Azhari Legal Consultancy

UAE VAT Changes Effective from 1 October 2026: What Businesses Need to Know

2026-10-09T10:00:00+04:00

The UAE VAT rate remains at 5%, but this does not mean that the VAT framework has remained unchanged. Since 1 October 2026, Cabinet Decision No. 149 of 2026 has introduced several important amendments that change the way businesses should approach VAT recovery, supplier verification, cash payments and the classification of certain transactions.

For many businesses, the impact will be practical rather than purely technical. Finance teams may need to carry out additional checks before recovering input VAT, procurement teams may need to collect more information from suppliers, HR teams may need to review the treatment of employee accommodation, and businesses dealing with cross-border services or high-value assets may need to reconsider their existing VAT procedures.

A separate but related development also took effect on the same date under FTA Decision No. 13 of 2026. It introduces more detailed requirements for businesses to verify certain suppliers and transactions before claiming input VAT. In practice, simply holding a valid tax invoice may no longer be enough in every case.

This article explains the main changes in practical terms and highlights what UAE businesses should now review in their VAT procedures.

The nine changes at a glance

Each card matches the numbered section below.

1. Employee accommodation: clearer rules on VAT recovery

Except in certain situations, VAT on goods or services provided mainly for an employee’s personal benefit is not recoverable. The amendments clarify when employee accommodation falls within an exception.

Before. Employee accommodation could already qualify for an exception in some cases, but it was not always clear when it should be treated simply as an employee benefit and when it was provided because the employer was required to do so.

From 1 October 2026. If an employer is required to provide accommodation under a decision or directive issued by the Ministry of Human Resources and Emiratisation (MoHRE), the related VAT may be recoverable, provided the normal VAT recovery conditions are met.

Why this matters. Businesses should be able to explain why accommodation is being provided, and keep documents showing whether it forms part of the employee’s remuneration package or whether the employer is legally required to provide it.

2. High-value cash payments: how you pay may affect VAT recovery

One of the new rules concerns payments made in cash and introduces a potential link between the method of payment and the right to recover input VAT.

Before. The payment method did not normally determine whether VAT could be recovered. If the usual VAT recovery conditions were satisfied, paying a supplier in cash or by bank transfer generally produced the same VAT result.

From 1 October 2026. A new Article 54(3) restricts VAT recovery where the value of the supply exceeds a prescribed threshold and the payment is made, or is intended to be made, in cash.

The monetary threshold has not yet been set. A separate Ministerial Decision is expected to determine the amount and the detailed rules, so businesses should not assume that every cash payment is affected.

Why this matters. The way a supplier is paid may now affect whether the related VAT can be recovered. Businesses that make significant cash payments should review their payment procedures and monitor the forthcoming Ministerial Decision.

3. Composite supplies: VAT follows what the customer is actually buying

The amendments clarify how VAT should apply when a single commercial transaction contains several connected elements.

Before. Businesses had to determine whether each component should be treated as a separate supply, or whether all the components should be treated together as one supply.

From 1 October 2026. When several elements are closely connected and cannot realistically be separated, they may be treated as one composite supply. The VAT treatment will then generally follow the main element of the transaction.

Example. A business sells equipment, delivery, installation and commissioning. The invoice may show four separate lines, but if the customer is effectively buying one complete operational system, the transaction may be treated as one supply for VAT purposes.

Why this matters. The number of lines on an invoice does not by itself determine the VAT treatment. What matters is the commercial reality of the transaction and what the customer is actually buying. This is particularly relevant for businesses selling bundled goods and services, installation packages, software with implementation, or other integrated solutions.

4. Supplier verification: a valid invoice may no longer be enough

From 1 October 2026, businesses may need to perform additional checks on their suppliers and transactions before claiming input VAT.

Before. VAT recovery was often approached mainly as a documentation exercise, with businesses focusing on whether they held the required documents, including a valid tax invoice.

From 1 October 2026. A valid invoice may not always be enough. Businesses may also need to verify that the supplier is genuine, that the transaction actually took place, and that the supply chain does not raise concerns linked to tax evasion.

If a transaction is connected to tax evasion and the required checks were not carried out, the FTA may challenge or refuse the related VAT recovery. The level of verification required depends partly on the value of the supplies received from the supplier.

The thresholds look at the whole supplier relationship over 12 months, not only at the individual invoice.

Supplies below AED 10,000

If an individual taxable supply is worth less than AED 10,000 excluding VAT, the prescribed verification measures may generally be disregarded. However, this exception does not apply if total supplies from the same supplier exceed, or are expected to exceed, AED 100,000 over a 12-month period.

Example. A business buys AED 9,000 of services from the same supplier every month. It cannot rely on each individual invoice being below AED 10,000, because the relationship totals AED 108,000 over 12 months, above the AED 100,000 limit.

Supplies above AED 100,000 over 12 months

Once supplies from the same supplier exceed, or are expected to exceed, AED 100,000 over 12 months, standard verification measures apply. These may include checking:

The supplier
- its incorporation and licence details;
- its registered address and actual place of business;
- the identity and authority of the person acting for it; and
- whether its activities are consistent with the goods or services being provided.
The transaction
- whether it has a genuine commercial purpose;
- whether the prices, margins and payment terms make commercial sense; and
- whether there are any unusual or suspicious features.

Supplies above AED 375,000 over 12 months

Where supplies from the same supplier exceed, or are expected to exceed, AED 375,000 over 12 months, the standard verification measures still apply, but businesses must also carry out enhanced checks. These include further verification of the supplier’s banking arrangements and a review of publicly available information concerning the supplier and its reputation.

Why this matters. VAT compliance now goes beyond simply collecting the correct invoice. Businesses increasingly need to know who they are dealing with, understand the commercial logic of the transaction, and keep enough information to demonstrate that the required checks were carried out. Finance and procurement teams should therefore review their supplier onboarding and verification procedures.

5. Cross-border services: greater clarity on short stays in the UAE

A foreign client may be physically present in Dubai without automatically being treated as being in the UAE for VAT purposes.

Before. A foreign customer’s temporary presence in the UAE could create uncertainty when deciding whether that customer should be treated as being inside or outside the country.

From 1 October 2026. A person may still be treated as being outside the UAE where they are present in the UAE for less than 30 days and their presence is not effectively connected with the relevant supply.

Example. A foreign client visits Dubai for a few days of meetings while receiving consulting services from a UAE business. That temporary visit does not automatically mean the client must be treated as being in the UAE for VAT purposes.

Why this matters. The customer’s location can affect the VAT treatment of the service. In some cases, a service supplied to a customer outside the UAE may qualify for 0% VAT as an export of services, while a service supplied to a customer in the UAE may be subject to 5% VAT. The important question is therefore not only where the customer is physically located, but whether their presence in the UAE is actually connected with the service being supplied.

6. Medical products and healthcare: updated zero-rating rules

The VAT treatment of medical products has been updated, particularly the categories of products that may qualify for zero-rating.

Before. Certain pharmaceutical products and medical equipment could already qualify for 0% VAT where the relevant conditions were satisfied.

From 1 October 2026. The amended rules use the broader concept of “medical products” and align the VAT treatment with the UAE’s updated healthcare legislation. Businesses should check whether products currently treated as zero-rated continue to fall within the relevant categories.

Why does zero-rating matter?

Zero-rating is not the same as exemption. With a zero-rated supply, the business may generally still recover VAT on related costs; with an exempt supply, that VAT may not be recoverable.

Take a simple example. A company sells a qualifying medical product for AED 10,000 and, because the product is zero-rated, the customer pays AED 10,000 with no VAT added. The business has paid AED 400 of VAT on costs connected with selling that product, such as packaging, equipment or professional services.

Why this matters. Simply describing a product as “medical” is not enough. Its correct VAT classification can affect both the amount charged to the customer and the amount of VAT the business can recover on its own costs.

7. Profit Margin Scheme: acquisition costs clarified

The amendments clarify how certain acquisition-related costs should be treated under the Profit Margin Scheme. Under this scheme, VAT may in some cases be calculated on the profit made on a sale rather than on the full selling price. For example, if an eligible business buys a second-hand item for AED 100,000 and later sells it for AED 120,000, VAT may be calculated on the AED 20,000 margin rather than on the full AED 120,000.

Before. Certain costs linked to acquiring the goods could already be included in the purchase price used to calculate the margin, but the relationship between those costs and VAT recovery was not completely clear.

From 1 October 2026. Certain acquisition-related costs can be included in the purchase price where the VAT on those costs is not recoverable.

The logic is that if VAT on an acquisition cost cannot be recovered, that cost may increase the purchase price used under the scheme and therefore reduce the taxable margin. If the VAT on the cost has already been recovered, the same cost should not also be used to reduce the margin.

Why this matters. Businesses using the Profit Margin Scheme should review how they treat acquisition-related costs and make sure that the treatment is consistent with their VAT recovery position.

8. Capital Assets Scheme: VAT recovery may change over time

The amendments also clarify the Capital Assets Scheme, which applies to certain high-value business assets and recognises that the way an asset is used may change over time. If a business buys an asset that is used for taxable activities, it may generally recover the VAT paid on that asset, subject to the normal VAT recovery conditions.

Before. The regulation referred to a “single item of expenditure of the business”, which could create uncertainty about whether the rule focused on the expenditure itself or on the underlying asset.

From 1 October 2026. The wording refers more clearly to a business asset costing at least AED 5 million excluding VAT, subject to the relevant useful-life conditions.

The AED 5 million threshold itself is not new. The amendment mainly clarifies what qualifies as a capital asset for the purposes of the scheme.

How does it work?

Imagine that a business buys a commercial property for AED 10 million, plus AED 500,000 VAT.

At purchase: the property is used entirely for taxable business activities, so the business may generally recover the AED 500,000 VAT.
A few years later: the property is used 50% for taxable activities and 50% for exempt activities. The business may now need to repay part of the VAT it originally recovered.

For buildings, the Capital Assets Scheme generally monitors the asset over a 10-year adjustment period. If the use of the property changes during that period, the VAT recovery can be adjusted for the relevant year rather than automatically reversing the full amount previously recovered. The mechanism also works in the opposite direction: if an asset becomes more heavily used for taxable activities, the business may be entitled to recover additional VAT.

Why this matters. A business should not assume that the VAT treatment of a major asset is fixed at the date of purchase. High-value property, machinery and other long-term assets should be monitored, because changes in their use can affect VAT recovery over time.

9. Tax Credit Notes: a small but practical correction

A Tax Credit Note is generally issued when a business needs to reduce or correct an amount that was previously invoiced. For example, a company may issue an invoice for AED 10,000 plus AED 500 VAT and later grant the customer an AED 2,000 discount. A Tax Credit Note would then be issued to reduce both the taxable amount and the VAT previously charged.

Before. The VAT Executive Regulation referred to the words “Tax Credit Note” appearing on the “invoice”.

From 1 October 2026. The wording has been corrected: the words “Tax Credit Note” must appear clearly on the credit note itself.

Why this matters. The VAT treatment itself has not changed, but businesses should check that their accounting software and document templates correctly identify these documents as “Tax Credit Note”.

What should UAE businesses do now?

The amendments affect much more than the calculation of VAT and may require changes to internal processes across several departments. Depending on their activities, businesses should review the following.

Recovering input VAT

Employee accommodation policies: whether accommodation is an employee benefit or legally required by MoHRE, and whether documents support that position.
Significant cash payments: which supplier payments are made in cash, pending the threshold to be set by Ministerial Decision.
Supplier onboarding: which suppliers cross AED 100,000 or AED 375,000 over 12 months, and whether the checks are carried out and recorded.

How supplies are treated

Bundled supplies: whether invoices with several lines are, in commercial reality, one composite supply.
Cross-border service arrangements: whether a visiting foreign customer’s presence is under 30 days and unconnected with the supply.
Medical-product classifications: whether products treated as zero-rated still fall within the updated categories.

Schemes and documents

Profit Margin Scheme calculations: whether acquisition costs are added to the purchase price only where their VAT is not recovered.
Capital Assets Scheme records: whether changes in the use of assets of AED 5 million or more are monitored over the adjustment period.
Tax Credit Note templates: whether software and templates show “Tax Credit Note” on the credit note itself.

Businesses should also continue to monitor the Ministry of Finance for the forthcoming decision setting the cash-payment threshold, as this will determine the practical scope of the new restriction on VAT recovery for high-value cash payments.

Conclusion

The UAE VAT rate remains unchanged, but the rules surrounding VAT recovery and compliance have become more detailed. Businesses now need to pay closer attention not only to their invoices and VAT calculations, but also to the commercial substance of transactions, the way suppliers are verified, the way payments are made, and the documents kept to support the VAT treatment adopted.

The changes effective from 1 October 2026 are therefore a good opportunity for UAE businesses to review their existing VAT procedures and make sure that finance, procurement, HR and accounting processes remain aligned with the updated framework.

Looking ahead. The amendments also introduce a revised input VAT apportionment methodology for businesses carrying out both taxable and exempt activities. Unlike most of the changes discussed above, this new methodology will only apply from the first Tax Year commencing after 1 October 2027.

Disclaimer: This article is provided for general information purposes only and does not constitute legal, tax or professional advice. The application of UAE VAT rules depends on the specific facts and circumstances of each case. Businesses should obtain appropriate professional advice before taking or refraining from any action based on the matters discussed in this article. Legislation, regulations and administrative guidance may also change over time.

Will Free Zone Companies Be Subject to the Corporate Tax?

2022-06-17T07:38:23Z

As announced in January 2022, the United Arab Emirates will introduce a federal Corporate Tax (CT) on business profits that will be effective for financial years starting on or after 1 June 2023. The following statements are based on a Public Consultation Paper and do not necessarily reflect the final tax environment in June 2023. The tax rate will be 9% of the income (profit) exceeding AED 375,000.

1. No CT for income not related the UAE mainland

Companies and branches that are registered in a Free Zone will be within the scope of the UAE CT and subject to tax return filing requirements. The UAE CT regime, however, will honour the tax incentives currently being offered to Free Zone Persons that maintain adequate substance and comply with all regulatory requirements.

Consequently, a business registered and licensed in a Free Zone Person can benefit from a 0% CT rate on income earned from transactions with businesses located outside of the UAE, or from trading with businesses located in the same or any other Free Zone. The 0% CT rate may also apply to income from certain regulated financial services directed at foreign markets.

2. CT will be applicable to a mainland branch of a Free Zone Company

If the business registered and licensed in a Free Zone conducts business through a branch in the mainland of the UAE, such income (of the branch) will be taxed at the regular CT rate on its mainland sourced income, whilst continuing to benefit from the 0% CT rate on its other income.

3. Direct Transactions with the UAE Mainland

To prevent Free Zone businesses from gaining an unfair competitive advantage compared to businesses established in mainland UAE, any mainland sourced income will disqualify a Free Zone Person from the 0% CT regime in respect of all their income. In other words, such income will be subject to the CT. There will be, however, two exceptions:

3.1 Sales from a ‘Designated Area’

A business licensed and registered in a Free Zone which is a Designated Zone for Value Added Tax (VAT) purposes can benefit from the 0% CT rate on income from the sale of goods to UAE mainland businesses that are the importer of record of those goods. It remains to be seen whether this only covers transactions with a distributor who is registered under the UAE Agency Law or also with unregistered agencies.

3.2 ‘Passive’ Income not subject to the CT

A Free Zone Business can continue to benefit from the 0% CT rate if its income from the UAE mainland is limited to ‘passive’ income. This would include – inter alia – interest, royalties, dividends and capital gains from owning shares in mainland UAE companies.

Scholz kauft Steuerdaten aus Dubai – Straffreiheit durch steuerliche Selbstanzeige

2021-06-20T16:00:29Z

#SteuerlicheSelbstanzeige, #SteuerdatenDubai, #Steuerhinterziehung, #SteuerhinterziehungDubai, #SteuerstraftatenDubai, #SteuerdatenAusDubai

SCHOLZ KAUFT STEUERDATEN AUS DUBAI

STRAFFREIHEIT DURCH STEUERLICHE SELBSTANZEIGE

In der deutschen und internationalen Presse wurde in den letzten Tagen berichtet, dass die Bundesrepublik Deutschland Steuerdaten aus Dubai gekauft habe und diese Daten jetzt von den Ländern ausgewertet würden. Es geht darum, mögliche Steuerstraftaten aufzudecken.

Personen, die in Deutschland unbeschränkt steuerpflichtig sind, haben in Deutschland ihr Welteinkommen zu versteuern. Hierzu zählen auch Mieteinkünfte und Veräußerungsgewinne (und andere Einkünfte), die im Ausland, also auch in Dubai, erzielt werden. Wer dies unterlassen hat, dem droht ein Steuerstrafverfahren.

Straffreiheit durch eine steuerliche Selbstanzeige nach § 371 Abgabenordnung (AO)

Wer wirksam eine Selbstanzeige erstattet, kann gemäß § 371 Abgabenordnung (AO) nicht bestraft werden, obwohl er eine Steuerhinterziehung (§ 370 AO) vollendet hat. Wichtigster Grund der strafbefreienden Selbstanzeige ist die Erschließung von Steuereinnahmequellen, die dem Staat bis zur Selbstanzeige nicht bekannt waren.

Eine Selbstanzeige ist allerdings nicht mehr möglich, wenn

Die Tat bereits entdeckt wurde.
Eine Steuerprüfung bereits angeordnet wurde.
Ein Straf- oder Bußgeldverfahren bereits bekannt gegeben wurde.
Ein Finanzbeamter bereits zur Steuerprüfung oder Ermittlung der Steuerstraftat erschienen ist.

Da eine strafbefreiende Selbstanzeige nicht mehr möglich ist, wenn die Tat bereits entdeckt wurde, sollten Sie möglichst zeitnah handeln.

Wenn die verkürzte Steuer oder der für sich oder einen anderen erlangte nicht gerechtfertigte Steuervorteil einen Betrag von 25.000 Euro je Tat übersteigt, ist zudem ein Geldbetrag in folgender Höhe zugunsten der Staatskasse zu zahlen:

10 Prozent der hinterzogenen Steuer, wenn der Hinterziehungsbetrag 100.000 Euro nicht übersteigt;
15 Prozent der hinterzogenen Steuer, wenn der Hinterziehungsbetrag 100.000 Euro übersteigt und 1.000.000 Euro nicht übersteigt;
20 Prozent der hinterzogenen Steuer, wenn der Hinterziehungsbetrag 1.000.000 Euro übersteigt.

Unterlaufen bei einer Selbstanzeige Fehler, ist man trotz der Selbstanzeige dem Risiko von hohen Geldstrafen und sogar Freiheitsstrafen ausgesetzt. Daher sollte man sich professionell von Steuerexperten vertreten lassen, die sich auch mit den Gepflogenheiten in Dubai und dem Doppelbesteuerungsabkommen zwischen den VAE und Deutschland auskennen.

Wir können Sie bei der Prüfung und Erstattung einer Selbstanzeige unterstützen. Prof. Dr. Jörg Wilhelm hat im Zusammenhang mit dem Kauf von Steuerdaten von schweizerischen Banken zahlreiche Selbstanzeigen erfolgreich betreut. Dr. Ghassan Azhari ist zugelassener Rechtsanwalt in Deutschland und Fachanwalt für Steuerrecht. Er ist seit mehr als 15 Jahren praktizierender Rechtsanwalt in Dubai. Zudem unterrichtet Dr. Azhari internationales Steuerrecht an der Middlesex University in Dubai und hat in den vergangenen Jahren internationales Steuerrecht an der SRH Hochschule in Berlin doziert.

Sie können mit uns einen persönlichen Termin sowohl in Zürich als auch in Dubai vereinbaren.

Kontakt:

Azhari Legal Consultancy
Executive Tower D, Office 901

Business Bay

P.O. Box 213811

Dubai – United Arab Emirates
Tel.: +971 (0) 4 447 3557
Mail: info@azhari-law.com
Web: www.azhari-law.com

Dr. Ghassan Azhari: +971 50 6884811 (Dubai)
Senator Prof. Dr. Joerg E. Wilhelm: +41 79 2079898 (Zürich)

Online lecture: ‘Employment Laws and Regulations in UAE’ with Dr. Ghassan Azhari, 30 March 2021

2021-04-01T08:22:54Z

#LaborLaw, #LabourLaw, #DIFCLabourLaw, #LawyerDubai, #EndofServiceGratuity, #terminationofemploymentcontract, #arbitrarydismissal
On 30 March 2021, Dr. Ghassan Azhari held a lecture on UAE Labour Law at Middlesex University. His lecture covered the mainland jurisdiction and the Labour Laws in the DIFC and other Free Zones.

Part 32 Offer – Early Disposal of Claims at DIFC Courts

2021-03-20T09:35:33Z

Parties to a lawsuit can, and frequently do, attempt to settle a claim before having to go to trial. In fact, the DIFC courts encourage parties to settle their disputes, for example through mediation and conciliation. A party may try to settle in any form or way, within the framework of the law, but Part 32 of the Rules of the DIFC Courts (RDC) sets out a formal mechanism for the parties to settle their claims, with possible cost consequences.

It can be substantially expensive and time consuming to litigate a case before DIFC courts. A “Part 32 Offer” (equivalent to Part 36 offers in the English Courts) permits parties to attempt to settle a claim during a lawsuit.

Either party can make a Part 32 Offer to save costs and time in avoiding full trial. In the event that the offeror (the party making the offer) makes a Part 32 Offer which, for whatever reason, is not accepted, and the offeror is granted a ‘judgment more advantageous’ than the offer, the offeree (the party receiving the offer) may be liable for the legal costs of the lawsuit starting from the date on which the offer was rejected, plus interest.

A Part 32 Offer is a formal offer, and it is treated as “without prejudice except as to costs.” This means that, if the offer is not accepted, it cannot be used or referred to during legal proceedings in relation to the claim, save as to the issue of costs. It is important to note that there is no limit to the number of Part 32 offers.

Nothing in Part 32 of the RDC prevents a party making an offer to settle in whatever way it chooses, but a Part 32 Offer must be in accordance with Rule 32 of the RDC, to have the consequences specified in the law. To that effect, it is highly advised to consult with a competent lawyer to ensure the form and content of the offer are in compliance with the RDC.

To put things in a practical perspective, consider the following hypothetical:

A ‘service provider’ (Party A) receives a termination letter from its client (Party B) and Party A chooses to file a claim against Party B at DIFC court. The claim of Party A includes its services provided till termination (let’s assume USD 1 Million) and a compensation for the untimely and unjustified termination (let’s assume another USD 1 Million). It is arguably clear in most cases that Party B will have to pay the claim for the services provided by Party A till the termination. The compensation amount for an asserted untimely or unjustified compensation is far less clear, and it will be for the court to determine the amount of compensation it will grant.

In the middle of this litigation, Party A may, as encouraged by the DIFC courts, try to settle its claim with Party B and to that effect it files a Part 32 Offer to settle its claim for USD 1.5 Million.

In this hypo, if Party B accepts the offer, Party A would get the settlement amount of USD 1.5 million in a timely manner. But if Party B, for whatever reason, chooses to not accept the offer, and if upon trial the court awards Party A a judgement that is ‘more advantageous’ than what Party A had offered in its Part 32 Offer (USD 1.5 Million), then Party B is liable for the legal costs of the lawsuit starting from the date on which the offer was rejected, plus interest.

Azhari Legal Consultancy is registered with the DIFC courts and we are committed to achieving optimal results for every client.

Deutsche Influencer in Dubai

2021-03-16T15:11:06Z

Was brauche ich, um als Influencer in Dubai arbeiten zu können?

Um als Influencer in Dubai arbeiten zu können, benötigt man eine sog. Lizenz (Gewerbeerlaubnis). Zudem braucht man eine Aufenthaltserlaubnis und ein Bankkonto bei einer lokalen Bank in Dubai.

Wie erhalte ich eine Lizenz/Gewerbeerlaubnis?

Jeder Gewerbetreibende in den Vereinigten Arabischen Emiraten benötigt eine sog. Lizenz. Als Influencer beantragt man diese Lizenz bei dem Dubai National Media Council. Sobald diese Lizenz erteilt wird, kann der Lizenzinhaber das in der Lizenz genannte Gewerbe ausüben. Man kann eine Influencer-Lizenz auch in der Dubai Media City beantragen. Bei der Dubai Media City handelt es sich um eine sogenannte Free Zone. In der Dubai Media City kann man eine Kapitalgesellschaft (vergleichbar mit einer deutschen GmbH) mit einer Influencer-Lizenz gründen. Dies kann steuerliche Vorteile mit sich bringen.

Wie erhalte ich eine Aufenthaltserlaubnis und wie kann ich ein Bankkonto in Dubai öffnen?

Die Lizenz ist nicht nur eine Gewerbeerlaubnis, sondern auch die rechtliche Grundlage für den Lizenzinhaber, in den VAE eine Aufenthaltserlaubnis (Residence Visa) zu beantragen. Mit dem Residence Visa kann z. B. eine Wohnung gemietet, ein lokaler Führerschein beantragt und ein privates Bankkonto eröffnet werden. Zudem ist das Residenz Visa wichtig, um ein Geschäftskonto eröffnen zu können. Normalerweise eröffnen die Banken in den VAE keine Geschäftskonten, wenn der Geschäftsinhaber kein Residenz Visa besitzt.

Steuerrechtliche Situation in den VAE

In den VAE werden keine Einkommen- oder Unternehmenssteuern erhoben. Die Gewinne (eines Influencers) unterliegen also keiner Besteuerung. Jedoch gibt es in den VAE eine Umsatzsteuer (VAT) in Höhe von 5 %. Das Umsatzsteuerrecht in den VAE sieht vor, dass man bei einem Jahresumsatz von AED 187.500 (Voluntary Threshold) sich freiwillig als umsatzsteuerbares Unternehmen registrieren kann und ab einem Jahresumsatz von mehr als AED 375.000 (Mandatory Threshold) als umsatzsteuerbares Unternehmen registrieren muss. Da Influencer in der Regel Jahresumsätze von mehr als AED 375.000 erzielen, muss sich der Influencer als umsatzsteuerbares Unternehmen registrieren. Dies hat zur Folge, dass der Influenzer:

sog. Tax Invoices für seine Werbeleistungen erstellen muss;
bei „Geschenken“, die er als Gegenleistung für seine Werbetätigkeit erhält, die Umsatzsteuer herausrechnen und eine entsprechende Tax Invoice erstellen muss;
quartalsmäßig eine Umsatzsteuererklärung abzugeben und die entsprechende Umsatzsteuer an das Finanzamt abzuführen hat.

Bei der Nichteinhaltung des Umsatzsteuerrechts drohen empfindliche Geldstrafen. Daher sollte darauf geachtet werden, dass man die Vorschriften des Umsatzsteuerrechts genau einhält.

Steuerpflicht in Deutschland

In den VAE sind die Gewinne aus der Influencertätigkeit steuerfrei. Dies bedeutet aber nicht, dass man diese Gewinne nicht in Deutschland versteuern muss. In Deutschland unterliegen die weltweiten Einkünfte (also auch Gewinne aus den VAE) einer Person dem deutschen Besteuerungsrecht, sofern diese Person einen Wohnsitz oder einen gewöhnlichen Aufenthaltsort in Deutschland hat. Hieran ändert auch das Doppelbesteuerungsabkommen zwischen den VAE und Deutschland (DBA VAE) nichts. Artikel 22 Abs. 1 des DBA VAE besagt, dass eine Doppelbesteuerung von einer in Deutschland ansässigen Person dadurch vermieden wird, dass die in den VAE erhobene Steuer auf die deutsche Steuer angerechnet wird. Da man in den VAE keine Einkommenssteuer bezahlt, unterliegt das gesamte Einkommen, das ein Influencer in Dubai erzielt, dem deutschen Besteuerungsrecht. In Deutschland sind nur dann keine Steuern zu zahlen, wenn man in Deutschland keinen Wohnsitz und keinen gewöhnlichen Aufenthaltsort hat. Bei der Aufgabe des deutschen Wohnsitzes hat man sehr umsichtig zu handeln, da die steuerlichen Voraussetzungen für einen Wohnsitz in Deutschland sehr gering sind. So reicht es für einen deutschen Wohnsitz aus, dass man noch eine Wohnung in Deutschland hat, auf die man jederzeit Zugriff hat. Hierbei kommt es nicht darauf an, ob und wie viele Tage im Jahr man in dieser Wohnung tatsächlich „wohnt“; dies hat auch nichts mit der oft in einem völlig falschen Zusammenhang erwähnten 6-Monats-Regel zu tun. Auch kann die Tatsache, dass der Ehepartner und Kinder noch in Deutschland wohnen, für einen deutschen Wohnsitz einer in den VAE lebenden Person ausreichen. Die Abmeldung des Wohnsitzes bei dem Einwohnermeldeamt hat allenfalls einen indikativen Charakter.

Zudem gibt es in Deutschland eine sog. Wegzugsbesteuerung, die allerdings in der Praxis häufig nur eine untergeordnete Rolle spielt.

Bei dem Wegzug aus Deutschland sollte man die deutschen Steuergesetze genau beachten, um später „böse Überraschungen“ zu vermeiden.

Azhari Legal Consultancy unterstützt Influencer bei der Beantragung der Influencer-Lizenz, der Aufenthaltserlaubnis und berät Influencer in steuerlichen und zivilrechtlichen Fragestellungen.

Die enthaltenen Informationen in diesem Artikel dienen allgemeinen Informationszwecken und beziehen sich nicht auf die spezielle Situation einer Einzelperson oder einer juristischen Person. Sie stellen keine betriebswirtschaftliche, rechtliche oder steuerliche Beratung dar. Im konkreten Einzelfall

How to bequeath Bitcoin and other crypto currencies in the UAE

2020-08-13T07:03:21Z

The UAE is governed by the UAE Federal Laws that give – so far – very little indication about the legal classification of bitcoins and other crypto currencies.

There is, however, the Dubai International Financial Centre (DIFC) that has its own probate court. The DIFC is a Federal Free Zone and applies the Laws of England and Wales. The Laws of England and Wales classify crypto currencies as ‘property’ so that cryptocurrencies can be held on trust (e.g. by a financial institution) for the benefit of accountholders (see: http://www.nzlii.org/nz/cases/NZHC/2020/728.html).

Having said this, you can register a last will at the DIFC probate court under the Laws of England and Wales if (1) you have a residency in the UAE or (2) you have assets in the UAE. In either case, you need to be at least 21 years old and a non-Muslim.

If you have a residency in the UAE, a DIFC-Will can be drafted in a way that it covers all your assets worldwide. While doing so, one has to consider the (inheritance) laws of the jurisdiction(s) where your assets are located.

A residency in the UAE can be demonstrated by a UAE Visa and a physical address.

When it comes to crypto currencies, it is difficult to prove that the crypto currencies are in the UAE as crypto currencies are in the blockchain and as such not within any particular jurisdiction. If, however, the crypto currencies are held on trust by a financial institution operating in the UAE, the crypto currencies should be considered as an asset located in the UAE. The mere fact that a cold wallet, i.e. a hardware stick, is located in the UAE might also create an asset in the UAE.

The Laws of England & Wales consider Bitcoin and other crypto assets as a ‘property’ (see: The UK Jurisdiction Taskforce (‘UKJT’) ‘Legal Statement on crypto assets and smart contracts’). Consequently Bitcoin and other cryptocurrencies can be bequeathed by a DIFC-Will.

In the DIFC-Will, however, the crypto currencies have to be mentioned in a manner that it is clear which crypto currencies shall be covered by the Will. In this context, it is important to clarify whether you hold your crypto currencies in a cold wallet or a hot wallet. For the purpose of inheritance, it would be beneficial if the crypto assets were held in a cold wallet (preferably a hardware rather than a paper wallet) or on trust by a financial institution.

It is worthwhile to mention that according to Part 3 Rule 10 (4) of the DIFC Wills and Probate Rules (‘WPR Rules’), the Director or an Authorized Officer shall have a discretion to register a document including on grounds of confidentiality or sensitivity of information (such as sealed documents or documents containing confidential passwords and personal codes). Having said this, the Testator may register together with his Will a sealed document containing his ‘private key’ that allows one to withdraw crypto currencies from the public key/address.

Finally, is advisable not only to mention the wallet type, but also the crypto assets the wallet is giving access to, e.g. ‘the Trezor Model T hardware wallet holding/giving access to 50 Bitcoins’. This provision can be important for the beneficiaries for two reasons: (1) the inheritance of crypto currencies might be subject to inheritance tax (depending on the residency of the testator and beneficiaries) and (2) in case the beneficiary wants to convert the crypto currencies to fiat money, e.g. to US-$. In this case, the (converting) bank will ask for a disclosure regarding the ‘source of wealth’. Considering the permanently increasing compliance requirements of financial institutions, clear provisions in the Last Will should make the compliance procedure at least easier.

Dr. Ghassan has been registered as a DIFC Wills Draftsman

2020-08-04T04:45:23Z

Dr. Ghassan has been registered as a DIFC Wills Draftsman. The DIFC Courts Wills and Probate Registry Rules allow eligible individuals the option to register different types of Will depending on the assets that they wish to cover, and whether they wish to encompass guardianship arrangements.

A DIFC-Will provides an instrument for non-Muslims to avoid the consequences of the Shariah Law. In addition, a carefully drafted DIFC-Will considering the domestic inheritance laws of the testator mitigates the risks of inheritance disputes between family members.

Moreover, Dr. Ghassan is familiar with the European Inheritance Laws an accredited tax lawyer (in Germany) so that he can structure a Will in a tax efficient way.

Useful Links: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32012R0650 ; https://difcwills.ae

Azhari Legal Consultancy wins ACQ5 Awards 2020 “Boutique Tax Law Firm of the Year”

2020-06-02T10:57:15Z

We are delighted that the firm has won the ACQ5 2020 award: “Boutique Tax Law Firm of the Year”.

We are immensely proud to receive the awards. It has been made possible by our clients and the trust they place in us and of course by our excellent, talented international team of lawyers. We are continuously working to improve our services in the field Taxation.

Our congratulations to the other winners!

Our tax department is focused on the following fields:

International Taxation/Double Taxation Agreements;
VAT Laws in the UAE and GCC States;
Economic Substance Regulations in the UAE;
International Taxation of Crypto Currencies.

Employers’ rights during the Covid-19 Crisis

2020-03-31T17:09:26Z

Resolution No. 279 of 2020 issued by the Ministry of Human Resources and Emiratisation on 26 March 2020 (‘the Resolution’) reacts to the economic impacts of the COVID-19 outbreak on businesses, providing a fair balance between employers and employees. Employees are for many businesses the most valuable assets.

The Resolution gives employers certain liberties to keep employees during the crisis at lower costs, which gives the employers the advantage of not losing the employee and the employee will keep his employment at less favorable conditions instead of losing his job.

The instruments provided by the Resolution are – inter alia – the following:

Implementing a remote work system;
Granting employees paid leave;
Granting employees unpaid leave;
Temporarily reducing salaries;
Permanently reducing salaries.

An employer should carefully consider these options prior terminating an employment and thereby losing employees the employer might need after the COVID-19 crisis.

If you are an employer and need further assistance, please contact us: info@azhari-law.com

Dr. Ghassan held a seminar at Middlesex University Dubai

2019-11-17T17:45:02Z

On 10th and 11th November 2019 Dr. Ghassan held a seminar on the “UAE Economic Substance Regulations” at Middlesex University’s Institute for Entrepreneurship and Business Excellence (IEBE) in Dubai. Dr. Ghassan gave an insight into the background of the “UAE Economic Substance Regulations” and the impacts of the “Exchange of Information”.

Azhari Legal Consultancy wins ACQ5 Awards 2019 “Boutique Tax Law Firm of the Year” and “Arbitration Law Firm of the Year”

2019-10-21T21:36:53Z

We are delighted that the firm has won the ACQ5 2019 awards: “Boutique Tax Law Firm of the Year” and “Arbitration Law Firm of the Year”.

Our congratulations to the other winners!

DIFC Enacts New Employment Law

2019-06-23T11:02:12Z

The new DIFC Employment Law, Law No. 2 of 2019, which was enacted on 30th May 2019 and will come into force on 28 August 2019, revised its provisions regarding inter alia sick pay, end-of-service gratuity, and settlements in a manner that protects and balances the interests of both employers and employees. Furthermore, it introduces new regulations such as provisions regarding paternity leave and anti-discrimination. Regarding its applicability, where a claim has been initiated on the basis of the old DIFC employment law, any provisions which may apply to such proceedings will be deemed to survive the repeal of the old law, if no equivalent provision exists under the new law. However, any legal proceedings yet to be commenced must be interpreted under the new DIFC Employment Law. It is important to note that the new law mandates that proceedings must be initiated no later than 6 months following the employee’s termination date.

We have listed some of the key changes of the new DIFC Employment Law in summarized form for you.

Sick pay

The new provisions include a reduction of the statutory sick pay. Now, an employer shall pay sick pay to an employee at 100% of the employee’s daily wage for the first 10 work days of sick leave taken in a 12 month period; 50% of the employee’s daily wage for the next 20 work days of sick leave taken in the same 12 month period. The employee shall not be entitled to receive any wage for any additional sick leave taken in the same 12 month period. In cases where an employee takes more than an aggregate of 60 work days of sick leave in a 12 month period, the employer may terminate the employment contract with immediate effect on written notice to the employee.

Penalties for late payment

The new law also limits the application of late fines for not paying salary or end-of-service settlements on time. Penalties will only be triggered if the amount due and not paid to an employee is held by a Court to be in excess of an employee’s weekly wage. A late payment penalty will be waived entirely by a Court in respect of any period during which a dispute is pending in the Court or in case the employee’s unreasonable conduct is the material cause of the employee failing to receive the amount due from the employer. Moreover, penalties will be capped at 6 months’ daily wage as a result of a new 6 month limitation period for employees to bring claims.

End of service gratuity / pension

Regarding the end of service gratuity, the new law introduced some key changes regarding how and when it will be paid. Under the old law the employee’s basic wage was the basis for calculation of the end of service gratuity. As per the new law the employee’s basic wage for the purpose of the end of service calculation shall not be less than 50% of the employee’s annual remuneration package (including an employee’s allowance but excluding bonuses, grants, commission or other payments which are discretionary, non-recurring expressly agreed not to form part of an employee’s wage or allowance).

One important change is that the end of service gratuity will be payable even in cases where the employee was terminated for cause.

Furthermore, instead of the end of service gratuity, employees may choose to receive pension contributions into a non-UAE retirement fund (or similar scheme) instead of receiving a gratuity payment, provided the contributions made by an employer are not less than the gratuity payment the employee would have been entitled to receive.

Settlement agreements

The requirements of the new DIFC Employment Law are minimum requirements and a provision in an agreement to waive any of those requirements, except where expressly permitted by law, is void in all circumstances. However, an employee may waive any right, remedy, obligation, claim or action under this Law by entering into a written agreement with their employer to terminate their employment or to resolve a dispute with their employer, provided the employee warrants in the written agreement that they were given an opportunity to receive independent legal advice from a legal practitioner as to the terms and effect of the written agreement.

Recruitment costs

As per the new DIFC Employment Law an employer is not permitted to recoup from an employee any costs or expenses that incurred in the course of recruiting the employee, unless the employee terminates their employment contract for any reason other than termination for cause and their termination date falls within a period of 6 months from the employee’s date of commencement of employment (provided such expenses were directly incurred by the employer in the course of recruiting the Employee, are supported by proof, and such provision was included in the employment contract).

Paternity leave

Provisions targeting employees include the introduction of 5 days paid paternity leave provided the employee has been continuously employed by his employer for at least 12 months.

Discrimination

As per the new law a provision or practice which is discriminatory in relation to the employee’s sex, marital status, race, nationality, age, pregnancy, maternity, religion, or mental or physical disability is prohibited. With respect to age an employer does not discriminate against an employee on grounds of age if the employer can show his treatment of the employee to be a proportionate means of achieving a legitimate aim. The DIFC Courts have the discretion to provide employees who file a claim for discrimination or victimization with a remedy, by making a declaration as to the rights of the parties, award the employee compensation (up to an amount equivalent to the employee’s annual wage), make a recommendation that within a specified period the respondent takes specified steps for the purpose of obviating or reducing the adverse effect on the complainant, or do a combination of the aforementioned. If the employer fails to comply with any recommendations set by the DIFC Court and compensation has been awarded, the DIFC Court has the power to grant compensation to the employee up to 2 times the equivalent of the employee’s annual wage.

Expanding or establishing an e-commerce business in the EU: the ‘virtual’ permanent establishment and other fiscal pitfalls

2019-04-22T07:12:32Z

E-commerce businesses in the EU are often incorporated in a low tax jurisdiction and distribute products in all EU member states. It comes as no surprise that such a structure is a thorn in the side of high-tax jurisdictions, in particular when these jurisdictions are the core market for the e-commerce business.

This paper will provide a concise overview whether profits of an e-commerce business can be taxed in a state where the e-commerce business is not incorporated. The general rule is that profits of a business are only subject to tax in the state where it is incorporated. A state can only tax the profits of a non-resident business, if the non-resident business has a so-called ‘permanent establishment’ in this specific state. In the case of only selling products online to a specific state, the conditions of a ‘permanent establishment’ are normally not fulfilled so that the state to which the products are sold online has no right to tax the profits of such transactions.

1. Permanent Establishment as per Article 5 OECD Model Tax Convention

The tax treatment of cross-border commerce is the subject of bilateral tax treaties (Agreements for the Avoidance of Double Taxation, ‘DTAs’), which are negotiated versions of the OECD Model Tax Convention.

According to Article 7 of the OECD Model Tax Convention concerning the taxation of business profits, the source country may tax the profits arising from commercial activities carried out within its borders by a foreign entity through a substantial physical presence in the source country.

However, to justify source taxation, such substantial physical presence must reach the level of a permanent establishment as defined in Article 5 of the OECD Model Tax Convention by satisfying the following three prerequisites, namely

the existence of a distinct place, such as premises, or in certain instances, machinery or equipment (‘place-of-business’ test),
that this place of business must be ‘fixed’, i.e. it must be established with a certain degree of permanence (‘permanence test’),
and that the business must be carried on through this fixed place of business. This means usually by personnel of the foreign entity or by personnel who are dependent on the foreign entity (business-activities test).

If the physical presence does not reach the level required by the OECD Model Tax Convention by satisfying these requirements, the source state is not entitled to charge income tax on the profits arising from the international transaction; rather, the residence country of the profit making company will have the right to tax the profits of its resident.

An e-commerce business registered in a low tax jurisdiction can normally avoid a ‘permanent establishment’ as defined in Article 5 OECD Model Tax Convention in other countries where it is selling its products.

1.1 The OECD’s approach to the definition of a ‘virtual’ permanent establishment (PE)

The OECD’s Committee on Fiscal Affairs issued a ‘Clarification on the application of the permanent establishment definition in e-commerce: Changes to the Commentary on the model tax convention on Article 5’. The Clarification distinguishes between

computer equipment, which may be set up at a location so as to constitute a PE under certain circumstances,
and the data and software which is used by, or stored on, that equipment.

As per para 42.2 of the Clarification, a website, which is a combination of software and electronic data, does not in itself constitute tangible property. Therefore, it does not have a location that can constitute a place of business as there is no ‘facility such as premises or machinery or equipment’.

On the other hand, the server on which the website is stored and through which it is accessible is a piece of equipment having a physical location and such location may thus constitute a ‘fixed place of business’ of the company that operates that server.

To sum up, as per the OECD definition, the place where the server is located could constitute a PE of the company. However, the presence or availability of a website in a certain state does not constitute a fixed place of business by itself.

1.2 The Spanish tax authorities’ approach to a ‘virtual’ PE (‘Dell-case’)

In the ‘Dell’ case a Spanish commissionaire subsidiary was categorized by the Spanish tax authorities as a PE of its Irish holding company. The Spanish tax authorities concluded and Spanish courts affirmed that sales made by the non-resident entity Dell Ireland through a website which targeted the Spanish market and which was maintained by staff of the Spanish affiliate Dell Spain were sufficient for the conclusion of a PE in Spain. The consequence was that all the sales made by the non-resident Irish company in Spain (minus commissions paid to the Spanish affiliate and other related allocable expenses) were attributed to the Spanish affiliate PE.

2. Introduction of a new digital service tax (‘DST’) in the EU

The EU member states are working on an EU-wide solution to tax profits of e-commerce businesses in each member state. At the same time, some member states are working on a taxation right on a national level, notably France and Spain. In both states, however, only draft laws and proposals are circulating.

On 21 March 2018, the European Commission submitted 2 legislative proposals with the aim that digital business activities are taxed EU-wide.

Proposal 1: Common reform of the EU’s existing corporate tax rules for digital activities

This proposal would enable member states to tax profits that are generated in their territory, even if a company does not have a physical presence there. A digital platform shall be deemed to have a taxable ‘digital presence’ or a ‘virtual’ permanent establishment in a member state if it fulfils one of the following criteria:

it exceeds a threshold of €7 million in annual revenues in a member state;
it has more than 100,000 users in a member state in a taxable year;
over 3000 business contracts for digital services are created between the company and business users in a taxable year.

The new rules shall also change how profits are allocated to member states in a way which better reflects how companies can create value online: for example, depending on where the user is based at the time of consumption.

Proposal 2: An interim tax on certain revenue from digital activities

Unlike the common EU reform of the underlying tax rules, the tax would apply to revenues created from certain digital activities which escape the current tax framework entirely.

This system would apply only as an interim measure, until the comprehensive reform has been implemented and has inbuilt mechanisms to alleviate the possibility of double taxation.

A tax of 3% would apply to revenues created from activities where users play a major role in value creation and which are the hardest to capture with current tax rules, such as those revenues:

created from selling online advertising space;
created from digital intermediary activities which allow users to interact with other users and which can facilitate the sale of goods and services between them;
created from the sale of data generated from user-provided information.

Tax revenues would be collected by the member states where the users are located, and would only apply to companies with total annual worldwide revenues of €750 million and EU revenues of €50 million or more.

Prospects

The Ministries of Finance of the EU member states are in the phase of reviewing the proposals and debates are ongoing. Whereas Spain is already in the phase of proposing national legislation for taxation of digital services – modelled on Proposal 2 of the European Commission – and would most probably welcome EU-wide implementation, Germany for example is generally opposed. Therefore, it remains to be seen whether in Spain and/or EU-wide the DST will be introduced.

Disclaimer: Azhari Legal Consultancy’s legal & tax articles are made available to give you general information and a general understanding of the law, not to provide legal advice.

Azhari Legal Consultancy’s legal & tax articles are not legal advice. You should not act upon this information without seeking advice from a lawyer/tax expert licensed in your own state or jurisdiction. The articles should not be used as a substitute for competent legal advice from a licensed professional attorney/tax expert in your state or jurisdiction.

Your use of the articles is at your own risk. The materials presented in articles may not reflect the most current legal developments, verdicts or settlements. These materials may be changed, improved, or updated without notice. Azhari Legal Consultancy is not responsible for any errors or omissions in the content of this site or for damages arising from the use or performance of this site under any circumstances.

Can an employee lose his end-of-service gratuity entitlement?

2019-04-17T11:02:31Z

Generally speaking, an employee cannot lose his right to end-of-service gratuity. This right is mandatory and cannot be excluded in the employment contract or any Addendum thereto.

The only exception is if the employee breaches his employment contract in a manner that allows the employer to terminate the employment for cause. The reasons for a termination for cause are exhaustively provided in Article 120 of the UAE Labour Law.

According to Article 120 UAE Labour Law an employer can terminate an employment contract without notice only if the employee:

assumes a false identity or nationality or if he submits forged documents or certificates;
is engaged on probation and is dismissed at the end or during the probation period;
commits an error causing substantial material loss to the employer provided that the employer advises the labour department of the incident within 48 hours from having knowledge of the same;
disobeys instructions on the safety of work provided that such instructions are displayed in writing at conspicuous places or verbally informed to an illiterate employee;
fails to perform his basic duties under the employment contract and persists in violating them despite formal investigation with him in this respect and warning him of dismissal if the same is repeated;
divulges any secrets of the establishment where he is employed;
is finally convicted by a competent court of crime against honour, honesty or public morals;
is found drunk or under the influence of prohibited drugs during working hours;
in the course of his work, commits an assault on the employer, the manager or any of his colleagues;
is absent without lawful excuse for more than 20 intermittent days or for more than 7 successive days during one year.

It has to be emphasized that the employer has to prove the existence of a cause and fulfillment of all requirements provided in Article 120 UAE Labour Law, e.g. notice to the labour department or warning letter. If the employer fails to prove the cause for the termination, the termination will be considered as a ‘normal’ termination with the consequence that the employer has to pay the end-of-service gratuity and the salary for the termination notice period.

Some employers, however, send their employees a termination for cause, just to avoid payment of the end-of-service gratuity and to save the salary for the termination period. In this case, an employee has the following claims against his employer:

end-of-service gratuity
salary for notice period (minimum 1 month)
compensation for arbitrary dismissal (depending on the circumstances)

What double taxation agreements mean for UAE residents

2019-04-02T10:00:36Z

The Emirates has 123 double tax treaties in force or pending, which benefit expatriates and companies.

For a country with very little taxation, the UAE has a large double tax treaty network in place. With agreements in 90 countries – and 33 pending – the Emirates has more double tax treaties than countries such as Ireland, Luxembourg and Singapore.

Being part of an international tax framework provides important protections and benefits for UAE companies and expatriates. Double taxation avoidance agreements allocate taxing rights and ensure individuals and businesses are only taxed once. They clarify how certain types of income, such as dividends, property income and pensions, should be taxed, and lay out rules on non-discrimination to prevent different treatment based on factors such as nationality or residency.

“The agreements can also provide relief from foreign taxation and certain foreign tax compliance obligations in other countries,” says Jochem Rossel, partner and international tax services leader at PwC Middle East.

Representatives from the UAE’s Ministry of Finance, the Organisation for Economic Co-operation and Development and the private sector celebrated 30 years of signing such agreements – the first treaty was with France in 1989 – at an event in Dubai. The UAE has also implemented reforms to combat international tax evasion in recent years.

Part of the attraction of being based in the UAE for expatriates and multinationals is having no income tax or corporate tax to pay, with the exception of certain oil companies and foreign banks. The UAE only introduced a value-added tax in January last year.

“Because the UAE doesn’t have many taxes, the UAE companies have a greater benefit [from double tax agreements],” says Shiraz Khan, who leads Al Tamimi law firm’s tax practice in the region. “It may mean that they’re subject to a lower rate of withholding tax, and that’s purely because of the terms of the treaty.”

In addition to providing such benefits to companies, international tax treaties “allow for the exchange of information and co-operation between countries to address tax evasion, and provide a framework to resolve tax-related issues or discrepancies between the contracting states”, says Mr Rossel.

Here is what these agreements mean for the UAE:

Which countries does the UAE have double tax agreements with?

Of the 90 tax agreements in force, there are 42 in Europe, 23 in Asia, 13 in Africa, four in the Middle East, two in South America, two in Central America, two in Oceania, and one each in North America and the Caribbean. The treaty with Russia is a government investment income tax agreement, which means it only applies to the dividend, interest and capital gains income of governments and their financial or investment institutions.

“We have almost covered more than 120 countries and we are still expanding, signing more agreements with South American countries and also some additional countries in Africa, as well as working with Nordic countries,” Younis Al Khoori, undersecretary at the UAE’s Ministry of Finance, told The National.

There are 21 pending double tax treaties, 12 signed but not yet ratified and nine under negotiation. The UAE signed an agreement with Saudi Arabia in May last year, the first in the GCC. Countries under negotiation include Australia, Peru and Nepal.

The UAE does not have a treaty with the United States, which imposes taxes on the worldwide earnings of its citizens and green card holders.

“The US in particular has a special treatment for the UAE government and for the double taxation,” Mr Al Khoori said. “We have not negotiated anything, but we have been working closely with the US Treasury on the possibilities to start negotiating.”

South Africans in the UAE who have residency in South Africa may also have to pay foreign income tax soon. Under a double tax agreement with the UAE, a provision in the South African tax legislation provides a pre-emptive exemption for foreign employment income tax, also known as the “expat tax”. That means South African residents who spend more than 183 days in employment outside the country, as well as for a continuous period of longer than 60 days during a 12-month period, are not subject to South African taxation. However, an amendment that will go into effect in March next year will limit that exemption to income of up to 1 million rand (Dh252,950).

What do tax agreements mean for UAE expatriates and companies?

For expatriates, the double taxation agreements come into play when they have a second residency outside the UAE, says Ghassan Azhari, managing partner at Azhari Legal Consultancy in Dubai.

“For example, between Austria and the UAE, there is a provision that your UAE income is exempted from the Austrian income tax,” says Mr Azhari, an expert in international tax law. “The German double taxation agreement says any income tax you pay in the UAE will be deducted from German income tax, so you will pay full income tax in Germany.”

[Source: www.thenational.ae]

European Union added the UAE to the blacklist of alleged tax havens. What are the consequences for investors?

2019-03-17T12:24:20Z

From a tax perspective, the last week was quite controversial for the UAE.

On March 11, the Ministry of Finance celebrated the 30th anniversary of the first double taxation agreement to protect and encourage investment. The very next day, on March 12, the European Union finance ministers agreed to add the UAE to a blacklist of alleged tax havens (‘EU Black List’).

Consequences for Investors of EU blacklisting

EU member countries can and are to some extent obligated to apply defensive measures against blacklisted countries.

These measures may include in the tax area administrative measures like:

reinforcing transaction monitoring,
increasing audit risks for taxpayers benefiting from the respective regimes, and
increasing audit risks for tax payers using structures or arrangements involving these jurisdictions.

EU countries are obligated to apply at least one of the mentioned measures.

The fact, however, that the UAE has been added to the EU Black List has no impact on existing double taxation agreements or on any national tax law.

In the light of the above, very little has changed. Businesses domiciled in tax havens have always been in the focus of tax audits. Nevertheless, the blacklisting will certainly increase the intensity of tax audits for European entrepreneurs doing business in the UAE.

Consequently, European investors should be even more cautious. Whether and to what extent the corporate structure of a business or the private environment of an Investor contains risks, only a law expert can decide. However, European investors should – inter alia – make sure that:

their business in the UAE has a certain substance;
the management of his business is residing in the UAE;
in case of a mainland company the agreements with the local sponsor (holding 51% of the shares) do not constitute the beneficial ownership of the foreign investor, as this may trigger tax liability in the foreign investor’s home jurisdiction. In most cases foreign investors use ‘simple’ trustee agreements with the local sponsor which constitute the beneficial ownership of the trustor, i.e. the foreign investor;
in case a European citizen has a residency in the UAE, he should avoid any arrangements that might indicate another residency in the EU.

The above recommendations are not new. But after the UAE has been added to the EU Black List, it is even more important to comply with the double taxation agreements and the applicable national tax laws of the EU member states.

Outlook

The EU Black List should be updated at least once per year. Taking into account that the inclusion of the UAE was a particularly thorny issue, with Italy and Estonia pushing until the last minute to get the UAE off the list, and the announcements of the UAE that it will give its best endeavors to comply with international tax standards, it is to be hoped that the UAE will be removed from the EU blacklist very soon.

New DIFC Employment Law Expected to Introduce Minimum Limit of 50% of Employee’s Gross Salary as Basis for End of Service Gratuity Calculation

2019-03-12T09:01:30Z

The new law is expected to be enacted around Q1 of 2019 and to introduce significant changes to the current DIFC Employment Law (DIFC Law No. 4/2005, as amended by DIFC Law No. 3/2012) as per the consultation papers published in early 2018. For instance, it is expected that the current Article regulating the end of service gratuity will be amended by limiting the minimum percentage at 50% of what an employee’s basic salary may be as a proportion of their gross salary for purposes of calculating the gratuity payment.

Dr. Ghassan gave students an overview of the fiscal pitfalls of international e-commerce

2019-02-26T10:15:57Z

Middlesex University, Dubai. Dr. Ghassan gave students of the Institute for Entrepreneurship & Business Excellence an overview of the fiscal pitfalls of e-commerce businesses operating on an international level.

Dr. Ghassan invited by Middlesex University

2019-02-05T15:07:19Z

Dr. Ghassan has been invited by Middlesex University for a special event of the Institute for Entrepreneurship & Business Excellence. He will speak about the international tax framework of e-commerce businesses. The event will take place on 19 February 2019 at 6:30 pm, Middlesex University, Oasis Theatre in Dubai Knowledge City. All our Clients are welcome!