UAE-Saudi double tax avoidance agreement to lift trade, investment
The Avoidance of Double Taxation Agreement between the UAE and Saudi Arabia, which is expected to facilitate the two-way investment flow, boost bilateral trade and further bolster economic ties, has come into effect at the beginning of April after nearly a year the landmark pact was signed.
The two countries signed the double income tax treaty, the first such agreement between two members of the GCC, in May 2018. The agreement seeks to strengthen cooperation frameworks in tax matters and consolidate financial, economic and investment relations as well as encourage free movement of capital and service exchange between the two nations, tax experts.
Tax experts said the treaty would benefit individuals and corporates in the two countries. An international tax framework provides important protections and benefits for UAE companies and expatriates. For expatriates, the agreement come into play when they have a second residency outside the UAE. For companies, agreements can result in exemptions and reduced withholding tax rates on dividends, interest and royalties. If a UAE company has international shareholders, it is not subject to the tax of the jurisdiction of the shareholders, according to experts.
Double taxation avoidance agreements allocate taxing rights and ensure individuals and businesses are only taxed once. They clarify how certain types of income, such as dividends, property income and pensions, should be taxed, and lay out rules on non-discrimination to prevent different treatment based on factors such as nationality or residency, according to analysts.
Younis Haji Al Khoori, under-secretary of the Ministry of Finance, said the agreement is an important step in enhancing bilateral relations between the two countries, especially in financial and economic spheres. “This agreement will contribute to a more flexible investment climate that will underscore the country’s position as a key destination for Saudi investments. This agreement represents a qualitative leap forward in terms of the framework of financial, economic and tax cooperation between GCC countries,” he added.
The Ministry of Finance aims to expand the network of bilateral double taxation avoidance agreements with various countries around the world to fulfil the vision of the wise leadership of the state in diversifying sources of income and advancing the development objectives of the state, said Al Khoori.
“These agreements contribute to the elimination of double taxation, facilitate cross-border trade and investment flows, and provide protection to taxpayers from direct and indirect double taxation. This in turn enhances the country’s investment climate and makes it more attractive as a destination for foreign investment,” said Al Khoori.
Investments of Saudi citizens and banks in the UAE were valued at Dh17.08 billion in 2017, whereas the number of business licences issued to Saudi citizens in the UAE reached 12,451 by end of 2017.
Official data shows that the volume of trade between Saudi Arabia and the UAE reached Dh32.93 billion in 2017, and the number of Saudi shareholders in the UAE joint stock companies reached 118,8708.
The value of real estate transactions for Saudi nationals in the UAE was Dh59 billion in 2017, while the total number of property owners in the UAE was estimated at 4,989 by end of 2017.
VAT not recoverable on staff parties in the UAE, clarifies regulator
Tax registered businesses in the UAE cannot recover value added tax (VAT) incurred on expenses associated with activities to entertain personnel, such as staff parties that are free to attend, the Federal Tax Authority (FTA) has clarified.
According to the federal law, VAT incurred on goods or services purchased to be given away to staff free of charge, in order to reward them for long service, should be blocked from recovery of the tax, the FTA said.
Examples of these gifts include: long service awards, retirement gifts, Eid gifts, or gifts for other festivals or special occasions, gifts given on the occasion of a wedding or birth of a child, employee of the month gifts, or a dinner to reward service.
In a recent press statement, the FTA clarified that entertainment services consist of “hospitality of any kind” including the provision of: accommodation; food and drinks which are not provided in a normal course of a meeting; and access to shows or events or trips provided for the purposes of pleasure or entertainment.
However, a ‘designated government entity’ is eligible to recover the input tax incurred on costs to provide entertainment services to anyone not employed by the entity.
The exception is applicable: during meetings with delegations from other countries where lunch or dinner is provided; during meetings with representatives from other government entities to discuss official business, where refreshments are provided; and during ceremonies held to mark significant political events, eg the signing of an international agreement, where entertainment is provided to the audience.
For VAT registrants who are not ‘designated government entities’, input tax cannot be recovered if it is incurred for entertainment services provided to non-employees including customers, potential customers, officials, or shareholders, or other owners or investors.
The FTA also clarified that if goods or services are purchased for use by employees for their personal benefit, including the provision of entertainment services, then the VAT incurred on the cost is not recoverable unless an exception applies.
This means that all companies, including ‘designated government entities’, which provide entertainment services to employees are prevented from recovering any VAT included on such costs.
The only circumstances in which a taxable person is entitled to recover VAT on such costs are: where it is a legal obligation to provide those services or goods to those employees; it is a contractual obligation or documented policy to provide those services or goods to those employees so that they may perform their role and it can be proven to be normal business practice; and where the provision of goods or services is a deemed supply under the provisions of the decree-law.
The authority also outlined certain circumstances where a taxable person will fund or reimburse an employee for certain costs incurred for business purposes.
These include cases where an employee is on a domestic business trip and requires overnight accommodation – in which case the VAT incurred on hotel costs would be recoverable; as well as input tax incurred on subsistence costs – food and drinks purchased by the employee for their own consumption during the trip.
But if the employee incurs costs which are related to entertaining a current or potential customer/supplier, then any associated input tax incurred will be non-recoverable.
The FTA issued the latest public clarification regarding ‘Non-Recoverable Input Tax – Entertainment Services’ on its website to raise awareness among tax payers about the technicalities of the system, a statement said.
FTA director general Khalid Ali Al Bustani said: “These clarifications are formulated after a thorough study of the tax laws, executive regulations, and the guides published on the Federal Tax Authority’s website.”
The UAE introduced the 5 per cent VAT on most goods and services from January 1 this year.
FTA to hold tax clinics to promote compliance
The Federal Tax Authority (FTA) has announced a new campaign to communicate directly with businesses.
The campaign kicks off on Sunday, August 12, 2018, in Ras Al Khaimah, before moving on to Fujairah and then the rest of the emirates for a duration of three months, where representatives from the Authority will be present at the Clinic to answer taxpayer queries regarding registration with the FTA and other tax obligations.
A team of experts from the FTA’s registration and taxpayer services will go on an extensive tour, the first stage of which will take place from August 12 to 14 in Ras Al Khaimah, moving on to Fujairah from August 26 to 28, then Um Al Quwain from September 2 to 4, and Ajman on September 9 to 11, 2018.
The campaign will be returning to Ras Al Khaimah on September 16 and 18, moving on to Sharjah on September 23 and 25, then Fujairah again on September 30 to October 2, Um Al Quwain from October 7 to 9, Ajman from October 14 to 16, back to Fujairah on October 21 to 23, before concluding with a third and final stop in Ras Al Khaimah on October 28-30.
Khalid Ali Al Bustani, director-general, FTA, said the experts conducting the Tax Clinic will address all tax concerns raised by representatives of taxable businesses, answer their queries and address the challenges that face them. They will provide guidance with regards to registering for VAT, preparing and submitting tax returns, paying due taxes and avoiding the most common mistakes or technical difficulties associated with these responsibilities.
The experts will also distribute educational and awareness publications issued by the Authority to explain systems and procedures and answer frequently asked questions.
Banks fined depositors Dh2.7b for not maintaining minimum account balance
As many as 21 public sector banks and three major private sector lenders collected a whopping Rs 5,000 crore (Rs 50 billion) from customers for non-maintenance of minimum balance in their accounts in 2017-18, according to banking data.
India’s largest lender State Bank of India, which suffered a staggering net loss of Rs 6,547 crore during 2017-18, led the pack in penalising its customers for not maintaining minimum account balance. The government-owned SBI, which re-introduced the penalty on deposits going below monthly average balance basis from April 2017, collected nearly half the amount raised by the 24 banks put together (Rs 4,989.55 crore).
But for the additional income of Rs 2,433.87 crore under this head, SBI’s losses would have soared further.
After SBI, the largest amount of charges for not maintaining minimum balance during 2017-18 was collected by HDFC Bank. It charged its customers Rs 590.84 crore, which is lower than Rs 619.39 crore in 2016-17, the data revealed.
Axis Bank collected Rs 530.12 crore in the last fiscal while ICICI Bank charged Rs 317.6 crore.
SBI was charging the penalty on failure to maintain monthly average balance requirement till 2012 and again re-introduced it from April 1, 2017.
Following the criticism, SBI reduced charges with effect from October 1, 2017.
According to the RBI norms, banks are permitted to levy service/miscellaneous charges.
Customers opening accounts under Basic Savings Bank Deposit (BSBD) scheme as well as Pradhan Mantri Jan Dhan Yojna are not required to maintain any minimum balance.