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gulfnews , Gulf News
UAE AND INDIA MARK THE FIRST YEAR UNDER THE LANDMARK AGREEMENT
A year after the UAE-India Cepa deal came into effect, the stage is set for the next big bang in trade and investment flows between the countries – a dirham-rupee payment mechanism.
When that happens, multiple categories – and businesses within them – would benefit from the closing deals in the two currencies and not have to use US dollars to make it happen. What that does is cushion trade between the countries from foreign exchange volatility brought on by the dollar’s movements.
“India is looking to ways that can speed up and smoothen out trade with its biggest economic partners,” said a senior Indian government source. “We have learnt the processes well in using the rupee in financing imports from Russia, and it’s been a major factor in limiting inflationary pressures in the economy.”
“If India and UAE sign a deal confirming rupee-dirham, it will further expand the scope of Cepa.”
Meeting CEPA targets
It was with India that the UAE entered into its first CEPA – or the Comprehensive Economic Partnership Agreement – that immediately brought down import duty across categories and opened up new investment possibilities for entities in these countries.
What UAE and India are looking for are to go in for immediate benefits from CEPA where possible and then work on those areas where they can make steady progress.
“I’m not aware of any UAE imports that are subject to 0 per cent import duty in India,” said Raju Menon, Chairman and Managing Partner at Kreston Menon, the audit consultancy.
“However, under CEPA, India has agreed to reduce or eliminate tariffs on a range of products imported from the UAE.”
“The UAE has agreed to provide tariff concessions to India on 60 per cent of items traded between the two, including on basmati rice, textiles, and pharmaceuticals.” (India last week reworked the processes involved for the country’s gold trade to source bullion from the UAE under CEPA. This could in the coming months see UAE provide up to 140 tonnes of bullion to India, and which will consolidate its status as the second biggest supplier of gold to that market after Switzerland.)
Trade is on the up
Trade gains have been there from the start of the CEPA becoming effective from May 1. Between April to November 2022, two-way movements totalled $57.8 billion from $45.3 billion a year prior to that. That’s a rise of $12.5 billion in value terms and 27.5 per cent in percentage terms.
India’s exports to the UAE went past $20 billion during this period, leveraging a 19.32 per cent increase.
“As per the CEPA agreement, there would be periodic reviews to assess progress and identify areas for further cooperation,” said Menon. “The UAE has set up a dedicated task force to ensure the smooth implementation of the agreement, while India has created a website to provide information about the CEPA and facilitate trade between the countries.”
Beyond $100b in trade
Boosting two-way trade to $100 billion is the stated aim before the end of this decade, but there is also the greater emphasis on generating more from trade in services, with a target of $15 billion.
The cable-maker Ducab Group recently opened an office in the south Indian metropolis of Bengaluru, and its CEO Mohammed Abdul Rahman Al Mutawa was there on the ground. And he’s liking what’s showing up as possibilities post-CEPA.
“India is our new home market,” said Al Mutawa. “India has always been of interest to us and CEPA made the decision of opening an office in Bengaluru easier.”
“Ducab has been supplying to the Indian market since 1988, with its first project being the Nhava Sheva Port in Mumbai. Ducab has supplied 263,000 MT of of CuEq (copper equivalent) of metals to the market through the years. This is equal to powering approximately 3 million houses.
The other big investments or commitments made by UAE businesses are by the likes of Emaar, LuLu and the Sharaf Group, while DP World is expanding the scope of its already substantial interests in that market.
But business chiefs say it is still too early to fully realise the full possibilities that come with CEPA. “The impact of such agreements can take time to be felt, as businesses need to navigate through the legal and regulatory requirements of investing in a foreign country,” said Abdul Jebbar P. B., Group Managing Director at Dubai-based Hotpack Global, currently on a major expansion in the UAE and Saudi Arabia.
India is becoming one of the most desirable markets for businesses from all over the world due to its sheer size. And the government has been prudent in encouraging investment.”
With CEPA, UAE businesses with an India focus might have that extra edge.
Noboru , H.E. Noboru Sekiguchi, Consul-General of Japan in Dubai
In this year of 2022, Japan and the United Arab Emirates are celebrating the 50th anniversary of the diplomatic relations which was established on 4th May 1972. The two nations have been fostering strong and friendly relationships for the past 50 years.
The trade relationship between Japan and the UAE have been traditionally highlighted by the cooperation in the energy field. However, in recent years both the governments have worked together on expanding the scope of cooperation in various fields such as education, renewable energy and space explorations. Let me point out the importance of the “Comprehensive Strategic Partnership Initiative (CSPI)” between our two countries, which is designed as a new cooperation framework based on the Joint Statement issued on the occasion of the visit by the then Prime Minister, Mr. Shinzo ABE to the UAE in 2018. The CSPI framework covers 12 fields of cooperation, not only traditional fields such as energy and business but also advanced technologies and women empowerment.
The bilateral cooperation has now flourished beyond the earth to the space. The UAE became the first Arab country to reach Mars in February last year with its Mars Mission named Hope Probe, and this made the people in the UAE and Japan excited. The HOPE was launched from the Tanegashima Space Center in Japan with an H2A rocket which was made in Japan by the Mitsubishi Heavy Industries, a renowned Japanese company. This is one among many contributions by Japan to the UAE’s space explorations, and the achievement gives us literally a “hope” for the future of our bilateral cooperation.
When we turn our eyes to the Expo, we can find interesting links between the two countries. The Emirate of Abu Dhabi participated in an Expo for its first time, even before the founding of the UAE, when the City of Osaka in Japan hosted the Expo in 1970. Half a century later, the UAE hosted the Expo 2020 Dubai, the very first Expo in the MENA region which saw the largest global gathering since the start of the pandemic, came to an end on March 31, 2022. Then, the baton of the Expo-host was handed over from Dubai to Expo 2025 Osaka, Kansai.
Relations on Trade and Commerce
Let me give you an overview of the trade relations between Japan and the UAE. The total value of imports from Japan to the UAE was USD 7.1 billion and that of exports from the UAE to Japan was USD 26.2 billion in 2019, which was before the pandemic. While the total value of both imports from Japan and exports to Japan dropped to USD 5.5 billion and to USD 16.3 billion respectively in 2020, the UAE is still one of the ten biggest importing partners for Japan and maintains strong trade ties with Japan. Transportation equipments account for the majority of Japan’s exports to the UAE. For Japanese industrial products, the UAE is an important destination because it has always been a re-exporting base to the markets abroad for these products. The importance of the UAE for Japan as a close trading partner would remain unchanged in the foreseeable future.
As for business and commerce relationships between our two nations, approximately 290 Japanese companies are currently operating in Dubai and the Northern Emirates, which cover a wide range of industries including manufacturing, wholesale and retail and transportation services. Many Japanese enterprises have established their regional headquarters for business in the Middle East and Africa in Dubai, owing to business-friendly environment for foreign companies created and enhanced by the UAE over the past 30 to 40 years, which consists of the stable social and political situation, the well maintained public safety and security and excellent infrastructure such as electricity, water, telecommunications, medical care and educational system, to name a few.
Furthermore, there are many free zones with much less restrictions for foreign investors and English is widely spoken as a business language in the UAE. These are the factors that have contributed to the UAE ranking first in the MENA region and 16th in the world in the business environment ranking issued by the World Bank. However, I believe the most important reason is that Dubai has created a diverse and tolerant society where people from different cultures and backgrounds find it easy to reside. The expat business community finds it welcoming that they have access to non-halal food and alcoholic beverages at select places in the emirate.
In addition, Dubai has succeeded in mitigating socio-economic impact of the pandemic since the early 2020, by starting PCR tests widely in the emirate while strengthening its medical systems, by having resumed to accommodate travelers including tourists from abroad as early as July 2020 and by accelerating the vaccination process at the fastest pace possible. Then, the Expo 2020 Dubai opened doors to the world, adopting effective preventive measures against the COVID-19 in October 2021. The event which was forced to be postponed for a year due to the pandemic, came to the grand finale with a great success at the end of March 2022. This success proved that those preventive measures by Dubai were correct and appropriate.
The government of Dubai has been standing firm with its policy of managing society “with COVID-19” since the early stage of the pandemic. This policy has made it possible for Dubai to continue to be a valuable and attractive investment destination not only for Japan, but also for countries all over the world.
Contribution to FDI from both sides
We, Japanese, welcome the trend of revamping the regulations on foreign investments in the UAE over the past few years. The abolishment of the required majority shareholding ratio of the UAE nationals in the foreign investments with the amendment to the Commercial Companies Law in September 2020 could be a tailwind policy for Japanese corporations who generally prefer 100% capital investments. Even the Japanese companies who have established their offices in the free zones see the new policy as a positive development in the UAE as it allows them to operate their businesses not only inside but also outside of the free zones.
It is noteworthy that each emirate is very proactive in attracting start-up companies from abroad. In this context, I could mention a few examples in Dubai – the Dubai Silicon Oasis, the Dubai Start-up Hub, and the Dubai International Financial Centre. Moreover, events such as GITEX and the Sharjah Entrepreneurship Festival are being held at various locations in the UAE to bring together the latest technologies and ideas from around the globe and Japanese start-ups are also turning their attention to the UAE.
Furthermore, I would like to point out that there is a growing business relationship between Japan and the UAE, not only at the national level but also at the local level, for example between Dubai and the Osaka Prefecture or the City of Osaka, the next host city of the Expo and the sister city of Dubai. Last December, the Osaka Chamber of Commerce and Industry co-hosted an online event with the Dubai Chamber of Commerce and Industry for business exchanges including a pitch session by enterprises located in Dubai and the other Middle Eastern countries who are keen to entering the Japanese market. Also, the Osaka Prefecture hosted a symposium in February 2022 connecting Japan and Dubai to encourage Japanese corporations to expand their operations into overseas as part of the commemoration events of the 50th anniversary of the diplomatic relations between Japan and the UAE.
Future Vision
As aforementioned, this year marks the 50th anniversary of the establishment of the diplomatic relations between Japan and the UAE. I, as the Consul-General of Japan in Dubai and the Northern Emirates, would like to emphasize my efforts in the following areas to make our relationship more multilayered and multifaceted towards the 50 years to come.
First, let me take up the economic area. I would like to bring new Japanese companies, especially start-up companies to the UAE, in addition to supporting Japanese enterprises who have been already operating in the UAE. On one hand, I believe that there are many start-ups in Japan which could provide solutions to the needs of the governmental organizations as well as private companies in the UAE.
On the other hand, I strongly feel that efforts have to be taken to make Japanese start-ups aware of the attractiveness of the UAE as an operation base and the business opportunities which the UAE is offering to foreign entrepreneurs. I would, therefore, like to promote exchanges between companies including start-ups from both nations and contribute to further economic development of our countries.
Secondly, I would like to increase the number of inbound tourists from the UAE by introducing them to various charms of Japan, especially food related ones such as wide variety of culinary in Japan and high-quality Japanese ingredients. We offered Saroma Wagyu which is one of the premium beef produced in the Hokkaido prefecture, Anpogaki (persimmons) from the Fukushima prefecture, and Crown Melon from the Shizuoka prefecture, when I hosted our Emperor’s Birthday Reception on the occasion of the 62nd birthday of His Majesty the Emperor Naruhito in February. After witnessing the long queue and receiving positive feedback from the guests, I found once again the tremendous market potential our food products have.
Lastly, I would like to develop platforms for further exchanges between the youths of Japan and the UAE who will lead the next generation of our great nations. In this context, I am strongly interested in promoting exchanges in new areas such as e-sports and e-games. The UAE Olympic Committee has recently recognized e-sports as an official event, and this proves the growing popularity of e-sports in the UAE. I have high expectations for young people to play a key role for deepening mutual understanding between Japan and the UAE and for being the driving force to further enhance our existing harmonious relationship for the next 50 years.
Pushpan , Pushpakaran Parambath, Senior Partner - Kreston Menon Corporate Services
The United Arab Emirates government published the Federal Decree No. 32 of 2021 concerning UAE Commercial Companies Law (CCL 2021) which came into force on 2nd January 2022, on which date the Federal Decree Law No. 2 of 2015 and its amendments (CCL 2020) were repealed.
Prominent provisions and amendments to the Law:
Public Joint Stock Companies (PJSC)
(a) Allows the establishment of companies for the purposes of acquisition or merger, and SPVs, and establishes a legal framework for these new legal forms and excludes them from some provisions of the Companies Law through a decision issued by the SCA to regulate the work of these forms of companies.
(b) Abolishes the maximum and minimum percentage of the founders’ contribution to the company’s capital at the time of the public offering as well as cancels the legal limitation of the subscription period and leaving the two matters to what is specified in the prospectus.
(c) Eliminates the requirement for the nationality of the members of the board of directors and upholds the organization shareholders’ decisions in the election of board members, in accordance with the terms and conditions set by the competent authority.
(d) Allows companies to transform into a Public Joint Stock Company and sell its shares or offer new shares in a public subscription without being restricted to a certain percentage by following the price-building mechanism of the security.
(e) Allows companies to divide and create legal rules governing division operations, thus contributing to diversifying the company’s activities and fields of work and increasing its projects and growth opportunities.
(f) Allows companies to determine the face value and to determine the percentage of the offering. The CCL 2021 allows shareholders to determine the nominal value of shares as specified in accordance with the PJSC’ Articles of Association thus removing the range of AED 1 to AED 100 prescribed by the CCL 2020.
(g) Finds financing solutions for companies through the issuance of other types of shares.
(h) Allow companies to issue discounted shares in case the market value of a company’s share price falls below the nominal value subject to (a) passing a special resolution; and (b) obtaining the approval of the Securities & Commodities Authority (SCA). However, the result of issuance of shares at a discount will cause a negative reserve, which must be settled from its future profits before any profit can be distributed amongst the shareholders.
Limited Liability Companies (LLC)
(a) Expiration of the Board of Managers’ term If the term of the Board of Managers expires, and a new Board of Managers is not appointed, then the existing board will continue to manage the LLC for a period of 6 months. At the end of this term a new board must be appointed by the LLC, and if not appointed, the Department of Economic Development (DED) can appoint a board whose term will not exceed one year, during which, the LLC must appoint a new Board of Managers. Therefore, the appointment of the Board of Managers by the DED is a stopgap arrangement that will be regularised if the LLC fails to appoint the board itself.
(b) Appointment of the Supervisory Board CCL 2020 obligated LLCs to appoint a Supervisory Board when the company consists of more than 7 shareholders. CCL 2021 has increased the number of required shareholders to 15. The Supervisory Board is appointed from at least three shareholders to supervise the company’s annual reports, budgets, distribution of profits and to also supervise the LLCs’ managers and submit a report in this regard to the General Assembly.
(c) Decrease in Legal Reserve CCL 2021 has decreased the extent of allocating a legal reserve from 10% to 5%, and as prescribed by the CCL 2020, the CCL 2021 emphasized that shareholders can stop this allocation if the legal reserve reaches 50% of the share capital.
Foreign Company Branches
Allows branches of foreign companies licensed in the country to transform into a commercial company with UAE citizenship.
Surandar , Surandar Jesrani, CEO & Managing Partner - MMJS Consulting
The Ministry of Finance (MOF) has released high level details on the proposed UAE Corporate Tax (CT) regime in the form of a press release and Frequently Asked Questions (FAQs) published on web portal of tax authorities i.e. UAE MOF and the Federal Tax Authority (FTA). This is motivated by UAE’s desire to integrate into the global business community and meeting international tax standards, while minimizing compliance burden for UAE businesses and shielding small businesses and start-ups.
His Excellency Younis Haji Al Khoori, Undersecretary of MOF, stated that “the certainty of a competitive and best in class Corporate Tax regime, together with the UAE’s extensive double tax treaty network, will cement the UAE’s position as a world-leading hub for business and investment”. The relevant legislation for the CT regime (UAE CT Law) is currently being finalized and is expected to be promulgated during 2022. Once released, the UAE CT Law will provide details and guidance on several critical aspects.
UAE businesses will be subject to UAE Corporate Tax in a staggered manner from Financial Years (FYs) beginning on or after 1 June 2023. An entity having a FY beginning on 1 July 2023 and ending on 30 June 2024 will be subject to CIT from 1 July 2023. While, entities having a FY beginning on 1 January 2023 and ending on 31 December 2023, will be subject to UAE CT from 1 January 2024.
Scope
UAE CT is a federal tax and consequently, will apply to all businesses and commercial activities in the UAE except for extraction of natural resources which will continue to be taxed at the Emirate level. Likewise, the UAE CT regime will apply to individuals to the extent that they hold (or are legally required to hold) a business license or permit to carry out commercial, industrial and/or professional activities in UAE. This includes income earned by freelance professionals for activities carried out under a freelance license or permit.
Rates and Computation
Adopting a slab rate system, the headline UAE CT rate has been fixed at 9% to be calculated on taxable income as below:
An increased UAE CT rate would be applicable for large multinationals that meet specific criteria set with reference to pillar two of the OECD BEPS 2.0. Taxable income for a tax year is to be computed based on accounting net profit/income of a business reported in financial statements prepared in accordance with internationally acceptable accounting standards, after the prescribed adjustments. With a 9% standard tax rate, UAE CT regime will remain one of the most competitive tax jurisdictions in the world.
Exemptions from UAE CT
As per the issued FAQs, certain incomes have been kept outside the ambit of the UAE CT including:
• Foreign investors will not be subject to UAE CT if income is not earned from a regular trade/business in UAE;
• UAE CT will not apply on capital gains and dividends received by a UAE business from ‘qualifying shareholdings’; and
• UAE CT will not be applicable to qualifying intragroup transactions and restructuring subject to certain conditions to be specified under the legislation.
It has also been announced that UAE CT will honour tax incentives committed to businesses located in Free Zones, to the extent that eligible entities comply with applicable regulatory requirements and do not conduct business in mainland UAE. Further, current business models for trade in goods and/or provision of services may need to be restructured once further guidance is released by MOF. Free Zone businesses will nevertheless have to comply with certain obligations under UAE CT regime, including the obligation to register and file a Corporate Tax return and claim exempt as applicable.
Other key noteworthy aspects from the announcement
The UAE CT regime will allow a business to utilize tax losses incurred (from the date UAE CT is effective) to offset taxable income in subsequent tax years. Based on current guidance, it seems that eligibility for tax losses would be applied on a prospective basis i.e. from the first tax year onwards. Further, a ‘Fiscal Unity’ concept would be implemented as part of UAE Corporate Income Tax (CIT) law i.e. eligible UAE group of companies may elect form a tax group and file a single (consolidated) tax return subject to conditions to be specified.
A tax withholding regime has not been included in proposed UAE CT law. In other words, there will be no withholding tax on domestic and cross border payments. This can be seen as a substantial relief to UAE business as introduction of a withholding tax regime increases compliance burden and other administrative complexities. Foreign Tax Credit (FTC) will be allowed against UAE CT liability. This is in line with corporate tax regimes followed by most of the countries across the globe.
UAE businesses will need to comply with international Transfer Pricing (TP) rules and documentation requirements contained in OECD TP Guidelines (as amended in 2022) for related party transactions. It would be interesting to see if domestic transfer pricing rules are introduced similar to other tax jurisdictions in the region.
Accounting considerations
As per the FAQs, accounting profits/income of a business (which is the starting point of a taxable income computation) should be as per internationally acceptable accounting standards. Hence, it will be obligatory for all businesses under UAE CT regime to maintain accounting records as per International Financial Reporting Standards or prevalent GAAP in UAE. It would be interesting to see whether UAE CT law mandate annual financial statements to be audited in the absence of a mandatory requirement under commercial law for a large section of businesses in the UAE.
Key takeaways and what business in UAE should do in the interim
The announcements and guidance released by UAE MOF has clarified key design features of UAE CT, however, several uncertainties remain awaiting clarity in UAE CT law and its implementing regulations. Whilst the announcement implicates that large multinational groups (MNEs) will be taxed at a higher rate, it remains to be seen how this will be implemented from a policy perspective (e.g., increase in tax rate or a domestic minimum tax/ parallel tax) which is yet to be announced.
Businesses operating in UAE should consider the following to get ready well in advance of the UAE CIT go-live date:
• Finance functions should begin preliminary assessment of existing business operations to identify broad areas which could pose challenges from UAE Corporate Tax perspective
• Discuss the issues identified with relevant departments and plan an approach/ methodology to be adopted for implementing UAE CT
• Identifying possibility to restructure business operations and optimize the current business structure to minimize the impact of the proposed UAE CT and envisaged TP regulations
• Perform gap analysis to identify required system changes to meet financial information requirements for UAE CT compliance.
gulfnews , Gulf News
Those with Mainland Operations Await Signal on Extent of their ‘QUALIFYING INCOME'
Businesses operating out of UAE free zones and with a considerable presence on the mainland are thinking of possible restructures to the organization to absorb the upcoming Corporate Tax.
But any such changes to the business must stay on the right side of the ‘anti-abuse rules’ that form part of the UAE CT regulations, top tax consultants add.
“Yes, restructuring existing operations (of free zone enterprises with mainland operations) needs serious consideration,” said Nimish Goel, Partner at Dubai-based WTS Dhriva Consultants. “However, any restructuring or hiving off (of mainland operations) needs to factor in operational and commercial realities.
“The general anti-abuse rules need to be suitably factored.”
The anti-abuse rules are clear enough – businesses in the UAE cannot make changes solely to gain a tax advantage and thus hope to pay less on their annual income.
Hiving off mainland operations
In their consultations ahead of registering for the UAE CT regime, free zone businesses have talked of the possibility of hiving off their mainland operations to be standalone enterprises. Especially where these businesses operate separate licenses for their free zone and mainland operations.
Free zones represent one of the more significant contributors to the UAE GDP, and the UAE CT rules gives businesses there ample flexibility.
‘Qualifying income’
Under these rules, pure-play free zone businesses/their owners are exempt from the 9 per cent tax payment commitment based on their ‘qualifying income’. And this is to be confirmed by a UAE Cabinet decision that is expected shortly. (The UAE Corporate Tax comes into effect June 1, 2023.)
Raju Menon, Chairman and Managing Partner at Dubai-based consultancy Kreston Menon, emphasizes the point about ‘qualifying income’. “The UAE federal decree stipulated that free zone ‘persons’ could benefit by incurring a 0 per cent corporate tax only on the ‘qualifying income’, which is still to be defined,” said Menon. “Based on available guidance from the UAE Ministry of Finance, the qualifying income should include offshore as well as onshore sources of income of free zone persons (but) subject to strict conditions.
“Hence, there should be detailed guidance forthcoming on this aspect.” (When the decision comes on qualifying income, tax specialists hope it will also address ‘transfer pricing’ issues, which is ‘relevant as entities restructure to have standalone operations between free zone and mainland enterprises’.)
Fairly big incentive for free zone businesses
The ‘free zone person’ incentive is a substantial tax break for eligible businesses, according to Menon. (Apart from businesses engaged in extracting natural resources, government, and government-controlled entities also enjoy exemptions under the Federal Decree Law subject to eligibility criteria and conditions.)
Relief for small businesses
In addition, the Federal Decree Law does contain relief for small businesses ‘where a resident taxable person generating revenue up to a threshold – to be decided by the UAE Minister of Finance – may elect to be regarded as not having derived any taxable income for the relevant tax period,” said Menon. “Accordingly, there will not be any tax cost for such small businesses.
“Any new substantive legislation necessitates businesses to take cognizance of its applicability and plan for efficient change management. Businesses in the UAE should consider undertaking a deep review and documentation of revenue operations, assessing the impact of corporate tax, and completing requisite changes well in time of the effective date.”
Source: “UAE’s free zone companies have lots of tax planning to do”, by Manoj Nair, Business Editor, Business Section, Gulf News newspaper, 4 April 2023 and online article here.
Simon Penney , H.E. Simon Penney, Her Majesty’s Trade Commissioner for the Middle East and Her Majesty’s Consul General to Dubai and the Northern Emirates
The UK and the UAE share a deep and enduring friendship, built on decades of economic, cultural and people to people ties. This friendship, and the history that we share, lay the foundations for our future relationship.
The UK stands shoulder to shoulder with the UAE as the nation celebrates its 50th year, and looks ahead to the next fifty years. This is why the Partnership for the Future is so important. The Partnership for the Future was announced in September by Prime Minister Boris Johnson and HH Sheikh Mohamed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces during His Highness the Crown Prince’s visit to the UK.
I was honoured to have taken part in the visit which saw a wide ranging programme of engagement including a business reception at No10 Downing Street, lunch with the Prime Minister, and a number of bilateral Ministerial meetings over two days. One personal highlight for me was seeing His Highness inspecting the guard of honour on Horse Guards Parade.
A Partnership for the Future
The Partnership for the Future encompasses many areas of collaboration from trade and investment to climate change and energy transition to artificial intelligence. At its core, the Partnership addresses two central pillars of great importance to the UK and the UAE: sustainable prosperity and addressing global issues.
Within trade and investment, our countries extended the existing UAE-UK Sovereign Investment Partnership (SIP) signed in March of this year by the UK’s Office for Investment and Mubadala Investment Company. In addition to the £1bn committed when the SIP was launched in March 2021, a further £9bn investment was agreed during the Crown Prince’s visit taking the total to £10bn.
The SIP will serve as the framework of our future-focused investment relationship. Over a five-year period, the SIP will invest across four key innovation-led sectors – technology, infrastructure, healthcare & life sciences, and clean & renewable energy – that will support job creation in both countries, strengthen national research and development capabilities and originate new areas of investment collaboration. These sectors were selected because they are of strategic importance to both countries as we address the challenges of today and tomorrow. Indeed, the UAE has already committed over £1.1bn across 12 transactions and we have visibility on a further £1bn this year, taking 2021 investment to over £2bn.
The UAE will gain access to world leading R&D in the UK. It provides a channel for the UAE to invest in tomorrow’s unicorns as well as encouraging more UK firms to establish a presence in the UAE in sectors that matter to the UAE’s economic plans.
For the UK, which is the leading destination for investment in new projects in Europe (EY UK Atrractiveness Report, June 2021), the SIP will provide much needed investment to drive R&D, provide a further source of growth capital for emerging firms, and ensure UAE investment aligns with UK priorities of attracting investment to all four corners of the UK.
A major focus of the SIP is identifying opportunities that benefit the whole of the UK, particularly outside London and the South East including Scotland, Wales and Northern Ireland. Greater investment in the UK’s industries of the future will create high-value jobs, boost the economy and level up the country as we build back better and greener.
Creating trade and investment foundations for the next 50 years
As the UAE celebrates its 50th year, the exchange of knowledge, innovation and ideas resulting from the Sovereign Investment Partnership will lay the groundwork as the nation looks ahead to the next 50 years.
The UAE’s Principles of the 50 is the strategic roadmap for the next fifty years, and hold important synergies with the UK’s levelling up agenda and our strategy to Build Back Better. Part of the Principles of the 50 includes the 10×10 goal to increase the UAE’s exports to ten key global markets – including the UK – by 10% per annum for ten years, and we look forward to supporting businesses in the UAE to achieve this.
While 2020 saw a drop in global trade figures, I look forward to the resumption of strong trade between the UK and the UAE, which saw a total of £18.6bn of bilateral trade in 2019.
When you look at the UAE’s economic roadmap for the coming decades and the UK’s growth industries, there’s a clear opportunity for our nations to be deeply linked as trade, investment and innovation partners.
Innovating for a Shared Future at Expo 2020 Dubai
This is clearly in evidence when we look at the UK’s engagement in Expo 2020 Dubai. Not only did the UK openly support Dubai’s bid for Expo 2020 back in 2011, it was also host to the Great Exhibition in 1851, the very first Expo if you will.
We are extremely proud of the UK Pavilion at Expo 2020 Dubai, and I am delighted to share some highlights with Kreston Menon News.
The building itself was conceptualised by Es Devlin OBE, and inspired by one of Stephen Hawking’s final projects, ‘Breakthrough Message’, where Hawking challenged the world to design a message representing Earth, life and humanity that could potentially be understood by another civilisation with the aim of encouraging us to think together as one world. Devlin took the concept further, drawing on the UAE and the UK’s shared history of poetry. Her idea was to invite humanity to create a poem using the power of Artificial Intelligence that could be beamed to outer space from Dubai.
Innovating for a Shared Future is the UK’s theme at Expo 2020 Dubai, and Artificial Intelligence underpins the UK Pavilion’s offer. The Pavilion will display AI technology first-hand, using a bespoke algorithm to generate poetry from contributed words. Crafted and designed by thought leaders and industry experts, and trained with thousands of poems, this unique technology will demonstrate the power of UK AI innovation.
Among the most notable elements of the UK Pavilion during the six-month long Expo will be the immersive Choral Space, where visitors will be surrounded by the Soundscape: music, voices and sounds donated from around the world. Visitors can contribute a word to the poem generated by our AI algorithm, which will be on display at the UK Pavilion. The poem will be known as the Collective Message and I hope all Kreston Menon readers will contribute to it, in person or virtually.
The UK Pavilion structure is simply stunning, and a truly accurate representation of Devlin’s vision.
Breakthrough Moments
The power of innovation is the driver behind the UK Pavilion’s Breakthrough Moments – a series of eight thought-provoking questions about our future designed to spark discussion around the world’s most pressing issues. These eight questions – which include How will we Travel?, What will we Eat? and How will we Thrive? – form the foundations of our programme, which will comprise exhibitions, panel discussions, seminars, podcasts, summits and much, much more.
Speakers from the UK and across the globe have been invited to contribute to the Breakthrough Moments, which will feature leaders and experts from a wide range of industries including fashion, design, technology and sustainability, showcasing the best of UK innovation. The UK Pavilion’s contribution will be presented alongside the 191 nations participating at Expo 2020 Dubai. Find out more about the Breakthrough Moments on the UK Pavilion website.
All this and more await you at the UK Pavilion.
I hope to see you there.
Photo Credit: WAM.ae
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gulfnews
, Gulf News
Demand runs high for auditors, with more corporate tax focused firms set for launch
If anyone asks about the job category with the fastest and highest hiring rates in the UAE, don’t look beyond tax auditors and specialists. The hiring process continues even as the UAE Corporate Tax formally launched on June 1, with industry sources saying there are still more positions to be filled.
Where they are not getting filled internally, businesses are contracting those tasks to outside audit firms, which are expanding their own workforce to cope with the demand rush.
At the manager level, the salary structure for a tax auditor would vary between Dh18,000 to Dh24,000 a month depending on the firm.
Entry level salaries and incentives too have improved in the last 6-8 months, while candidates are lining up 10-25 per cent increases in their take-homes when they make the jump to a new employer.
Hiring in ‘surge’ mode
So, is hiring of tax auditors in ‘surge’ mode? Shibu Abraham, Director – Human Resources at the consultancy Kreston Menon, stops short of saying that a surge is on.
“There is demand for qualified and experienced tax consultants and auditors,” he said. “We have seen an increase of 10 percent in our staff strength this year, mostly at entry and mid-level.
“We have a structured career path for auditors, where most of them join as trainees or associates and who over time get promoted to senior auditors, supervisors and managers.”
Audit industry sources say that more specialist tax firms will launch in the coming weeks, and they too will get onto the hiring spree.
“Not every business can afford to have an in-house team of tax specialists, which is why outsourcing offers a big opportunity,” said an auditor.
“These new businesses are either launching on their own and hope to gradually build up a clientele, or opt for joint ventures to speed up the process.”
“Companies are increasingly outsourcing their tax functions to external tax consultants or firms,” said Abraham. “This approach is prevalent among many businesses, especially SMEs that might not have the resources or expertise to handle complex tax matters in-house.”
– Shibu Abraham, Director – Human Resources at Kreston Menon
More graduates enter the fray
It’s also a good time for new tax professionals to seek their chances in a trending job market. This week, Dubai’s DIFC Academy saw the passing out of the first 28 candidates who went through the UAE Corporate Tax Diploma Programme, run in tandem with PwC Middle East. Some of them had already passed the Final Certificate Examination provided by ATT-UK.
Focus on awareness
At the DIFC Academy, they went through a ‘condensed’ 30-day programme that equips them ‘to guide companies in complying with the new UAE corporate tax requirements’.
That’s exactly what the market wants.
“Finance professionals have gained the practical knowledge and skills to successfully ensure that all practices, systems, and processes of their respective companies comply with the new tax regime,” said Christian Kunz, Chief Strategy, Innovation and ventures Officer at DIFC Authority.
Everyone’s hiring
“The Big 4 and other top accounting firms are looking for qualified and experienced auditors and tax consultants who can combine tech know-how with their finance and taxation skills,” said Abraham.
“We had seen many individual tax consultants moving to the UAE to capitalize on the opportunities thrown open by the introduction of VAT a few years ago. We have also recently seen the emergence of tax boutique firms.
”Other industry sources say that the current buzz around hiring tax professionals far exceeds anything during the launch of the VAT regime in 2018.
“It will be no exaggeration to say that tax professionals are among the most active when it comes to registering for UAE’s Golden Visa program,” said a consultant. “The rush is unprecedented.”
Is every UAE business up to speed on tax?
Registering for the corporate tax UAE continues apace, but there is still time to start the process towards tax filings and making sure the books are in order.
“Companies are increasingly outsourcing their tax functions to external tax consultants or firms,” said Abraham. “This approach is prevalent among many businesses, especially SMEs that might not have the resources or expertise to handle complex tax matters in-house.”
This is why ‘to attract and retain the right talent, there is always a cost involved.”
It’s all showing up in the frenetic hiring in the UAE for auditors. Particularly those who specialise on tax matters.
Source: “More jobs, salary hikes: Is UAE’s demand boom for tax professionals only getting started? ’” by Manoj Nair, Business Editor, Business Section, Gulf News newspaper, 23 August 2023 and online article here.
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, Gulf News
Businesses, their owners, and auditors in the UAE are awaiting the next big update on the corporate tax – the one related to ‘qualifying income’ for free zone entities and on which they get the 0 per cent tax benefit. A decision on this is ‘imminent’, according to multiple audit industry sources.
Any income that these free zone-based businesses generate outside of that qualifying income will come under the 9 per cent corporate tax coverage. And there lies the crux, which is why these businesses are awaiting the guidelines on QI with such a heightened sense of anticipation.
The confirmation of the qualifying income benchmark will also be of significance to the many UAE free zones, given the clarity it brings in their dealings with existing entities licensed by them and prospective ones they are looking to sign up.
The UAE Corporate Tax comes into effect on June 1.
What could make up the qualifying income?
Raju Menon, Chairman and Group Managing Partner at Kreston Menon, says : “Income that conforms to business ‘restrictions’ of each free zone authority should be regarded as QI.
“Accordingly, export of goods from a free zone, the trade in goods within a free zone or between free zones – and without any ‘contamination’ in the UAE mainland – may be regarded as qualifying income for the ‘qualifying free zone person’.”
“So would any ‘passive income’ earned by free zone companies.”
These are the confirmations that all stakeholders are looking to from the Ministry of Finance. In recent weeks, debates have intensified over whether businesses should retain their free zone status or go for a full license from the mainland. Particularly among those businesses with a heavy chunk of their income derived direct from operations or services rendered on the mainland.
Deepak Bansal of Ask Pankaj Tax Advisors says, “The scope of qualifying income is an evolving issue. The crucial point is to understand the subtle difference between honoring the promised tax incentives (given to free zone licensed companies) and offering a new set of tax incentives.”
What makes up a ‘Qualifying Free Zone Person’?
The entity must maintain ‘adequate substance’ in the UAE, or in other words have a definable direct exposure in the local market.
Derive qualifying income as specified in a Cabinet Decision.
Comply with ‘transfer pricing’ rules and maintain relevant transfer pricing documentation.
Not have made an election to be subject to corporate tax in full.
‘Proportionate’ or ‘activity’ based incentives?
“The concept of proportionate taxation is prevalent in India for tax incentives to companies based in Special Economic Zones (SEZs) and certain other countries,” said Bansal. Singapore offers ‘activity-based’ tax incentives as compared to ‘entity-based’ incentives, requiring a proportionate determination of eligible/ineligible taxable income.”
The UAE model on qualifying income – and subsequent free zone incentives – would be based on best-of-breed regulations from other jurisdictions on how they treat income generated by such entities.
“Free zones were conceptualized as international trading/manufacturing hubs,” said Bansal. “The income from exports (goods and services), and trading within free zones, is likely to be treated as QI. “The fenced areas of free zones (connected to ports) are treated as outside UAE for VAT/custom purposes. Import of goods from such areas to the mainland may also be categorized as QI, i.e., at par with non-resident suppliers’ income from goods imported into mainland UAE.
“Certain passive incomes may also qualify as QI. Any other income may be taxed at 9 per cent resulting in proportionate taxation principles. The concept of ‘disqualifying income’, if introduced, could, however, have ramifications on business operations.”
Read more from our Taxation Services.
Source: “UAE’s free zone businesses await 0% ‘qualifying income’ ’” by Manoj Nair, Business Editor, Business Section, Gulf News newspaper, 9 May 2023 and online article here.
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