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17.07.2024

Persian Gulf Tax News

UAE

The beginning of corporate tax payment

On June 1, 2023, a 9% corporate tax began to be levied in the UAE. This tax should be paid not only by companies in the main territory of the UAE (mainland), but also by legal entities registered in free trade zones (FTZ) (with some exceptions), as well as:

a) foreign companies:
– with a permanent mission in the UAE; or
– effective management and control of which is carried out in the UAE;
b) individuals engaged in business activities in the UAE;
c) non–resident individuals and legal entities:
– receiving income from a source in the UAE; or
– having a nexus connection with the UAE.

The UAE Cabinet of Ministers (Cabinet of Ministers) has determined that foreign companies have a connection with the UAE if they receive income from the use and disposal of real estate located in the UAE (for example, land plots, buildings, structures, etc.). It should be borne in mind that the list of taxpayers is open and can be supplemented by a decision of the UAE Cabinet.

The corporate tax rate of 0% for residents of free trade zones (FTZ)

FTA residents who have qualified status (among the key requirements are sufficient presence in the UAE and compliance with transfer pricing rules) are eligible to apply for a zero rate, which is applied only to their qualified income.

Oman

Signing of a tax agreement with Russia

On June 8, Russia and Oman signed an agreement on the avoidance of double taxation. Only the States themselves, national governments, government agencies (for example, central banks) and state corporations that receive income will be able to claim exemption from withholding tax in respect of interest and dividends. This provision parallels the current tax agreement between Russia and the UAE.

However, unlike the agreement with the Arab Emirates, which provides preferential terms only for state institutions and state corporations, the new agreement with Oman contains benefits for private businesses, for example:

— dividends: a reduced rate of 10% (instead of the standard 15%) will be applied to dividend income if the recipient of the income fulfills the following basic conditions: the actual right to dividends and ownership of at least 20% of the capital of the payer of dividends for 12 months prior to the payment date. In other cases, a 15% withholding tax rate will apply to dividends (which corresponds to the basic Russian rate);

— interest and royalties: for a reduced rate of 10% (instead of the standard 20%) in relation to interest and royalties, the main condition is that the recipient has the actual right to these incomes. The agreement will apply from January 1, 2024, if both States ratify it and exchange instruments of ratification by the end of 2023.

Bahrain

Plans to introduce a corporate tax

On May 24, 2023, Bahrain’s Minister of Finance and National Economy announced plans at a parliamentary meeting to introduce a corporate tax as part of the OECD initiative to establish a global minimum tax (15%). At the moment, corporate tax is not charged in Bahrain and only 10% VAT is valid. The details of the rules for the application of the planned corporate tax and the timing of its introduction are still unknown. The Minister said that the information will be made public only after careful consideration of the issue by special institutions and competent authorities of the state. In any case, it can be assumed that even if the corporate tax bill is prepared this year, it will take time to finalize, adopt and put into effect. Thus, the tax should be expected to be introduced no earlier than 2025. Currently, Bahrain still retains its investment attractiveness, especially after the introduction of a 9% corporate tax in the UAE.

Saudi Arabia

Four new special economic zones

In April this year, the Crown Prince of the Kingdom announced the creation of four special economic zones (SEZs) in the country – in Riyadh, Jizan, Ras al-Khair and King Abdullah City. Each of the zones is focused on attracting foreign investors from various sectors of the economy that are priority for the country and offers residents a number of benefits and advantages, for example:

— a reduced income tax rate of 5% instead of 20%,
– 0% withholding tax on the repatriation of profits abroad,
— 0% VAT and
— no customs duties on certain types of transactions.

However, it should be expected that at least for the first time, the zones will accept only large companies from the most important industries for the country’s economy as residents. At the same time, decisions on granting SEZ resident status will be made at the level of government agencies and competent services of economic zones for each candidate individually.

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