Month: July 2022
Basis of Taxation for Residents & Non-Residents Under UAE Corporate Tax – #EP06
July 29, 2022
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In order to calculate the taxable income for UAE corporate taxes, it is crucial to understand the concepts of resident and non-resident in the UAE. To discover more about the concept, let’s watch the video.
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UAE sets tougher action against businesses that delay Employee wages
HLB News Team
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To protect employees’ earnings, the Wage Protection System (WPS) in the UAE has been modified by the Ministry of Human Resources and Emiratization (MoHRE). As per the new resolution, there will be a range of administrative actions against businesses that do not adhere to the WPS’s rules based on the duration of the salary late payments, the size of the business, and the number of unpaid employees.
Khalil Al Khoori, Acting Under-Secretary for Human Resources Affairs at MoHRE said “the changes aim to enhance long-term balance and stability of the relationship between employers and employees, in line with the rights and responsibilities outlined in the contracts between both parties.”
In the given below two situations, the revisions also let enterprises to request exemptions from transferring their earnings through the WPS:
- Seamen/sailors employed on board vessels/ships.
- Workers of foreign companies or their branches functioning in the nation who get their salaries from outside the nation, with the workers’ permission.
The issuance of new work permits will be suspended for any non-compliant businesses, irrespective of size, that continue to withhold salaries four months after the due date. After informing the impacted businesses of the suspension of work permits, comparable fines will be imposed on each of the owner’s other UAE businesses that are registered with the WPS.
The new resolution’s revisions also include steps that will be slowly implemented against businesses with 50 or more employees, where the relevant Public Prosecution will be informed and the business information will be forwarded to the appropriate local and federal officials for future legal measures.
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The New Rate Change in Bahrain’s Social Security Contribution
HLB Bahrain Payroll Team
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The social security contribution of the Bahraini national workers’ employers’ contribution will be increased by 2% as of May 2022 and will be increased by 1% at the beginning of each year starting from January 2023 until January 2028, bringing the total percentage of the employer’s contribution to 20% by 2028. The Bahraini employee’s total contribution will be increased by 1%, bringing the total percentage of the worker’s contribution to 8% as of January 2023.
With this change, the total percentage for Bahraini nationals is 21% with effect from May 2022, of which 14% is employer contribution and 7% is employee contribution. This rate will change again with effect from January 2023.
Below is the table explaining employer, employee, and total contributions with an effective start date of contribution.
| Effective Start Date | Employer Contribution | Employee Contribution | Total Contribution | |||
| Current rate | New Rate | Current rate | New Rate | Current rate | New Rate | |
| May 22 | 12 | 14 | 7 | 7 | 19 | 21 |
| Jan 23 | 15 | 8 | 23 | |||
| Jan 24 | 16 | 8 | 24 | |||
| Jan 25 | 17 | 8 | 25 | |||
| Jan 26 | 18 | 8 | 26 | |||
| Jan 27 | 19 | 8 | 27 | |||
| Jan 28 | 20 | 8 | 28 | |||
For more details about the payroll process in Bahrain, Click the link: https://hlbhamt.com/payroll-process-in-bahrain
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VAT Public Clarification On Gold-Making Charge in UAE
Sreekanth Karicheri, Tax Analyst
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Gold-Making Charge
- The Public Clarification provides guidance on the application of the VAT legislation with regards to making charges received by gold jewellers.
- This clarification only applies to gold and products consisting mostly of gold, that do not qualify for zero-rating.
- Tax registrants supplying gold are not required to impose VAT on the supply of gold and products which mostly consist of gold, if the conditions of Cabinet Decision No. 25 of 2018 are met.
- The reverse charge mechanism only applies to the supply of goods by the registrant.
- If the supplier charges separate considerations for the gold and the making service or reflects the price of these components separately, the supplier is required to impose VAT on the service component.
Practical example
ABC Gold LLC a VAT-registered entity in the UAE mainland supplied gold to another VAT-registered entity XYZ Jewelry LLC in the mainland. The invoice split is as follows:
- Gold items: AED 100,000/-
- Making charges: AED 6,000/-
The accountant of ABC Gold LLC is of the opinion that the company is not required to charge VAT on entire consideration i.e., AED 106,000/- as long as the customer provides a declaration as per Cabinet Decision No. 25 of 2018.
Whether the argument of the accountant is correct?
Solution: Tax registrants supplying Gold Items, shall not impose VAT on the supply if the following requirements are met:
- The recipient is registered for VAT
- The supplier retains a written declaration from the recipient confirming all of the following:
- The recipient will use the Gold Items to produce or manufacture other Gold Items, or to
re-sell the Gold Items received. - The recipient is registered for VAT on the date of supply.
- The recipient shall account for the VAT on the Gold Items supplied to him.
- The recipient will use the Gold Items to produce or manufacture other Gold Items, or to
It is important to note that the special reverse charge mechanism under Cabinet Decision No. 25 only applies to goods and not to services. Where the supplier supplies Gold Items and making services, the supplier needs to consider whether the supply constitutes a single composite supply of a Gold Item or multiple supplies consisting of both goods and services.
If the supplier charges separately for the Gold Items and for the making service, or where the price of these components is separately reflected, the supplier is regarded as making multiple supplies. In these cases, the supplier is required to treat each component as a separate supply and apply the correct tax treatment to each separate component.
In instances of multiple supplies, only the VAT related to the Gold Items may be accounted for under the reverse charge mechanism, provided all the requirements of Cabinet Decision No. 25 are met.
The supply of the making services does not fall under the special reverse charge mechanism under Cabinet Decision No. 25 in cases of multiple supplies. Hence, the supplier is required to account for VAT on this service if the supplier is a taxable person.
In the present case, ABC Gold LLC can supply the gold worth AED 100,000/- to XYZ Jewellery LLC under a special reverse charge mechanism if they provide the declaration under Cabinet Decision 25 of 2018. But the making charges worth AED 6,000/- will attract VAT at standard rate.
*Important Note: Cabinet Decision No. (25) of 2018 on the Mechanism of Applying Value Added Tax on Gold and Diamonds between Registrants in the State was implemented in 01/06/2018. Therefore, the tax registrants should consider the applicability of this public clarification with effect from this date.
Any questions or queries on this, please revert to tax@hlbhamt.com
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Arm’s Length Principle & Transfer Pricing Documentation Under UAE Corporate Tax – #EP05
July 22, 2022
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In order to fulfill all of your transfer pricing needs, HLB HAMT can help you create tax-efficient solutions that optimize compliance with laws and regulations. Check out the video to learn more about the UAE’s corporate tax laws’ arms-length concept and transfer pricing documentation.
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Internal Control over Financial Reporting (ICFR) in UAE: Why its a Significant business competitive advantage
ICFR: An Overview
Sumesh Krishna, Partner
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Businesses in the UAE can take advantage of the numerous opportunities brought about by the region’s quickening, technology-driven change through reliable and accurate financial reporting. Due to the region’s development and the rising worldwide challenge from rivals using the newest data-driven financial reporting systems, businesses in the UAE may greatly benefit from ICFR. Since the adoption of the Sarbanes-Oxley (SOX) Act in 2002, authorities worldwide have increased the reporting obligations from this viewpoint. Internal controls regarding financial reporting are critical since they ultimately aim to safeguard the rights of investors and other stakeholders by mitigating the chances of fraud and other economic hazards.
Internal Control over Financial Reporting (ICFR) is a procedure created to give a person or organization a satisfactory level of assurance, ensuring the accuracy of financial reporting and the preparation of financial statements for use by outside parties in compliance with accounting standards guidelines.
The structure and operational performance of the controls and precautions management has implemented over accounting and financial reporting are critical factors in its capacity to carry out its financial reporting obligations.
Objectives of ICFR Implementation in UAE
- In the better interests of diverse business stakeholders, improve the standard of financial reporting procedures.
- Attempt to increase the accuracy and openness of financial reporting procedures, which will finally aid in integrating the financial data.
- The importance of internal controls contributes to increasing trust in the accuracy of the financial data in line with international best practices.
The Key Components of ICFR
- Control Environment: The set of guidelines, procedures, and organizational frameworks known as the control environment, will help to set up the foundation for implementing internal control throughout the business.
- Risk Evaluation: The method used by the business to detect the risk in financial statements is referred to as risk assessment concerning ICFR. Individuals qualified to perform risk assessments for ICFR must be aware of the financial reporting, reporting requirements, and fraudulent risks.
- Control Activities: Another essential element of ICFR is the measures taken through processes and regulations intended to reduce financial reporting risk. The following ideas can aid in understanding control activities:
- Division of tasks
- IT (information technology) Controls
- Controls at the entity and process levels
- Preventive and Detective Controls
- Information Systems and Communications: This component in the ICFR relates to much of the information exchange and communication routes. The business needs information to fulfil its internal control obligations and to help it achieve its goals. Both internal and external sources are used by management to gather, produce, and utilize pertinent information of high quality. Communication must provide, share, and acquire information continuously and repeatedly. Internal communication is the process of disseminating information so that everyone in the company clearly gets the same message. In response to demands and expectations, external communication gives information to external parties.
- Controls Monitoring: This component includes procedures that guarantee the effectiveness of controls with prompt identification and correction of flaws. The monitoring can be carried out by implementing Control Self-Assessment (CSA), in which each process owner regularly evaluates the control.
ICFR Deficiency
Suppose management or staffs are unable to deter or identify false statements in a timely manner while carrying out their required duties as part of the usual course of business. In that case, there is an ICFR deficit. Management must determine how seriously the flaws might affect the credibility of the company’s financial reporting procedures when deficiencies in control functioning are discovered.
The following categories apply to ICFR deficiencies:
- Material Weakness: A deficiency strongly indicates that a significant deception of the company’s financial statements won’t be remedied or identified in a timely manner.
- Significant Deficiency: A less severe deficiency that should indeed be addressed by those in charge of monitoring the company’s financial reporting
- Deficiency: This means a flaw in a control’s design or functioning when it prevents management or staff from promptly preventing or identifying false assertions while carrying out their regular duties.
Roles and Responsibilities of ICFR in UAE
Management
- The company’s management is in charge of developing, implementing, and maintaining ICFR
- Periodically evaluate ICFR’s performance in compliance with the SOX act
- To reasonably back its evaluation of the ICFR, keep evidence, including paperwork
- Establish management’s accountability for ICFR in quarterly reporting
- Report annually on the management’s assessment of the ICFR of the firm
- Update the audit committee on the functioning and efficiency of the controls
Independent Auditors
- Evaluate the whole financial reporting system using a risk-based approach, but pay more attention to the controls over the financial reporting sections most vulnerable to substantial error
- Even in a financial statement-only audit, acquire the awareness of each element of the company’s ICFR
- Any internal control flaws should be reported promptly to management and the audit committee
- Report on the success of management’s ICFR while conducting an integrated audit
Audit Committees
- Supervise the management’s creation of financial statements, as well as the controls’ design and implementation
- Regulate financial reporting in line with SOX
- Assess the evaluation of the hazards in financial reporting
- Examine the management’s anticipated actions to the cited financial reporting threats
- Monitor and keep an eye on the internal audit’s operations, including its reports
- Employ and manage the outside auditor
Bottom Line
A slew of high-profile corporate scandals in the various industries that happened in the past has highlighted the significance of ICFR for Middle Eastern businesses. Along with the COVID-19 pandemic, these corporate failures warned businesses to examine their financial statements more carefully.
The organizations are recognizing and viewing ICFR activities as possibilities to improve the quality and efficiency of their business models, elevating them to the top of global practices. The auditors are needed to consider the sufficiency of ICFR and its usefulness. Therefore they must grasp the company’s procedures and regulations. This process will allow them to gather evidence for assessment, proving the controls’ adequacy. Thus, the company will need to provide the required information and supporting documents to identify significant factual errors and lower financial vulnerabilities.
ICFR Audit in UAE: The Assistance of HLB HAMT
HLB HAMT is well-equipped to assist you in setting up a robust internal control framework in conformity with the relevant regulatory standards, thanks to its expertise in successfully working with customers in several industries in internal and external audits, including the listed entities in UAE. We can help you by guiding you through each phase of the ICFR implementation.
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Who are Connected Persons? Transaction Between Connected Persons Under UAE Corporate Tax - #EP04
July 19, 2022
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The employment of transfer pricing regulations has lately received much interest due to the rising influence it has on corporate tax in the UAE. Let’s watch the video to discover more about Transaction Between Connected Persons as they apply to UAE corporate tax.
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Proposed Group Reliefs under the UAE Corporate Tax regime
Suhail Kolakkadan, Tax Analyst
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The UAE has made considerable tax reforms recently to streamline its tax structure, put it into compliance with global standards, and broaden revenue. The proposed corporate tax (CT) in UAE will be applicable on the taxable profits earned businesses, including persons involved in business, commercial, or any other economic activity, with specific exclusions and restrictions.
The UAE corporate tax regime allows UAE groups to seek group relief in respect of losses, intragroup transactions, and restructurings. In order to learn more about the planned group reliefs under UAE corporation tax, let’s keep on reading.
Tax Groups
Businesses are able to create tax groups under the UAE corporate tax framework, which will go into force in June 2023. The operations of large corporates are frequently carried out by a cluster of businesses, each of which will have a parent company and a number of subsidiaries. Companies create tax groups to restrict or fence responsibilities, which optimizes the expense of your total tax compliance.
Criteria for tax group formation
Businesses that are liable to UAE corporate tax must determine if they are properly qualified to form a tax group. You must meet specific conditions set out by the UAE Ministry of Finance (MoF) in order to establish a corporate tax group.
- The tax group’s members should all follow the same fiscal year.
- The parent organization must own at least 95% of the voting rights and share capital of its subsidiaries.
- Especially when all of the group members are UAE residents, companies can create a tax group.
- A free zone business that enjoys the 0% corporate tax rate or an exempt person can be a part of tax group.
- If a subsidiary is indirectly held by the parent firm and other subsidiaries possess at least 95% of its shares, the subsidiary could join a tax group or if it is a UAE branch of the parent firm or one of its subsidiaries
Parent entity’s obligations:
- Each tax group subsidiary’s financial accounts must be combined by the parent firm.
- Exclude all transactions between each tax group subsidiary and the parent.
- Tax collection and administration
Accountability of Tax Group Members
Each subsidiary and the parent business will have joint as well as several liabilities for the CT of the group. However, with FTA permission, the responsibility can be restricted to one or more members.
Transfer of losses
If certain conditions are met, the UAE CT framework may allow the transfer of tax losses from one group company to another group company with revenues for combinations of businesses that do not meet the required 95 percent common ownership threshold or do not wish to form a tax group.
Requirements
- At least 75% of UAE group enterprises are held collectively.
- No loss transfers from businesses that are immune or gain access to the 0% Free Zone CT system are permitted.
The overall tax loss offset may not exceed 75% of the applicable period’s taxable income of the entity obtaining the transferred losses. Balance tax losses can be carried forward indefinitely, provided certain conditions are met.
Intra-group transfer of assets and liabilities
Transfers of assets and liabilities between UAE-based group entities with a common ownership stake of at least 75% are exempt from the CT requirement as long as they are retained for a minimum of three years from the date of transfer.
When intra-group relief is requested, the applicable assets and liabilities are recognized as having been transferred at their tax net book value, preventing the transferor and the transferee firm from having to take responsibility for the gain or a loss when determining their respective taxable income.
Any gain or loss that would have occurred upon the first transfer must be computed and included in the transferor’s tax return in the tax period in which the circumstances officially ended, if the applicable criteria for intra-group relief are no longer met.
Restructuring Relief
- The UAE CT scheme would exclude or provide a deferral of taxes if a full firm, or separate sections of a business, are conveyed in exchange for shares or other ownership interests in order to assist mergers, spin-offs, and other corporate activities.
- The purchasing firm will be able to use the transferor’s current tax basis in the transferred assets and liabilities, and the natural person will receive immunity from CT in relation of any benefit from the transfer.
- In order to avoid reporting for a gain or loss for determining taxable income, assets and liabilities being transferred as part of a qualified reorganization will be considered to be transferred at their tax net book value.
- If the firm is subsequently transferred to a third party inside three years of the restructuring, any restructuring relief will be “clawed back.”
In Summary
The month of June 2023 would arrive in an instant! And right now is the ideal time to prepare for corporate taxes. For any organization to be able to attain UAE CT compliance there is a lot of work to be done. It is high time to pass the baton over to expert UAE tax consultants in corporate tax, like HLB HAMT, and relax.
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Impact of Transfer Pricing | Transfer Pricing & Related Parties Under UAE Corporate Tax - #EP03
July 15, 2022
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Given the growing impact of transfer pricing on corporate income tax in the UAE, the use of transfer pricing techniques has recently attracted significant and widespread attention. Let’s explore the video to understand more about the transfer pricing and related parties under the UAE corporate tax.
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Savings Scheme for Expats in Dubai Public Sector
HLB News Team
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Dubai has decided to implement end-of-service savings scheme for expatriates working in government departments. Dubai International Financial Centre (DIFC) will be in charge of supervising the scheme and even though the plan targets expats in government sector in the initial stage, it is expected to expand gradually.
The major objective of the scheme is to attract and retain employees by offering an integrated system that provides several options for savings. Expats working in Dubai’s public sector will be added to the novel scheme by default. The employers are supposed to contribute the total end-of-service gratuity to the savings plan from the date of joining of the employee, excluding the financial dues for previous years of service.
The savings scheme contribution percentage will be equal to the end-of-service benefits due to the foreign employee in the Dubai public sector. The rate of return will depend on various factors that include the investment made by the staff, the method via it is distributed across available investment portfolios and the risks related with it.
Employees are also provided with the option to make their own contributions to the savings scheme, with the authority to withdraw it at any time. The employee participation in the savings scheme will cease following the end of their service.
The UAE is a country that provides a promising platform for employees from across the world and the country comes up with various schemes frequently to attract ex-pats and give them a sense of security. The scheme will help in boosting the city’s position as a international financial hub, which is seen as an incubator for expertise and competencies.
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