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PwC Middle East Energy, Utilities & Resources Tax & Legal Newsletter

December 2020

Introduction

Haythem ZayedPartner, PwC IraqMiddle East EU&R Tax & Legal Services Leader

M: +972 7 97 45 7451E: [email protected]

Welcome to the first edition of our Middle East Energy, Utilities and Resources (“EU&R”) Tax & Legal Services Newsletter, picking up on a range of current hot tax topics relevant to the industry. We have gathered input from tax and legal specialists across our EU&R teams.

In this edition, we have a number of industry relevant updates across the UAE, Oman, Kuwait, Qatar, Iraq, Lebanon, Egypt and Saudi Arabia,including:

● COVID-19 fiscal responses● Tax law and policy reform● In-Country Value programmes● Transfer Pricing and Country-by-Country reporting

We have included key international updates relevant to Multinationals operating in the Middle East including DAC 6, the publication of the Pillar Two Blueprint, and Economic Substance Regulations.

We hope this newsletter provides you with a comprehensive overview of key Middle East tax updates and issues in the Region.

Please reach out if there is anything that you would like to discuss further including any topics that you would like us to cover in upcoming editions or to give us general feedback.

We hope you find the content interesting and useful.

Warm regards,

Haythem / Neil

Introduction UAE Qatar Oman Iraq

Lebanon Egypt Kuwait

Neil AllmarkDirector, PwC UAEMiddle East EU&R Tax Director

M: +971 52 650 2447E: [email protected]

Saudi Arabia Contacts

3 | Keeping up with Energy, Utilities & Resources Tax & Legal news

Upon approval by the Economic and Financial Affairs Council (ECOFIN) and the European Parliament, the proposal will then be adopted, although subject to amendment, and will then need to be reflected in each Member State’s local legislative process.

Middle East based individuals and companies cannot assume they will not be impacted by the new EU disclosure regime. Instead, on transactions into or within the EU, advisers to Middle East based individuals and companies may be obliged to make a disclosure to EU tax authorities. Additionally, in some circumstances, the EU operations of Middle Eastern companies may be considered to be an intermediary and hence need to report, whilst in some other cases the reporting obligation can fall on the Middle East individual or company itself as a taxpayer.

OECD releases 'Blueprints' on the tax digitalisation / globalisation project (Pillar 1 & 2) - 12 October 2020On 12 October 2020, the OECD released the Pillar One and Two blueprints to address Action 1 (Challenges of the Digital Economy) of the OECD’s Base Erosion Profit Shifting Report (“BEPS”).

Pillar Two’s focus is the development of a coordinated set of rules to ensure that multinational entities do not shift profits to jurisdictions where they are subject to no / low taxation. Ultimately, Pillar Two’s recommendations aim to achieve this goal by ensuring a global minimum tax is paid at an effective rate.

The Pillar Two blueprint proposed 4 rules to combat profit shifting including;

● An income inclusion rule; ● An undertaxed payments rule; ● A switch over rule; and ● A subject to tax rule.

Currently, OECD’s Pillar 2 framework is still subject to scrutiny and political approval by the members of the OECD’s inclusive framework. It is hoped that an agreement on the framework can be reached by mid 2021. The public consultation on the Blueprint will be open for written comment submissions until 14 December 2020.

Economic substance requirements

MoF releases new documents including the Notification and Report templatesOn 3 November 2020, the UAE Ministry of Finance (“MoF”) published a number of important documents in relation to the UAE Economic Substance Regulations (“ESR”). Documents include the updated Notification and Report templates (initially issued on 22 October and recalled on 25 October), Relevant Activities summary table and a document containing more guidance in relation to the Notification and Report submission deadlines (“Notice”).

The newly published documents clarify that the Notification and Substance Report must be filed electronically through the MoF’s Portal that is scheduled to go live in the first week of December 2020 and no later than 31 December (where applicable).The released templates also provide more clarification on the information the MoF is looking for, what kind of documentation is required to be submitted, and the applicability of penalties for failure/late filing.

No ESR exemption for government-owned entitiesGovernment owned entities ("GOEs") are no longer exempt from meeting the UAE ESRs. GOEs that undertake a Relevant Activity (as defined by the Amended Regulations) will now be required to not only file an economic substance notification, but also file an annual report and demonstrate substance in the UAE (relative to the level of activity they undertake in a given year). This will be the case for GEOs that generate income from any Relevant Activity, unless any of the new exemptions can be claimed.

This exemption is no longer available based on the Amended Regulations issued on 10 August 2020. As a result GOEs that undertake a Relevant Activity and generate income from that activity would come into scope of the Amended Regulations and therefore, would need to comply with the applicable requirements.

Proposed changes to EU’s Mandatory Disclosure Regime (“EU MDR”) / DAC6 timelines and implications for Middle East businessesThe EU Commission issued an announcement on 8 May 2020 proposing a short deferral to DAC 6 filing deadlines. Whilst the DAC6 go-live will remain as 1 July 2020, the proposed changes seek for Member States to be given three additional months to exchange reportable information on financial accounts and cross-border tax planning arrangements.

The proposal also gives delegated authority for the EU Commission to extend by a further three months if required, subject to the developments of the COVID-19 pandemic.

Introduction UAE

UAE

Qatar Oman Iraq


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Value Added TaxFTA clarification on zero-rating of export servicesFollowing the amendment of Article 31 (2) of the UAE VAT Executive Regulations (“ER”) by the Cabinet Decision No.46 of 2020, the Federal Tax Authority (“FTA”) published a public clarification on zero-rating of export of services (VATP019) which further explains the application of the conditions prescribed in Article 31(1)(a)(1) of the UAE VAT ER which must be met for the zero rating to apply.

Condition 1 - Place of residence of the recipient

● The recipient of the services should not have a place of residence in an Implementing State. Currently, the UAE does not recognize any other GCC member state as an “Implementing State” for the purposes of VAT, consequently, the term “Implementing State” should be read as the “UAE”.

Condition 2 - Location of the recipient

● The recipient of the services should be outside the UAE at the time the services are performed by the supplier.

● The recipient of the service is considered being outside the UAE where they only have a short term presence in the UAE of less than a month and their presence is not effectively connected with the supply.

To ensure that the zero-rating is applied correctly, the supplier should consider all available facts and seek, if necessary, additional information from the recipient in order to identify the recipient’s residency status and the location at the time the services are performed. Where the supplier cannot ascertain if the zero-rating conditions are met, VAT at the standard-rate of 5% should be applied on the supply.

Companies operating in the EU&R sector, should take the above into consideration to determine the correct VAT treatment when providing EU&R related services that may qualify as exported services.

Federal Supreme Court Decision on the applicability of late payment penalties on voluntary disclosures Recently, the Federal Supreme Court confirmed the FTA’s position on the right to impose late payment penalties on the filing of a voluntary disclosure to be applied retrospectively from the filing due date of the original tax return. The Federal Supreme Court considered that a voluntary disclosure is an extension of the original tax return.

This overruled the position previously taken by the Tax Dispute Resolution Committee (TDRC) and the Federal Primary Court and the Federal Appeals Court that previously ruled that late payment penalties do not apply to the tax amount variance between the voluntary disclosure and the original tax return, i.e. such penalties should be calculated as of the date of the voluntary disclosure, and not retrospectively as of the date of the original tax return.

Based on this decision, the Federal Supreme Court ordered that late payment penalties should apply retrospective to the voluntary disclosure, calculated as of the filing due date of the original tax return.

Legal requirements for disclosure of UBOsCabinet Resolution No. (58) of 2020 Regulating Beneficial Owner Procedures (the “Resolution”) came into effect on 28 August 2020 and replaced Cabinet Resolution No. 34 of 2020 issued earlier this year. The Resolution introduces new requirements for entities to disclose its beneficial owners.

The ResolutionThe Resolution requires entities licenced in the UAE (unless exemptions apply) to prepare and file a Ultimate Beneficial Owner (“UBO”) register, Nominee Director register (if applicable) and a Partners or Shareholders register, with the relevant authority within sixty (60) days from the date the Resolution came into effect, being 27 October 2020.

The Resolution applies to all entities licensed in the UAE, excluding entities in financial free zones (ADGM and DIFC) and entities which are directly or indirectly wholly owned by Federal or Emirate government.

It is worth noting that there has been no reference to the information in the registers being made publicly available. it is anticipated that all information will be held and maintained for authorities use only.

UAE (cont’d)

Qatar Oman Iraq

Kuwait

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Tax law reforms

Qatar issued a new Income Tax Law (“ITL”) in December 2018 and its supporting Executive Regulations (“ERs”) were subsequently issued in December 2019. The new ITL and ERs revoked the previous ones. While the ITL and ERs have been effective for some time, it is worth a recap of the tax changes impacting the oil and gas industry.

The changes are as follows:

● The minimum tax rate for downstream (petrochemical) oil and gas activities will be 35%. The ITL also clarifies that 100% of the profits of oil and gas companies shall be taxable, including the share of the State of Qatar.

● The minimum rate of 35% should apply under fiscal agreements. However, midstream and OFS providers should remain subject to tax at 10%. The Qatar tax authority has not provided clear guidance on how the activities should be split.

● The ERs have provided additional supplementary guidance on instances that would constitute a PE; construction project/site, installation or supervisory activities that last more than 6 months; and/or where services, including consultancy services (by employees or others), continue in Qatar for a period exceeding 183 days in any 12 months period. The ERs have introduced the ‘force of attraction rule’ which seeks to tax certain related-party income not attributable to a PE.

● The ERs now provide additional and detailed transfer pricing (“TP”) guidance, whilst also introducing new TP compliance requirements. The main changes include:‒ a reaffirmation of the arm’s length principle for all

related-party transactions;‒ a new requirement to perform a ‘functional analysis’ and to

update the analysis every three years; ‒ the requirement to submit a TP declaration as part of the

annual income tax return; and ‒ the requirement to prepare TP documentation (Local File

and Master File) by the time of filing the tax return for the period during which the respective related-party transaction(s) occurred or at any other date that the GTA may otherwise specify.

‒ It is no longer acceptable that Qatari companies rely on TP documentation prepared at a group level. In addition, the ‘commercial purpose test’ has also been introduced, to determine deductibility of interest on related-party loans.

● Withholding tax was previously based on the ‘Place of Performance Test’. This has now been replaced by the introduction of the ‘Consumption Test’, and applicability depends on the place where services are used, consumed or benefitted (i.e. in Qatar or outside Qatar).

● The ‘deemed payment’ concept has also been introduced, where payable balances outstanding for more than 12 months will be now considered as paid, triggering any related withholding tax liability.

Qatar

In-Country Value programmeQatar Petroleum has commenced the In-Country Value (ICV) program, through Tawteen (the Supply Chain Localization Program for the Energy sector in Qatar led by Qatar Petroleum with the participation of all other companies operating in this sector).

The ICV initiative grants suppliers and contractors with a higher rating during the tender evaluation process where they demonstrate a higher contribution to the economy of Qatar. It is expected that the ICV initiative will play a key role in who wins tenders in the future and therefore existing and new entrants (small and SMEs) in the Qatar energy supply chain should join the Tawteen program.

Dhareeba

On 1 July 2020, the GTA launched its new online tax portal “Dhareeba”. Dhareeba replaces the existing Tax Administration System (“TAS”) and all Qatar taxpayers were required to re-register on Dhareeba by 30 September 2020 (later extended to 31 December 2020).

The GTA has launched various modules in Dhareeba (e.g. Corporate income tax returns, WHT, capital gains tax and contract notification) that taxpayers are now required to use when meeting their tax compliance obligations going forward. Deactivation of TAS is underway.

Oil and gas sector players should review their activities in order to be compliant with the changes as well as reviewing their operating models to consider ICV status and the new consumption test for services subject to WHT. Where needed, players should undertake necessary measures that mitigate any manageable tax risks e.g historical WHT and contract notification health checks, TP and PE reviews.

Introduction UAE Qatar Oman Iraq


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Oman

COVID-19 Measures

The Omani Tax Authority (“TA”) announced a number of relief measures to help taxpayers overcome the disruptions rendered by the COVID-19 outbreak. The measures include:

● an extension of tax return submission deadlines (currently expected to be extended up to 31 December 2020 for taxpayers with year ending 31 December 2019, and upto 12 months from financial year close for taxpayers with year ending after 31 December 2019 (upto 30 November 2020)),

● Exemptions from penalties on deferred filings and tax payments,

● More flexibility in terms of settlement of tax due in instalments, timelines relating to objection proceedings; and

● deductibility of donations or contributions towards COVID-19 measures (subject to a 5% gross revenue cap).

From January 2021, employers and Omani employees are each required to make a monthly salary contribution at the rate of OMR 1 per OMR 100 of monthly salary (or 1% of payment). The deduction is expected to be taken from gross salary (including any benefits) and with no wage limit upon which the contributions will be due. The scheme is under Public Authority for Social Insurance (“PASI”) and we expect this to be included in PASI bills for January 2021 onwards.

Income tax law and Automatic Exchange of InformationWIth regard to the income tax law (“ITL”) and automatic exchange of information (“AEOI”), some of the key amendments include:

● Introduction of a single tax return (replacing separate provisional and final tax returns), to be filed within 4 months from financial year close;

● Defining the concept of tax residency in the context of withholding tax provisions;

● Replacement of the Income Tax Committee with Grievance Committee, for the submission of grievances against objection decisions; and

● Introduction of provisions relating to automatic exchange of information for qualifying financial institutions.

In addition, all taxpayers are now required to obtain a tax card upon payment of TA fee of OMR 10, which is renewable every 2 years. The tax card reference is required to be quoted on all correspondence with the TA, and on invoices and contracts executed by the taxpayers.

Country-by-Country Reporting (“CbCR”)As a member of the inclusive framework on Base Erosion and Profit Shifting (“BEPS”) initiatives of the Organization for Economic Cooperation and Development (“OECD”) and the G20, Oman has committed to implement 4 minimum standards including CbCR.

CbCR requirements are applicable for years beginning on or after 1 January 2020. Reporting obligations shall apply to tax resident entities in Oman which are part of a multinational group with consolidated revenues exceeding OMR 300m(USD 780m). The requirements include reporting / notification, depending on the status of the Omani entity (Ultimate Parent Entity / Surrogate Parent Entity).

A notification is required to be filed on or before the last day of the applicable reporting year, and the CbC report will be required to be filed within 12 months from financial year close.

Further clarifications are awaited regarding activation of bilateral exchange relationships, and timing of submission of notification / reports.

Value Added TaxHis Majesty, the Sultan of Oman, has issued Royal Decree No. 121/2020 in relation to the introduction of Value Added Tax (“VAT”) in Oman. VAT will come into force from April 2021 onwards. The VAT Executive Regulations are expected to be issued within six months of the issue of the Law, although practically we understand they may be issued by the end of 2020.

Although the information currently available is limited, the Oman Tax Authority has begun to issue some information on the VAT Law through its social media channels, including confirmation that standard rate of VAT is expected to be 5% (with defined exceptions).

Given the relatively short implementation timeline and the fact that the Executive Regulations may not be issued until the end of 2020, it is crucial that businesses start to plan for implementation as soon as possible.

EU Blacklist

Oman was recently removed from the EU list of non-cooperative jurisdictions for tax purposes (“EU blacklist”). Oman was previously included in the EU blacklist for not making sufficient progress on implementing information exchange protocols. Removal from the EU blacklist is a positive recognition of Oman’s efforts in increasing transparency in its tax system.

IntroductionUAE Guidance on Economic Substance Regulations

MDR - Implications for Middle East businesses Oman

UAE Federal Law introduced new provisions on anti-money laundering

SAMA introduced Regulatory Sandbox Framework

Oman CRS inspection and audit of financial institutions

Jordan joins the Global Forum

UAE Qatar Iraq


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Iraq

COVID-19 Measures

The Iraq tax authorities did not provide any tax relief as a response to the COVID-19 outbreak during 2020.

General Commission of Taxes

● Payroll Income Tax 9”PIT”) payments due dates have not changed, and no exemptions for penalties and interest have been revealed, though many taxpayers did not make the payments on time due to the country's closure.

● Corporate Income Tax (“CIT”) returns submission deadline was extended to August 31, 2020 in Iraq region and to 31 October, 2020 in Kurdistan region. Extensions took place in previous years so this was anticipated despite COVID-19.

● The Council of Ministers in Kurdistan Region has announced an amnesty to the non compliant taxpayers, waving the imposed interests and penalties on historical CIT and PIT. The amnesty will be valid for until 31st of December 2020. Extensions took place in previous years so this was anticipated despite COVID-19

The Social Security Department and Social Affairs

Unlike the CCT (General Commission of Taxes); Amnesty for the period of February 2020 through July 2020 and penalties for late payments were waived

Social security clearance

Whilst it was anticipated that taxpayers may receive penalties for failure to provide social security clearance from the Social Security Department (“SSD”) to claim deductions for PIT, no formal announcement has been made to date.

Introduction IraqUAE Qatar Oman

Lebanon Egypt Kuwait Saudi Arabia Contacts


Lebanon

Oil and Gas overview

There is a lot of interest in Lebanon about the country’s oil and gas potential, particularly after the deepwater gas discoveries in neighboring countries that share the same geological offshore basin. Accordingly, the Lebanese government has engaged international oil and survey companies since the 2000s to carry out 2-D and 3-D seismic surveys indicating the likely presence of offshore hydrocarbon accumulation.

The Lebanese Government also appointed the Board of the Petroleum Administration in November 2012 and launched the first offshore licensing round in February 2013 which opened a new chapter for the Lebanese economy.

Exploratory drilling was supposed to commence in block 9 before the end of 2020, but the consortium has chosen to push back that timetable to a timing which will be determined at a later stage.

Lebanon’s offshore hydrocarbon potentials have led to a new petroleum policy wherein and several laws and regulations have been passed in Lebanon. The introduced laws mainly include the Offshore Petroleum Resources Law No 132 which was issued in August 2010 and was supplemented by additional decrees, rules, regulations and policies set by the Council of Ministers. Such regulations defined the legal and institutional framework for the exploration and exploitation of offshore oil and gas resources in Lebanon.

Subsequently, the Lebanese Ministry of Finance (“MoF”) released several tax updates that were specifically addressed to the oil and gas sector. These updates included and detailed the filing and reporting requirements, namely in relation to corporate income tax, payroll tax, VAT, social security, non-resident withholding tax, etc. In addition to this, the tax authorities also released separate forms and tax returns to support the taxpayers in the tax compliance process.

The Law

A special tax law was issued in 2017 - Law no. 57 dated 5 October 2017 - to define the main taxes applicable to Right Holders and Operators carrying out exploration and production activities, as defined under Law No. 132. Below is a summary of the main applicable taxes:

Corporate income taxesThe corporate income tax rate is 20% (the standard CIT rate of 17% remains applicable for companies not covered under the definitions of Law no. 132).

Value added taxThe VAT rate applicable will be 11% (standard rate).

Payroll taxProgressive payroll tax brackets from 2% to 25% are applicable on the employees’ salaries and wages. Payroll tax are withheld by the employer and paid and declared by the employer.

Social SecurityLebanese employees and the foreign employees and workers (who are not included in the provisions of clause 2 of the third paragraph of Article 9 of the Social Security Law) shall be subject to the provisions of the Social Security Law, accordingly the employer is required to pay the contributions to the National Social Security Fund.The employer’s share is up to 22.5% of the employees’ salaries (with capped payments). The employees’ contributions are 3% of the salaries and benefits.

Stamp DutyAll agreements signed by Oil and Gas companies in Lebanon are subject to a proportional stamp duty rate of 0.4%, except for the Exploration and Production Agreements that are subject to a fixed stamp duty amounting to five million Lebanese Pounds (appx. USD 3,300 at the current official exchange rate of 1507.5) for each copy.

Withholding taxes (WHT)Oil and gas companies must declare on a quarterly the amounts due to non-residents. The WHT rate is 10% and 3% on services and goods respectively.

Introduction

Lebanon

UAE Qatar Oman Iraq

Egypt Kuwait




Egypt

Tax law reforms

On 30 September 2020, the Egyptian Government issued a new law (the “Law”) amending certain articles of the stamp tax law and the income tax law around capital gains and dividends distribution, effective 1 October 2020.

The LawThe changes are as follows;

Capital Gains

● For residents, gains realised from the disposal of listed securities on the Egyptian Stock Exchange ("EGX") are subject to CGT at the rate of 10%. However, this tax has been put on hold until the end of 2021.Capital gains realised from the disposal of government bonds shall be exempt.

● For non-residents gains realised from the disposal of listed securities by non-residents shall be permanently exempt from CGT. Such exemption will also apply to capital gains realised from selling treasury bills.

● Capital gains realised from the disposal of listed securities on the Egyptian Exchange ("EGX") by both residents and non-residents shall be exempt from CGT between 17 May 2020 and 1 October 2020.

● Capital gains realised from the settlement of debts by the public sector and/or state owned companies, where the state owns more than 51% of the capital shall be exempt from CGT (limited to the amount of capital gains related to the state owned stake).

● For capital gains realised by the public sector and/or state owned companies prior to the effective date of this Law, they shall be exempt as mentioned above. However, this does not include refunds of previously paid taxes.

Dividends

● Withholding tax of 10% will be imposed on dividend distributions made by unlisted Egyptian company and cannot be reduced.

● Dividends made by Egyptian listed companies are subject to a 5% rate to Egypt tax residents or non-residents should be subject to WHT at a flat rate of 5%,

Stamp Tax (“ST”)

ST is imposed on the total value of the transaction of buying/selling any kind of securities/shares regardless of whether they are Egyptian/ or foreign, or listed/ or unlisted as follows;

● ST on the proceeds realised by non-residents from selling/buying securities, has been reduced to 0.125%.

● ST proceeds realised by Egyptian tax residents from selling/buying securities has been reduced to 0.05%

● All spot transactions on the EGX will be exempt from ST

Starting from 1 January 2022, Egyptian tax residents shall be exempt from the ST on the proceeds from sale of listed shares (i.e. after the suspension period of the CGT exemption for listed shares) mentioned above.

On 19 October 2020, the Egyptian Government issued the Unified Tax Procedures Law No. 206 of 2020 (the “ UTP Law”) amending certain articles of the income tax law, value added tax law, stamp tax, state development tax, and other similar taxes, and effective as of 20 October 2020.

In summary, the newly issued law aims to establish unified tax procedures for filing and regulating direct and indirect taxes. As such, taxpayers will have a single tax code for their tax registration for the different types of taxes.

The key issues addressed by the law involve filing of returns, financial penalties, rights and obligations of the Egyptian Tax Authority (“ETA”) and taxpayers as relevant to tax audit, appeal, refund, documentation retention, etc.

The LawThe UTP Law amended the following key items;

● Corporate tax return amendmendments;● Payroll tax returns / reconciliations;● Value added tax return deadlines and registration fees;● Advance ruling response deadlines;● Tax refund deadlines and interest;● Tax appeal procedures;● Financial penalties for non-compliance;● Tax clearance certificate deadlines;● State development tax return deadlines and penalties;● Documentation retention period and access to documentation ● Exchange of information requirements; and● Transfer pricing deadlines and penalties.

The Minister of Finance shall issue the executive regulations of the unified tax procedures law within a period of six months from the issuance date of the law.

The existing laws shall remain in force until the issuance

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Kuwait

COVID-19 Measures

The Kuwait Direct Investment Promotion Authority (“KDIPA”) has announced relaxation measures to support licensed and prospective investors in response to the effects of COVID-19.

The Law

Simplified measures to grant additional Tax & Customs incentives to investors

New applicants & Investors applying for an investment license

● KDIPA has reduced the threshold, for granting both tax and customs incentives, to a minimum score of 30% for the 2020 fiscal year. This is a significant reduction compared to the previous score which required a score exceeding 80% to obtain both incentives, and a minimum score of 60% to grant one..

● Moreover, the exemption from income tax would apply for the year following the date of the actual start of operations, while the exemption from customs duties on imports would apply for a period of one year from the date of issuance of the customs exemption certificate.

Existing Investment Entities

● For current licensed investors who have only obtained a license under the Scoring Mechanism, KDIPA is now offering a Tax and Customs exemption for the fiscal year 2020 (only), to the extent:

● tax & customs incentives have not been granted to the licensed investor in the past; and

● the licensed investor is not subject to penalties under Article 32 of the KDIPA Law.

The exemption from income tax would apply during the fiscal year of 2020 for licensed investors operating prior to 2020.

The exemption from customs duties on imports that is submitted to KDIPA during the year 2020 for a period of one year from the date of issuance of the customs exemption certificate.

In both cases, customs exemptions are related to the material/equipment to be imported by the investment entity which is directly related to the direct investment only (i.e. core activities). Moreover, the value of the imported material/equipment should not exceed the total investment as per the investment license.

Extension lifespan for the commencement of operations

Given that investment entities are to notify KDIPA of their start of operations after obtaining the related approvals and documents during the fiscal year 2020, the decision offered an extension lifespan for the commencement of operations by January 1, 2021.

Amended scoring mechanism for granting exemptions

Through Decision No. (180) of 2020 dated May 6 2020, KDIPA has revised the Scoring Mechanism for granting exemptions as follows:

● The amendment of terms for the hiring of national labors● The amendment to the training expenditure terms● The amendment of terms for the transfer and settlement of

technology

Corporate social responsibility and environmental sustainability

The Authority has subjected the value spent to the below expenditure at a multiplier of @1, thus, the full value will be retrieved by the investment entity based on the New Scoring Mechanism spent on both public and private parties in the State of Kuwait.

The expenditure on CSR and ES should be in the following zones:

● All professional, digital and technical trainings● Supporting or financing research studies, development and

innovation efforts● Building scientific laboratories or technical facilities● Supporting awareness campaigns and the country’s

development goals● Contributing to the development of the local services/goods the

small and medium enterprises (“SME”)● Supporting business incubators for SME’s approved by the

national fund for SME’s development● Endowments and donations to the governmental bodies in

exceptional circumstances

Nonetheless, the following conditions are to be applied to incur the above expenditures:

● Submission of a work plan with a detailed time frame● The expenditures should not be for any religious, political or

sectarian purpose● The expenditure is real and supported with the related

documentations● The expenditure should not be in exchange for any service

The Tax Credit Verification Report shall be submitted no later than December 31 following the end of the taxable period for which it is submitted.

Reduction of 50% in KDIPA’s service fees

It was decided by the Authority to reduce certain application, renewal, replacement and modification fees stipulated as per Ministerial Resolution No. (503) of 2014 by 50% for all services provided by KDIPA until December 31, 2020.

Introduction

Kuwait

UAE Qatar Oman Iraq

Lebanon Egypt Saudi Arabia Contacts


Therefore, the following articles have been repealed or amended as they are no longer relevant:

● Article 6 paragraph 5● Article 9 paragraphs 7 & 8● Article 13 paragraph 5● Article 20 paragraph 6● Article 53 paragraph 10● Article 58 paragraph 8● Article 59 paragraph 9● Article 62 paragraph 3

Individuals who were previously registered with GAZT in order to settle VAT liabilities associated with their real estate transaction have to carefully assess the implications of these changes on their registration status and VAT position and contact GAZT to address legacy matters related to their VAT registration, filings and payments.

Furthermore, the following articles of the VAT implementing regulations have been amended or added.

Article 30 - Lease or license of residential real estate

● The title of this Article has been changed to “Real estate exempt supplies”

● Paragraph 1 has been amended as follows:

“Subject to the other express provisions of these Regulations, the following supplies are exempt from VAT:

C. ٍSupply of real estate - residential, commercial, agricultural developed/undeveloped land - by transfer of ownership or giving the right to use/dispose as owner

D. Supply by way of lease or license of Residential Real Estate”

Article 40 - Adjustment to value of a supply


“Where the value of the supply is adjusted because of any of the cases described in the first paragraph of this article has occurred, an adjustment to tax amount previously reported must be made in accordance with the third paragraph of this article if the supplier has each of the following…”

Article 43 - Collection of tax on imports upon entry into the Kingdom

● Paragraph 3 has been added as follows:

“The tax due on imported goods shall be payable on the date of import, and the General Authority of Customs shall collect tax due according to its procedures. In the event that payment of that tax is not postponed to be reported through the tax return of the taxable person in accordance with Article 44 of these regulations, the board of directors of the Authority may set the date of payment in specific exceptional cases provided that this date does not exceed thirty days from the date of import. The board of directors may set necessary conditions, controls and procedures for this in coordination with the General Commission for Customs.”

Saudi Arabia

COVID-19 Measures

In continuation of the Kingdom efforts to support the private sector and economy to mitigate the negative implications of COVID-19 , His Excellency the Minister of Finance has issued Ministerial Resolution “MR” 622 dated 9/2/1442 AH corresponding to 26 September 2020 extending GAZT’s initiatives to cancel the tax and financial penalties and offer a chance to close the outstanding tax disputes without incurring penalties (subject to certain criteria) until 31 December 2020.

Such initiatives are applicable to corporate income tax, withholding tax and value added tax. The MR can be summarized as follows:

● Cancelling the tax penalties and exempting taxpayers from the financial penalties is extended for an additional three months and will be valid until 31 December 2020.

● GAZT shall cancel all the penalties and provide an exemption from financial penalties for taxpayers who have an ongoing appeal for which no final ruling has been issued, provided that taxpayers pay the principal disputed tax amount (if any) or request paying it on installments within the extended initiatives’ period and withdrawing the appeal.

● The tax evasion violations are not covered by these initiatives.

New mining investment law

The Ministry of Industry and Mineral Resources has developed a New Mining Investment Law. The new law aims to encourage local and foreign investment in the sector along with providing them with financial incentives. Additionally, the law will help establish a fund to support the mining sector, improve the licensing procedures as part of the new regulations, as well as establish a national geological database.

New amendments to the VAT Implementing Regulations

Pursuant to the Royal Order A/84 consisting of exempting the supply of real estate properties in KSA from VAT (effective as of 4 October 2020) and refunding input VAT for real estate licensed developers, the Board of Directors of GAZT has approved amendments/additions to some articles in the VAT regulations and repealed other articles.

This change has a potential impact on real estate supplies in KSA. VAT output will no longer be charged, however, this will mostly impact the eligibility for input tax deduction, apportionment and VAT refunds.

Real estate developers, financial services institutions, funds and other taxable persons engaged in real estate transactions will be affected by this change and should consider and assess the impact on their operations and VAT compliance.

In addition, since VAT on real estate supplies has been eliminated, the taxation of individuals who were previously perceived to be exercising economic activities for dealing in real estate properties is no longer applicable.

Introduction

Kuwait

UAE Qatar Oman Iraq



Saudi Arabia

New amendments to the VAT Implementing Regulations (continued)

Article 49 - Input tax deduction


“In the event that a taxable person incurred input tax on the purchase, construction, renovation or modification of a property for the purpose of supplying it as a taxable supply and the real estate supply was exempted in accordance with the provisions of Paragraph A of Article 30 of this Regulation, the person may deduct that tax, taking into account the provisions of Paragraph 7 of this Article and according to the following conditions:

● The supplies related to the purchase, construction, renewal or modification of the property were received before the effective date of the exemption

● The input tax related to the supplies mentioned in this paragraph is deducted in the tax return submitted to the Authority, up to the maximum tax period ending on December 31, 2020

● The proportional deduction is used to deduct the input tax in the event that it is not possible to attribute the tax incurred in the tax invoice for a continuous supply that was partially made on, before or after the effective date of the exemption”

Article 51 - Proportional deduction of input tax

● A new sub-clause c) has been added to clause 11 of Article 51 as follows:

C. Making a real estate supply exempt from tax in accordance with the provisions of paragraph 1 (a) of Article 30 of this regulation - in an incidental and irregular manner in the natural course of a Taxable Person’s taxable economic activity.

Article 63 - Article sixty-three: Correction of returns


“In cases where a Taxable Person becomes aware of an error or an incorrect amount in a filed Tax Return which has resulted in the amount of Tax payable to the Authority being overstated, the Taxable Person may correct that error in any tax return in a later date of discovering the error subject to paragraph 4 of this article.”

Article 70 - Refund of tax to designated persons


“According to paragraph 1 of this Article, a person who carries out an economic activity in his capacity as a licensed real estate developer - under conditions and controls specified by the Authority - may apply for registration as a person qualified to recover the tax paid by him on goods

and services received in the Kingdom and related to the economic activity in accordance with the recovery rules specified in this Article and the Authority may add other rules and procedures for tax refund made by qualified persons”

Article 74 - Obligations falling due on a non-working day

● Paragraph 2 has been amended as follow:

“Where any other obligation prescribed by the Law and this Regulation - other than what is stated in paragraph 1 - which is required to be fulfilled by a Person or the Authority falls on a date that is a non-working day, such obligation will be treated as performed on that date when it is performed on the next Working Day.”

Businesses engaged in the supply of real estate should consider the important changes made to the VAT Implementing Regulations in order to ensure compliance with the newly added provisions and to avail the benefit of the input VAT incurred in accordance with the prescribed timelines.

As for individuals previously registered for VAT purposes, they would need to assess the impact of this change on their registration status and avail the benefit of the VAT exemption.

Real Estate Transaction TaxIn accordance with the directions stipulated in Royal Order Number A/84 regarding imposition of a new ‘transaction tax’ on Real Estate disposal transactions, the Minister of Finance, also the Chairman of Board of Directors for the General Authority of Zakat and Tax (“GAZT”), issued a Ministerial Resolution Number 712 dated 15/2/1441 H (corresponding to 2 October 2020) approving the Implementing Regulations related to the newly imposed transaction tax on real estate disposal transactions. This decision has entered into force as of Sunday 4 October 2020.

In accordance with the provisions of the Implementing Regulations (‘Regulations’) of the transaction tax on real estate, a tax is imposed at a rate of 5% of the total real estate disposal value regardless of its condition, shape, or use at the time of the disposal.

This includes the land and what is being constructed or built on it, whether the disposal occured on this land at its current state or after an establishment was built on it, irrespective of whether the entire property was disposed of or only a part of it such as a detachment, a communal, a residential unit, or any other types of real estate, and whether the disposal was authenticated or not.

The new transaction tax of real estate disposal includes various provisions that should be carefully considered by taxpayers (individuals or legal persons) to comply with the requirements of this new tax.

GAZT has issued an additional guidance on the application of the tax including Q&A and comparisons with VAT. Taxpayers are invited to carefully review the guidance and assess the changes required to their business processes, systems and procedures.

Introduction

Kuwait

UAE Qatar Oman Iraq



Darcy WhitePartner, PwC OmanOman Tax Leader

M: +968 9388 3900E:[email protected]

Contacts

Haythem ZayedPartner, PwC IraqPwC Middle East EU&R Tax Clients & Markets LeaderIraq Tax Leader


James PollardPartner, PwC UAEUAE Tax Leader


Nada ElSayedPartner, PwC Lebanon Lebanon Tax Leader

M: +974 662 6234E: [email protected]

Mohamed HarbyPartner, PwC Saudi Arabia


Sherif ShawkiPartner, PwC Kuwait & PwC EgyptKuwait & Egypt Tax Leader

M: +965 9724 0432 E: [email protected]

Neil O’BrienPartner, PwC Qatar

M: +974 3371 4764E: [email protected]

Introduction

Saudi Arabia

UAE Qatar Oman Iraq


Mohammed YaghmourPartner, PwC Saudi ArabiaPwC Middle East Tax Clients & Markets LeaderSaudi Arabia Zakat and Tax Leader

M: +966 56 704 9675 / +966 50 569 8572E: [email protected]

Country Tax Contacts

Wael SaadiPartner, PwC JerusalemJerusalem Tax Leader


Robbie KennedyDirector, PwC LegalMiddle East Energy Leader - Legal


Clients & Markets Tax Contacts

Suhaib Asa’dPartner, PwC JordanJordan Tax Leader

M: +962 7 9800 0078 E: [email protected]

Contacts

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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