STEP SOUTH AFRICA CONFERENCE Year of Zayed

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1 STEP SOUTH AFRICA CONFERENCE 2018 Update from Dubai, United Arab Emirates (UAE) Year of Zayed by Carlyle K Rogers MBA LLM TEP Barrister/Principal and Managing Director CARLYLEROGERS/Stafford Corporate Services Ltd, Anguilla Carlyle Rogers Legal Consultants FZE, UAQFTZ, Dubai, UAE Carlyle.Rogers@Stafford-Trust.Com

2 Introduction of VAT In line with a Gulf Cooperation Council (GCC) agreement, UAE introduced VAT on 1 st January 2018 at 5% GCC agreement calls for ALL 6 member states to introduce VAT on that day UAE, Saudi Arabia, Kuwait, Bahrain, Qatar and Oman Much confusion still remains but prior to implementation ALL companies, including those in the free-zones, were encouraged to register better safe than sorry was the approach However, on 10 th January 2018, after the start date, a list of 20 designated free-zones were exempted from VAT implementation and considered outside of the regime. This was given retroactive effect as from 1 st January 2018

3 List of 20 UAE designated free-zones - Cabinet Decision No. (59) of 2017 on Designated Zones for the purposes of the Federal Decree-Law No. (8) of 2017 on Value Added Tax Abu Dhabi (3): Free Trade Zone of Khalifa Port; Abu Dhabi Airport Free Zone; and Khalifa Industrial Zone Dubai (7): Jebel Ali Free Zone (North-South); Dubai Cars and Automotive Zone (Ducamz); Dubai Textile City; Free Zone Area in Al Quoz; Free Zone Area in Al Qusais; Dubai Aviation City; and Dubai Airport Free Zone Sharjah (2): Hamriyah Free Zone; Sharjah Airport International Free Zone Ajman (1): Ajman Free Zone Umm Al Quwain (2): Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port; Umm Al Quwain Free Trade Zone on Sheikh Monhammed Bin Zayed Road Ras Al Khaimah (3): RAK Free Trade Zone; RAK Maritime City Free Zone; RAK Airport Free Zone Fujairah (2): Fujairah Free Zone; Fujairah Oil Industry Zone (FOIZ)

4 Criteria for a Designated Free-Zone (DFZ) Set down in Art 51 of Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree-Law No (8) of 2017 on Value Added Tax. DFZ is a specific fenced geographic area and has security measures and Customs controls in place to monitor entry and exit of individuals and movement of goods to and from the area. DFZ shall have internal procedures regarding the method of keeping, storing and processing of Goods therein. The operator of the DFZ complies with the procedures set by the Federal Tax Authority (FTA). Where the DFZ changes the manner of operating or no longer meets any of the conditions imposed on it that led to it being specified as a DFZ under the Cabinet Decision, it shall be treated as being inside the UAE and subject to the VAT regime.

5 Goods and Services as per Cabinet Decision No. (52) of 2017 Goods: Physical property that can be supplied including but not limited to real estate, water, and all forms of energy as specified in this Decision. Services: Anything that can be supplied other than Goods. The transfer of Goods between DFZs shall not be subject to VAT if the following two conditions are met: a. Where the Goods, or part thereof, are not released, and are not in any way used or altered during the transfer between the DFZs. b. Where the transfer is undertaken in accordance with the rules for customs suspension according to GCC Common Customs Law.

6 Rules of note for Goods and Services Where Goods are moved between DFZs, the FTA may require the owner of the Goods to provide a financial guarantee for the payment of Tax, which that Person may become liable for should the conditions for movement of Goods not be met. Where a supply of Goods is made within a DFZ to a Person to be used by him or a third person, then the place of supply shall be the State unless the Goods are to be incorporated into, attached to or otherwise form part of or are used in the production or sale of another Good located in the same DFZ which itself is not consumed. The Place of supply of Services is considered to be inside the State if the place of supply is in the DFZ.

7 Illustrations of VAT re: goods and services in operation Goods supplied from DFZ to another DFZ NON TAXABLE Goods supplied from DFZ to Mainland UAE (all of UAE outside of DFZs) VAT Goods supplied from Mainland UAE to DFZ VAT Goods supplied from DFZ to Overseas including GCC countries NON TAXABLE Goods supplied from Overseas including GCC countries to DFZ NON TAXABLE In case of supply of services, once place of supply is within the DFZ or within the mainland, whether the supply is for the Mainland, Overseas or a DFZ, the supply is VAT Many aspects of the provision of financial services are exempt or zero-rated as explained in Article 52 of the aforementioned Decision

8 Registration under the Decision Businesses must register for VAT if their taxable supplies exceed Dh375,000 over the previous 12 months, or expected to exceed the threshold in the next 30 days. Businesses with supplies less than voluntary registration of Dh187,500 cannot register with the FTA to obtain a tax number and are not required to have a tax registration number (TRN). A natural or legal person in business is required to register for VAT if their taxable supplies exceed the mandatory registration threshold of Dh375, over the previous 12 months, or expected to exceed the threshold in the next 30 days. They should register as soon as possible to avoid late penalties and the accumulation of payable tax duties.

9 Excise tax as per Cabinet Decision No. (38) of 2017 on Excise Goods, Excise Tax Rates and the Method of Calculating the Excise Price Effective 1 st October 2017 Per Article 2 of this Decision, it applies to the following products and per Article 6 of said Decision, at the following rates: a. Tobacco and tobacco products 100%; b. Carbonated drinks 50%; c. Energy drinks 100% Both Excise Tax and VAT are part of the UAE s plan to diversify its economy and move away from oil as its largest revenue earner as part of its Vision 2021 plan.

10 Dubai aims to become a top 10 financial centre by 2024: steps being taken to do so UAE is expected to approve a new investment law allowing 100 percent foreign ownership in some sectors by end of New law, which will liberalise sectors selected by the government including manufacturing and the service industries, is expected to boost foreign investment inflows by up to 15 per cent as per Gulf News article published on 9 th April Currently, only free-zone companies can be 100% foreign owned; mainland UAE companies incorporated under domestic legislation require a 51% ownership through a local Emirati. Previous attempts to make this change failed and it remains to be seen if this time it will work. The UAE enacted a new Commercial Companies Law in 2017 which did not change the 49% rule for foreign ownership. This followed its new bankruptcy law in 2016 which aimed to help companies in distress to be able to restructure their debts. Head of the Dubai Dispute Resolution Authority issued Practice Direction 1 of 2017 which came into effect on the 5 th March 2017 and extended the rules of the DIFC Wills Registry to assets based in Ras Al Khaimah seems to be working well.

11 Law No. 15 of 2017 regulating inheritance, wills and probate for non-muslims issued October 2017 The Law, which is applicable to the wills and assets of non-muslims based in Dubai including the Dubai International Financial Centre (DIFC) and Ras Al Khaimah, creates a clear legal framework for non-muslims to create wills according to their wishes. The Law facilitates the creation of a Non-Muslim Wills and Probate Registry in both Dubai Courts and DIFC Courts. The heads of Dubai Courts and DIFC Courts are authorised to develop the regulations, policies and procedures for the Registry. The Law prescribes the legal requirements for wills and probate for non-muslims, the liabilities and obligations of the beneficiaries of wills, the responsibilities and limitations of will executors, the regulations governing inheritance and the distribution and management of the estate as well as appeal procedures. Disputes arising from wills and probate for non-muslims will be adjudicated by Dubai Courts or DIFC Courts, depending on the place where the wills are registered.

12 DIFC Trusts and Foundations Dubai Law No. 3 of 2018 created the Foundations Law Dubai Law No. 4 of 2018 replaced the Trust Law of 2005 with the Trust Law 2018 Both enacted by the Ruler of Dubai on the 14 th March 2018 and came into effect on the 20 th March 2018 The changes to the Trust Law are technical and include things such as: a) excluding English Statute to the application of DIFC trusts. b) clarifying the application of foreign law. c) confirming the Court s power of rectification of a trust and the appointment of guardians ad litem.

13 More changes to DIFC Trust Law 2018 Power conferred on Court to relieve trustees and others from the consequences of mistakes. Provision for the arbitration of trust disputes. Enhanced enforcement provisions for charitable and purpose trusts. Provision for the arbitration of trust disputes. Enhancement of Court s power to vary trusts, and insertion of default rule that trust is irrevocable. Power conferred on Court to authorise dealings with trust property not otherwise permitted.

14 Foundations Law New regime based on current legislation existing internationally with perceived enhancements as the DIFC saw fit to enact. Some features of note include provisions for: a. The resolution of disputes by arbitration; b. Mergers and division of foundations; c. Depository receipts; d. Court to relieve Founders and Contributors from the consequences of mistakes; and e. Recognition of Foreign Foundations in the DIFC.

15 Final thoughts Much is happening in Dubai as the jurisdiction seeks to become the most important financial centre in the MEASEA (Middle East, Africa and South East Asia) region and to achieve UAE Vision 2021 VAT and Excise Tax will impact this and we are seeing some, perhaps not major, movement away from free-zones and mainland companies which are subject to VAT. Corporate tax is being discussed so the jurisdiction has to be careful that it does not kill the goose that lays the golden egg. Perhaps traditional offshore jurisdictions may benefit. Watch this space. Already gold traders are seeing business down by 30 to 50 in the first quarter of There are moves to give relief; we will see who else 2018 marks 100 years since the birth of Sheikh Zayed bin Sultan Al Nahyan the UAE and Dubai are reflecting on his legacy. They should as they plot the future especially in the areas of VAT, Excise Tax and proposed Corporate Tax.

16 Thank you for listening. Carlyle K Rogers MBA LLM TEP Barrister/Principal and Managing Director CARLYLEROGERS/Stafford Corporate Services Ltd, Anguilla Carlyle Rogers Legal Consultants FZE, UAQFTZ, Dubai, UAE Carlyle.Rogers@Stafford-Trust.Com