saudi Arabia and Sweden on 19 October 2015. The main treaty characteristics are as stated below. • The treaty provides a maximum withholding tax rate on payments of dividends of 5% of the gross amount of the dividend if the beneficial owner is a company (other than a partnership) which holds at least 10 per cent of the voting power or voting shares of the company paying the dividends, or 10% in all other cases. • The treaty provides for an exemption on interest withholding tax. • The withholding tax rate on royalty payments amounts to 5% of the gross amount of the royalty on payments for the use of, or the right to use, industrial, commercial or scientific equipment, and 7% on all other royalty payments. 8 9 Consequently, according to article 30 of the treaty its provisions will take effect as from 1 January 2016. The main characteristics of the treaty are as follows. The maximum dividend withholding tax under the treaty amounts to 5% of the gross amount of the dividend payment if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends, or 10% in all other cases. The maximum withholding tax rate on interest payments and royalty payments amounts to maximum 8% of the gross amount of the payment. Capital gains on shares are generally taxable only in the state in which the alienator is a resident. Furthermore, the treaty provides that nothing shall affect the application of the domestic provisions to prevent tax evasion and tax avoidance. United Arab Emirates Tax treaty between UAE and Macedonia concluded 26 October 2015 – Officials of Macedonia and the UAE signed a tax treaty in Dubai, UAE. The contents of the treaty are not public but developments and contents will be reported once available. Macedonia approved tax treaty with Saudi Arabia 14 July 2015 – Further to our report in edition number 4 of this newsletter about the conclusion of a tax treaty between Saudi Arabia and Macedonia, the government of Macedonia approved such treaty. In the meantime, the main characteristics of the treaty also have become available. The treaty provides for a maximum dividend and interest withholding tax rate of 5% of the gross amount of the payments. However, interest payments to certain creditors in the public domain are exempt from interest withholding tax under the treaty. Withholding tax on royalty payments should not exceed 10% of the gross amount of the royalty payments. Capital gains realized on the disposal of shares of a company resident in a country by al alienator in another country are generally taxable only in the country in which the alienator is a resident. The treaty contains an anti-abuse provision which states that nothing in the treaty shall affect the application of the domestic provisions to prevent tax evasion and tax avoidance. Tax treaty between Saudi Arabia and Tajikistan entered into force 1 June 2015 – The tax treaty between Saudi Arabia and Tajikistan entered into force as per 1 June 2015. 10 11 Tax treaty between UAE and Denmark intentions expressed 30 September 2015 – Following the a meeting between officials from the UAE and Denmark in Abu Dhabi on 30 September 2015, the countries have expressed their intentions to negotiate and sign a tax treaty with each other. As soon as there is any news on this topic, we will report accordingly in future editions of this newsletter. Tax treaty negotiations between UAE and Nepal commenced 27 September 2015 – Following a meeting between officials from Nepal and the UAE in New York, USA, on 27 September 2015, the countries entered into negotiations to come to a tax treaty between the countries. As soon as there are noteworthy developments, these will be published in this newsletter. Tax treaty between UAE and Andorra concluded 28 July 2015 – Officials of Andorra and the UAE signed a tax treaty between each other. Contents of the treaty are not public. However, any future relevant developments will be reported once available. Tax treaty between UAE and Uruguay ratified by UAE 28 July 2015 – The tax treaty between the UAE and Uruguay was ratified by the UAE by way of Decree 64/2015 and subsequent publication in the national state gazette. An English version of the treaty is yet not available. The main characteristics of the treaty will be reported once available. Tax treaty negotiations between UAE and Australia ongoing 10 July 2015 – Following a recent meeting between officials from Australia and the UAE, negotiations are currently ongoing to come to a tax treaty between the two countries. As soon as there are noteworthy developments, these will be published in this newsletter. Tax treaty between UAE and Ethiopia approved by UAE Cabinet 25 October 2015 – The UAE Cabinet approved the tax treaty between the UAE and Ethiopia. The tax treaty was signed on 12 April 2015 (as reported in edition number 5 of this newsletter). Presently, the exact details have not been made public but will be reported once available. Tax treaty between UAE and Cuba coming up? 24 October 2015 – Following the recent UAE-Cuba Investment Forum held in Dubai, UAE, the government of the UAE have expressed their intentions to negotiate and sign a tax treaty between the countries. More details are yet not public but will be reported once available. Tax treaty between UAE and Senegal concluded 22 October 2015 – Officials of Senegal and the UAE signed a tax treaty between the countries. Contents of the treaty are not public but developments and contents will be reported once available. Tax treaty between UAE and Mauritania concluded 21 October 2015 – Officials of Mauritania and the UAE signed a tax treaty. Contents of the treaty are not public but developments and contents will be reported once available. Tax treaty between UAE and Belize concluded 2 October 2015 – Officials of Belize and the UAE signed a tax treaty in New York, USA. Contents of the treaty are not public but developments and contents will be reported once available. Tax treaty between UAE and Liechtenstein concluded 2 October 2015 – Officials of Liechtenstein and the UAE signed a tax treaty in New York, USA. Contents of the treaty are not public but developments and contents will be reported once available. 11 UAE – Hong Kong tax treaty ratified by Hong Kong 3 July 2015 – Hong Kong ratified the tax treaty between the UAE and the country. The treaty was concluded on 11 December 2014 in Dubai, UAE. To our knowledge, the treaty has yet not been ratified by the UAE. Once this happens and when the ratification instruments have been exchanged, the treaty will enter into effect. We refer to edition number 4 of this newsletter for a detailed description of the contents of the treaty. Tax treaty between UAE and Kyrgyzstan ratified by Kyrgyzstan 17 June 2015 – The tax treaty between the UAE and Kyrgyzstan, which was concluded on 7 December 2014, was ratified by Kyrgyzstan on 17 June 2015. To our knowledge, the tax treaty has not been ratified by the UAE. As soon as more information about the developments regarding this tax treaty becomes available, we will report accordingly in this newsletter. Tax treaty between UAE and Uganda concluded 9 June 2015 – Officials of the UAE and Uganda concluded a tax treaty between the countries on 9 June 2015 in Entebbe, Uganda. Information about the details of the tax treaty has not been made available, but will be reported in future editions of this newsletter once available. 12 13 Contact Loyens & Loeff P.O. Box 506647, Dubai Dubai International Financial Centre (DIFC), Gate Village, Building #10, Level 2, Office 202, Dubai United Arab Emirates T +971 4 437 27 00 F +971 4 425 56 73 Jan Bart Schober T +971 4 437 27 07 M +971 56 179 67 76 E jan.bart.schober@loyensloeff.com Tim Dopmeijer T +971 4 437 27 12 M +971 502 403 453 E tim.dopmeijer@loyensloeff.com www.loyensloeff.com About Loyens & Loeff At the heart of the legal and tax world Independent, international and specialised in Dutch, Belgian, Luxembourg and Swiss law. With offices in the Netherlands, Belgium, Luxembourg and Switzerland and branches in the most important global financial centres, Loyens & Loeff is completely at the heart of the legal and tax world. Your interest is our priority With a wealth of knowledge and experience gathered over the years, we have been active in the legal and tax environment since the beginning of the 20th century. You can count on us to provide personal, tailored advice worldwide. Our 820 advisers closely follow all developments and act quickly to turn them to your advantage. Directly, proactively and always with your best interests as our priority. We combine our knowledge and experience to create high-quality, creative and efficient solutions. That way we can resolve your issues with an innovative and pragmatic approach. Integrated and connected Within Loyens & Loeff, our legal and tax advisers work under the same roof. That means that lawyers, tax advisers and civil law notaries form cohesive teams and all challenges are approached from various angles. Integrated and connected. We view matters from all perspectives that come with a fullservice practice. We always consider the full range of options for your situation, which offers you numerous advantages. Although this publication has been compiled with great care, Loyens & Loeff N.V. and all other entities, partnerships, persons and practices trading under the name ‘Loyens & Loeff’, cannot accept any liability for the consequences of making use of this issue without their cooperation. The information provided is intended as general information and cannot be regarded as advice. www.loyensloeff.com Amsterdam Arnhem Brussels Dubai Hong Kong London Luxembourg New York Paris Rotterdam Singapore Tokyo Zurich