Month: November 2022
UAE Gratuity explained
November 28, 2022
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Welcome to HLB Talks Payroll where our payroll experts share insights on the labor law in the UAE and other GCC countries. On today’s episode payroll experts Dalton Lewis and Clevita D’Souza from HLB’s payroll department will be discussing about UAE gratuity and the frequently asked questions by HLB clients.”
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Transfer Pricing in UAE | Meet Our Transfer Pricing Leader – Part 02
November 28, 2022
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Continue watching Part 2 to get more insightful information from experts on the many facets of transfer pricing regulations.
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Transfer Pricing in UAE | Meet Our Transfer Pricing Leader – Part 01
November 24, 2022
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The adoption of transfer pricing strategies has lately drawn significant attention due to the rising influence it has on corporate income tax in the UAE.
Check out this video ” Meet our Global Transfer Pricing Leader – Part 01″ where our specialists Mr. Jayakrishnan (Tax & Compliance Partner) and Mr. Girish Nair (Tax Manager) had an informative conversation with Mr. Carlos Camacho (Global Transfer Pricing Leader, HLB International) on the execution of transfer pricing regulations in the UAE.
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ESR Audit in UAE
HLB HAMT ESR Team
Phone:- +971 4 327 7775
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As part of the UAE’s commitment as a member of the Organization for Economic Co-operation and Development (OECD) inclusive framework, and in response to an assessment of the UAE’s tax framework by the European Union Code of Conduct Group on Business Taxation, the UAE issued Economic Substance Regulations.
This established a requirement for companies to conduct specific relevant activities to maintain an adequate “Economic Presence” in the UAE relative to the activities they undertake. The goal is to avoid harmful tax practices and to prevent low-tax jurisdictions from attracting profits from certain mobile activities without adequate corresponding economic activity. The Regulations’ main objective is to guarantee that UAE firms declare actual profits that are adequate for the level of economic activity conducted.
The entities will need to assess whether they perform any relevant activities mentioned in the regulations. Businesses operating in the UAE are required to adopt a “substance over form” position when determining whether they engage in a Relevant Activity and, thus, fall under the coverage of the ESR Regulations. In order to make this decision, the UAE business would need to examine well beyond the information on their commercial licence and at the actions carried out throughout the course of a financial period.
ESR Audit
The Federal Tax Authority (FTA) has now begun to conduct ESR audits, clarifications, and assessments starting with the 2019 financial year. FTA is the National Assessing Authority, and they can conduct an audit of any licensee to ensure their compliance with ESR regulations. They intend to examine the substance to analyse whether the licensee demonstrates that:
- The Licensee and the Relevant Activity are being directed and managed in the UAE
- The relevant Core Income Generating Activities (CIGAs) are being conducted in the UAE
- The Licensee has adequate people, premises, and expenditure in the UAE
For this purpose, companies falling under ESR regulations shall maintain appropriate records proving the presence of Economic Substances in the UAE and provide this information to the FTA within five days from the date of the FTA’s request for the same.
Entities are required to maintain relevant documents depicting adequate Economic Substance in the UAE for a period of six years to ensure their readiness to provide the information if asked by the Regulatory Authority or the FTA.
Adequate substance is not mentioned in the regulations, but FTA can still challenge it.
Process
- FTA will inform the client that they are subject to an ESR audit via email and through the MOF ESR portal. In the initial mail itself, they will share the requirement list which needs to be reverted with adequate explanations and documents within five working days.
- The ESR audit is commenced to assess whether the entity meets the substance test. It includes the licensee being directed and managed in UAE, having adequate people, premises and expenditure and also whether they perform adequately the relevant Core Income Generating Activities (CIGAs) in UAE. The below mentions the CIGA for each relevant activity:
- Raising funds, managing risk including credit, currency and interest risk.
- Taking hedging positions.
- Offering credit, loans, or other financial services to consumers.
- Managing capital and preparing reports to investors or any government authority with functions relating to the supervision or regulation of such business.
- Predicting and calculating risk.
- Offering clients with insurance business services and insuring or re-insuring against risk.
- Underwriting insurance and reinsurance.
- Taking decisions on the holding and selling of investments.
- Calculating risk and reserves.
- Making the decisions about interest or currency volatility and hedging holdings.
- Preparing reports to investors or any government authority with functions relating to the supervision or regulation of such business.
- Agreeing funding terms.
- Locating and obtaining the assets that will be leased (in the case of leasing).
- Setting the duration and terms & conditions of any financing or lease.
- Monitoring and revising any agreements.
- Managing any risks.
- Taking relevant management decisions.
- Incurring operating expenditures on behalf of a Group.
- Coordinating Group activities.
- Managing crew (including hiring, paying and overseeing crew members).
- Overhauling and maintaining Ships.
- Overseeing and tracking shipping.
- Determining what goods to order and when to deliver them, organizing and overseeing voyages.
- Where the Intellectual Property Asset is a:
- patent or a similar Intellectual Property Asset; the Core Income Generating Activity shall be research and development.
- marketing intangible or a similar Intellectual Property Asset; the Core Income Generating Activity shall be branding, marketing and distribution.
- In exceptional cases, except in the case where the Licensee is a High-Risk IP Licensee, the Core Income-Generating Activity in respect of an Intellectual Property Business may include any of the following:
- taking strategic decisions and managing as well as bearing the principal risks related to the development and subsequent exploitation of the Intellectual Property Asset generating income;
- taking the strategic decisions and managing as well as bearing the principal risks relating to the acquisition by third parties and subsequent exploitation and protection of the Intellectual Property Asset;
- carrying on the ancillary trading activities through which the Intellectual Property Asset are exploited leading to the generation of income from third parties.
- Transporting and storing component parts, materials, or goods ready for sale.
- Managing inventories.
- Taking orders.
- Providing consulting or other administrative services.
- The following is an inexhaustive list of documents that the regulatory authority may require from a company selected for an ESR audit:
- Board minutes and resolutions
- Evidence that the non-resident directors who formed the quorum were in the UAE for board meetings
- Documents outlining the operations process flow
- Documents of relevance and emails/correspondence to commensurate with CIGA
- Working papers for calculation of relevant income, operating expenditure, and accounting profit/loss
- Working papers for the calculation of FTEs
- Contracts and agreements
- Employee CVs and Timesheets / biometric logs of FTEs
- Details of physical assets
- Outsourcing agreements.
- The ESR auditors can schedule an in-office visit to gain more understanding and seek further documentation and explanations beyond those sought in the requirement list.
- The auditors will issue a report on their observations and findings during the audit, and if the licensee fails to prove adequate substance as mentioned in the submitted ESR report, the licensee will be subjected to a penalty of AED 50,000.
| Banking Business | |
| Insurance Business | |
| Investment Fund Management Business | |
| Lease-Finance Business | |
| Headquarters Business | |
| Shipping Business | |
Holding Company Business Intellectual Property Business | all activities related to that business |
| Distribution and Service Center Business |
How HLB HAMT can assist you?
- Review the previous ESR submissions to evaluate on the adequacy of the substance demonstrated.
- Compilation of documents as per the audit requirement list from FTA.
- Review of documents to ensure the audit requirements are complied with.
- Draft responses to the audit queries from FTA and assist in the submissions.
- Review and assist in drafting an appeal in the case of a penalty, and support procedures to waive a
- Assist in understanding and formulating responses for communications with FTA.
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Sabbatical Leave in UAE
HLB UAE Payroll Team
Phone:- +971 4 327 7775
Mobile:- +971 50 205 9540
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Email:- dubai@hlbhamt.com
Ministry of Human Resources and Emiratization (MOHRE) has announced the introduction of Federal Decree-Law No. 33 of 2021 which will regulate labor relations and employment practices in UAE. The New UAE Labor Law has come into effect from February 2, 2022 and it will replace the Current UAE Labor Law entirely. A new leave type with the name Sabbatical Leave was added as per the new law.
Sabbatical Leave
A sabbatical Leave is a full break during which employees are not expected to report to their employers or perform their normal job duties at all. However, the employee is still employed by the company. In UAE, the national worker shall be entitled to a sabbatical paid leave to perform the national service, in accordance with the legislation in force in the state.
What is a sabbatical leave?
sabbatical leave is a paid leave a national employee can avail when performing national service for the country.
who is eligible for sabbatical leave?
Only UAE national employees can avail this leave.
How long can the employee be in sabbatical leave?
The number of days the national employee can use is in accordance with the legislation in force in the state.
Does Expat staffs are eligible for Sabbatical leave?
No, Only UAE nationals are eligible for Sabbatical leave.
Please see the below extract of Article 32, 3
Article (32)
Various Leaves
The national worker shall be entitled to a sabbatical paid leave to perform the national service, in accordance with the legislation in force in the State.
To know more about UAE leave please follow the link UAE Leave Policies
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Impact of Recent UAE VAT Amendment on Companies dealing in Hydrocarbons
HLB HAMT
Phone:- +971 4 327 7775
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Impact of Recent UAE VAT Amendment on Companies dealing in Hydrocarbons
In place of “any hydrocarbons,” the amendment clarifies that the reverse charge mechanism will only apply to “Pure hydrocarbons”.
Pure Hydrocarbons:
Any of the various pure compounds of the chemical formula consisting solely of hydrogen & carbon (CxHy).
Practical Example
- ABC Bitumen LLC (Hereinafter referred to as “The Company”) is a UAE mainland entity operating from the emirate of Dubai.
- The company is engaged in the supply of bitumen and bitumen products.
- The effective date of VAT registration of the company is 1st January 2023.
- The effective date of VAT registration of the company is 1st January 2023.
- The client gave the company a statement stating that the goal of the purchase is to resale the same products to another customer in their current condition.
- The company issued a Tax invoice with 5% VAT to the client for the goods delivered.
- The client rejected the Tax invoice based on the ground that bitumen is a hydrocarbon, hence reverse
charge mechanism will be applicable to bitumen.
Whether the client’s argument is correct? Does bitumen fall within the reverse charge procedure outlined in Article 48 (3)?
Basis of Opinion
- Article 1 of the VAT Decree-Law
- Article 48 (3) of the VAT Decree-Law
- Article 48 (4) of the VAT Decree-Law
Application of the Law
Classification as Hydrocarbon:
The reverse charge mechanism provided by Article 48(3) of the Decree Law is a special mechanism that can be employed in certain circumstances, such as the supply of crude oil or hydrocarbons.
Hydrocarbons:
The term “Hydrocarbon” refers to any class of organic compound solely of the elements carbon (C) and hydrogen (H). On the basis that bitumen contains carbon, hydrogen as well as other components, bitumen is not a hydrocarbon.
Recommendation
In view of the aforementioned, bitumen and bitumen products are not considered to be hydrocarbons.
Note: Article 48 of the Decree Law is not limited to hydrocarbons, hence to the extent that bitumen is classified as, for example, crude oil, such supply may fall within the scope of Article 48(3) of the Decree Law and the company will have to apply the reverse charge mechanism where all other conditions are met.
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UAE VAT Law Amendment Effective from 01.01.2023
HLB HAMT Tax Team
Phone:- +971 4 327 7775
Mobile:- +971 50 677 5860
WhatsApp:- +971 56 219 1607
Email:- dubai@hlbhamt.com
On September 26, 2022, President His Highness Sheikh Mohamed bin Zayed Al Nahyan issued the Federal Decree-Law No.18 of 2022, amending some provisions of the Federal Decree-Law No. 8 of 2017 on value-added tax (VAT).
The effective date of amendments: January 1, 2023
Below, we’ve outlined our opinions on the modified articles:
Amended Article | HLB Comments |
| Article (1) – Definitions |
|
| Article (5) – Supply of Goods |
|
| Article (7) – Supply in Special Cases |
|
| Article (15) – Registration Exceptions |
|
| Article (21) – Cases of Tax Deregistration |
|
| Article (26) – Date of Supply in Special Cases |
|
| Article (27) –Place of Supply of Goods |
|
| Article (30) – Place of Supply in Special Cases |
|
| Article (33) – The Agent |
|
| Article (36) -Value of Supply for Related Parties |
|
| Article (45)-Supply of Goods and Services Subject to Zero Rate |
|
| Article (48) – Reverse Charge |
|
| Article (55) – Recovery of Recoverable Input Tax in the Tax Period |
|
| Article (57) – Recovery of Tax by Government Entities and Charities |
|
| Article (61) – Instances and Conditions for Output Tax Adjustments |
|
| Article (62) – Mechanism for Output Tax Adjustment |
|
| Article (65) – Conditions and Requirements for Issuing Tax Invoices |
|
| Article (67) – Date of Issuance of Tax Invoice |
|
Note: Other Amended Articles exist but aren’t included in the list above because they, in our judgment, only include minor changes.
Addition of New Article 79 bis – Statute of Limitations
- Except in cases under Clauses 2, 3, 6, and 7 of this Article, the Authority may not conduct a Tax Audit or issue a Tax Assessment to the Taxable Person after the expiration of 5 years from the end of the relevant Tax Period.
- The Authority may conduct a Tax Audit or issue a Tax Assessment to the Taxable Person after 5 years from the end of the relevant Tax Period, if he has been notified of the commencement of such Tax Audit’s procedures before the expiration of the 5-year period, provided that the Tax Audit is completed or the Tax Assessment is issued, as the case may be, within 4 years from the date of notification of the Tax Audit.
- The Authority may conduct a Tax Audit or issue a Tax Assessment after the expiration of 5 years from the end of the relevant Tax Period if such Tax Audit or Tax Assessment issuance relates to a Voluntary Disclosure submitted in the fifth year from the end of the Tax Period, provided that the Tax Audit is completed or the Tax Assessment is issued, as the case may be, within one year from the date of submission of the Voluntary Disclosure.
- The Cabinet may, according to a suggestion by the Minister, issue a Decision to amend the period specified for the completion of the Tax Audit or the issuance of the Tax Assessment as per Clauses 2 or 3 of this Article.
- No voluntary disclosure may be submitted after the expiration of 5 years from the end of the relevant Tax Period.
- In the case of Tax Evasion, the Authority may conduct a Tax Audit or issue a Tax Assessment within 15 years from the end of the Tax Period in which the Tax Evasion occurred.
- In case of Tax Registration failure, the Authority may conduct a Tax Audit or issue a Tax Assessment within 15 years from the date on which the Taxable Person should have registered for Tax.
- The statute of limitation set forth in this Article shall be interrupted for any of the reasons provided for in the Federal Law No. 5 of 1985, promulgating the Civil Transactions Law, or any other Federal law replacing it.
How HLB HAMT can help?
Our tech-driven professionals ensure that we make use of the latest technologies to provide accurate and effective results to clients. Moreover, we are first among the few registered tax agents at Federal Tax Authority enabling us to provide the best in quality services.
Any questions or queries on this, please revert to tax@hlbhamt.com
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Monthly Tax insights and updates – October 2022
November 9, 2022
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Discover HLB HAMT’s monthly insights and updates across tax-related matters that will help you stay current on developments. The information provided will help you see opportunities and make assertive, strong decisions.
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The UAE Cryptocurrency Laws
Midhun Menon P
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Email:- dubai@hlbhamt.com
The United Arab Emirates is regarded as one of the world’s most forward-thinking crypto nations. The Dubai Financial Services Authority (DFSA) now accepts cryptocurrency payments, such as Bitcoin (BTC), Ethereum (ETH), and Tether (USDT), to pay for various trade licenses and visas through the government-owned licensing company KIKLABB in Mina Rashid, Dubai. Additionally, the DFSA declared in January 2021 that as part of its 2021–2022 Business Plan, it would create a thorough framework for crypto-regulatory standards.
The United Arab Emirates unveiled the Emirates Blockchain Strategy 2021 in April 2018. The strategy aims to make the most of blockchain technology and make the United Arab Emirates the first government powered by blockchain by moving at least 50% of its transactions onto the platform by the end of 2021.
The Central Bank of the United Arab Emirates (CBUAE) and the Central Bank of Saudi Arabia jointly conducted a year-long project titled “Project Aber: Joint Digital Currency and Distributed Ledger Project,” which “explored the viability of a single dual-issue digital currency as an instrument of domestic and cross-border settlement between the two countries.” Similar to the findings of similar pilots carried out by other central banks, Project Aber’s results confirmed that it was feasible for central banks to develop domestic and international payment systems using distributed ledger technology.
Dubai is also working to increase the use of cryptocurrency nationwide. For instance, the Dubai Multi Commodities Centre (DMCC) recently opened a new Crypto Centre that is accessible to businesses working on different blockchain and cryptocurrency technologies. With the strong support of the national government, the DMCC specifically houses businesses that offer, issue, list, and trade digital assets as well as those creating trading platforms that use blockchain technology.
Many well-known and emerging businesses are choosing to relocate their headquarters to the United Arab Emirates as a result of the country’s pro-crypto policies, most recently the American technology company Ripple. The Securities and Commodities Authority (SCA) sought input on the regulations’ text from the cryptocurrency industry and the general public in 2019, which attracted more crypto companies to the nation.
Cryptocurrency Legal Issues: Insights
Most jurisdictions and authorities have not yet passed legislation governing cryptocurrencies, so it is unclear whether crypto mining is legal in most nations.
According to the Financial Crimes Enforcement Network (FINCEN), crypto miners are money transmitters, and as such, might be subject to money transmitter laws. For instance, Israel taxes businesses and treats cryptocurrency mining as one. Regulatory uncertainty still exists in India and other countries, although Canada and the US are relatively friendly to cryptocurrency mining.
However, very few nations forbid cryptocurrency mining, except for those that have taken specific action to do so.
To know more about UAE cryptocurrency laws, please contact our experts, today!
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Setup Offshore Company in Dubai
“Dubai-the land of unfailing promises”
HLB HAMT
Phone:- +971 4 327 7775
Mobile:- +971 55 160 1291
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Creating a business in the UAE is the first step toward financial success. You can establish an offshore company in Dubai or any other part of the UAE. Factors such as the industry can influence the type of company chosen. In this instance, an offshore company formation provides exclusive benefits to ex-pats.
Offshore Company Setup in Dubai
The term offshore corporation refers to a company that operates outside its registered jurisdiction and ultimate ownership location.
Creating an offshore company in the UAE is a suitable, tax-efficient, and affordable corporate structure for companies looking to engage in international trade.
In Dubai, a non-resident paper firm is another name for an offshore business. Now international businessmen can freely operate throughout the Middle East and Africa without having to worry about administrative hassles. Additionally, by using an offshore bank account, business investors can conduct operations on a global level.
Offshore companies in Dubai conduct their business operations outside of the UAE but are registered there for tax purposes. Since they are limited liability companies, your money is well protected.
There are several reasons why people want to establish offshore businesses in Dubai, but perhaps the primary one is that they may avoid paying corporate taxes in the UAE on earnings made overseas. Starting an offshore company in this country could potentially result in tax savings of thousands of dollars compared to doing so in the company’s home jurisdiction.
Consider an international business consultant who has a sizable clientele in several Middle Eastern nations. They don’t want to cope with the hassle of paperwork and filing procedures or pay taxes on their earnings in all those other nations. As a result, they decide to establish an offshore business in Dubai, where they may continue to work abroad and pay no taxes.
Businesses that frequently launch offshore companies in Dubai include:
- Property holding firms.
- Intellectual property holding firms.
- Shipping companies.
- General trading firms
- Businesses that advertise online.
- Logistics and distribution companies.
- General (worldwide) trading firms.
- Expert assistance and consulting.
- Different kinds of brokers.
It’s important to note that offshore companies can be based in Dubai but cannot do trading within the country or employ people in the UAE; all business must take place outside the country. A mainland or free zone company is required if you want to trade in the UAE or with partners here.
It’s also crucial to understand that offshore businesses are not permitted to conduct certain types of business, such as aviation, media, or insurance. Finally, offshore corporations must conduct legal business! When establishing your company, you will be needed to go through Know Your Customer (KYC) checks. Authorities may investigate if the company is suspected of engaging in illegal activity.
The Pros of Offshore Company Formation in UAE
Offshore company registration in the UAE has numerous advantages. Such businesses have remarkable freedom from governmental agencies and formalities. The simple procedures and rules make forming an offshore corporation more appealing. Setting up an offshore business in Dubai offers numerous advantages to entrepreneurs, holding companies, and consultants.
- Tax deductions and other monetary support.
- Not governed by state legislation.
- Able to conduct worldwide transactions without difficulty or limitation.
- Faster registration than other sorts of businesses.
- Complete confidentiality.
- The authority conducts no financial audits.
In addition to these, there are several other advantages to establishing an offshore corporation in Dubai, UAE.
- Bank account
You can open a bank account in the UAE and hold several currencies in it. - Take your business global
Dubai offshore businesses offer the chance to grow abroad. - Solid foundation
As far as economic, social, and political stability is concerned, Dubai stands out. Additionally, there is a solid legal system in place to protect your valuables. - The privacy
An offshore business is not required to have its accounts audited or published. The information, including the shareholders and the board of directors, does not have to be made public. - Access to funding
Due to Dubai’s strong reputation, your company may find it simpler to secure international investment than if you are headquartered in less reputable nations.
The right move for a better future with HLB HAMT
Forming a business in Dubai entails several deeper and broader factors. Hiring HLB HAMT, a famous business consultant in Dubai, may assist you in establishing a firm. HLB HAMT in UAE support, guide, and aid entrepreneurs in setting up businesses in UAE. We have only hired people with extensive experience in the UAE’s business and industrial sectors. They are well-versed in all aspects of business setup.
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