Corporate taxation in the Middle East and North Africa 2016 · · 2017-12-11Corporate taxation in Middle East and North Africa 2016 3. ... action plans relating to transfer pricing,

Corporate taxation in the Middle East and North Africa 2016

Palestine — 62 Pakistan — 66Oman — 56

Introduction — 04

Bahrain — 12

Egypt — 16

Kuwait — 32

Iraq — 22

Lebanon — 44 Libya — 52

Jordan — 26

Afghanistan — 06

Contents

2 Corporate taxation in Middle East and North Africa 2016

Saudi Arabia — 84 Syria — 94Qatar — 74

UAE — 100

Contents

Appendix 1 — 108Appendix 2 — 110Appendix 3 — 114

Contents updated — January 2015

3Corporate taxation in Middle East and North Africa 2016

Sherif El-Kilany EY Middle East and North Africa Tax Service Line Leader

Most people in the Middle East and North Africa (MENA) region will agree that 2015 has been a very challenging year, with many countries experiencing the economic effects of low oil and gas prices. The slowdown in China and sluggish growth in Japan, the European Union (EU), and other advanced economies, and surplus oil supplies, are likely to persist through the next year. Notwithstanding the difficult economic conditions, most countries in the MENA region are determined to continue with their social and economic development programs. However, to safeguard and improve their fiscal position, governments in the region are looking to implement planned fiscal and tax measures that have been under consideration.

From a regional tax perspective, the fiscal and tax landscape that we had foreseen at the start of 2015 continues to be relevant.

Consequently, during 2016, we are likely to see:

• New administrative measures to enforce tax compliance and increase tax collections

• Introduction of new taxes intended to broaden the tax base

• Regimes limited by relatively simple tax legislation are likely to introduce regulations to broaden application of existing tax laws and strengthen compliance

• Considered implementation of certain Organization for Economic Co-operation and Development (OECD) recommended action plans relating to transfer pricing, permanent establishment (PE) and country-by-country reporting

These changes are likely to have profound implications for multinational businesses and related party transactions in terms of the required substantiation and compliance requirements.

As we head into 2016, EY understands that the prevailing economic, business and fiscal conditions will require clients to be fully informed and well prepared to address the changes and challenges ahead.

What our clients can expect from EY in 2016 — EY Tax servicesEY is looking forward to helping clients address tax changes and developments by taking appropriate and timely actions to manage their compliance. With strong understanding of the anticipated tax developments and tax compliance practices, EY Tax partners and directors look forward to helping you by providing you with up-to-date thought leadership insights, tax updates, professional advice and tax solutions.

To deliver on our commitment to you, we have a busy year of thought leadership and tax communications activities and initiatives planned ahead.

Economic conditions in 2016 are likely to require foresight and preparedness.

Looking forward to 2016


MENA Tax Insight and MENA Tax ReviewDuring 2016, we will continue to provide you with updates on the latest tax developments, tax law changes and tax practice determinations, with our monthly e-newsletter, MENA Tax Insight.

We will supplement this with the MENA Tax Review (METR), our quarterly tax bulletin which consolidates the tax developments during the previous quarter, together with new reviews and feature articles on the key tax developments, issues and planning thoughts. If you do not already receive these tax communications, please contact our Editor Morris Rozario at [email protected].

Webcast seminarsEY MENA’s popular webcast seminars and Q&A forums provide clients with a regular opportunity to benefit from in-depth discussion and understanding of important tax matters and issues.

During 2016, we plan to address many key tax topics of importance and relevance, including:

• Update on tax compliance requirements relating to tax filings in 2016

• Managing WHT retentions

• Benefiting from double tax treaty relief and exemptions

• Managing tax audits and assessments

• Overview of proposed Value Added Tax (VAT) laws

• Update on Base Erosion and Profit Shifting (BEPS) Action Plan proposed for implementation during 2016

Country tax seminars and workshopsWe will also continue to organize and host country-and sector-specific tax workshops in Egypt, Saudi Arabia, Kuwait, Oman and other countries. This will provide you with the opportunity to meet with our in-country and sector tax specialists, and understand current issues from professionals who deal with key tax issues on a daily basis.

EY MENA 2016 Tax Conference in Dubai, March 2016At this premier regional Tax Conference in Dubai, EY Tax partners from MENA countries will participate in panel discussions with senior tax executives from leading multinational companies. They will share their in-country tax experiences, and discuss key issues and changes in tax laws, regulations and practices.

Over 300 senior finance and tax professionals are expected to participate in this biennial conference and benefit from EY’s experience in key tax issues of current importance. This year’s conference will include consideration of the proposed fiscal and tax reforms in MENA, and the likely impact of the OECD BEPS Action Plan initiatives proposed for implementation in the MENA region.

EY MENA Tax Conference in November 2016Finally, we plan to round the year off with our biannual London Tax Conference in November 2016. The conference will update our clients in North America on the latest developments and issues in the MENA region.

Indeed, another very busy year ahead. We very much look forward to working with you.

In closing, the Tax Team in EY MENA and I would like to wish you a very happy and successful 2016!

Sherif El-KilanyEY Middle East and North Africa Tax Service Line Leader

Economic conditions in 2016 are likely to require foresight and preparedness.

Looking forward to 2016


Afghanistan is bordered to the west by Iran, to the north by Turkmenistan, Uzbekistan and Tajikistan, and to the east and south by China and Pakistan, respectively.

Almost half of the country lies about 2,000 meters above sea level. Afghanistan occupies a strategic location, with the Oxus (Amu Darya) rising on the north side of the Hindu Kush and flowing into central Asia and, on the southern side, several rivers forming tributaries of the Indus.

The population comprises numerous ethnic groups, with the major ones being Pashtuns, Tajiks, Hazaras, Uzbeks, Chahar Aimaks, Turkmen and Balochs. The Islamic Republic of Afghanistan has an estimated population of 32 million.

Afghanistan possesses a wide variety of mineral resources, including natural gas, coal, oil and gemstones, but the security situation has precluded their effective utilization. The estimated GDP for 2014 is 3.5% (3.1% for 2012).

The unit of currency is the afghani (AFN). The official exchange rate is approximately AFN64 to US$1.

Corporate taxation Corporate income taxCompanies that are resident in Afghanistan are subject to tax on their worldwide income. Tax is levied on the total amount of income earned during the tax period.

Tax ratesThe corporate income tax rate is 20%.

Certain types of income are subject to final WHTs.

Business receipts taxBusiness receipts tax (BRT) is imposed on total gross revenue before deductions. It is a deductible expense in computing taxable income for the same tax year. It is imposed at a rate of 4%, 5% or 10% of the gross receipts, depending on the nature of the business or category of the receipt. The BRT rate was recently changed from 2% to 4% by virtue of Presidential Decree with effect from 17 August 2015.

In addition, importers of goods are subject to BRT at a rate of 4% at the time of import. The customs office collects the BRT, which is treated as an advance payment against the BRT paid by the importer on the basis of its receipts from the sale of goods.

The BRT return must be filed, and BRT must be paid on a quarterly basis within 15 days from the end of the quarter.

BRT does not apply to the following categories of income:

• Interest income

• Fees earned from banking transactions

• Proceeds of futures contracts, whether settled in cash or otherwise

• Insurance or reinsurance premiums

• Distributions received by shareholders with respect to their interests in the company

• Exports of goods and services

• Salaries, dividends, royalties and other payments that are subject to WHT

• Income received from the rent or lease of residential property to a natural person if the tenant uses the property for residential purposes for more than six months of the tax year

• Income of persons who do not have a business license but are taxed at fixed rates

(see section titled “Fixed tax scheme”)

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Fixed tax schemeFor certain categories of income and persons, the Afghanistan Income Tax Law (AITL) provides for a fixed tax scheme under which taxpayers are required to pay a fixed tax during the year, instead of income tax and BRT. The fixed tax applies to income received by importers and contractors that do not hold a business license in Afghanistan for the supply of goods and services, and to transporters, entertainers and natural persons deriving business income below certain limits. The amount of the tax varies, depending on the category of income and the person deriving the income.

WHTWHT is an interim tax payment that may or may not be the final tax liability. Withheld amounts that are not final taxes are credited against the eventual tax liability of the taxpayer for the relevant year.

On the right are the rates of significant WHTs under the AITL.

Type of payment WHT rate

Rent for immovable property used for commercial, industrial and other economic purposes

10% of 15%*

Salaries and wages 2%, 10% or 20%**

Payments for imports by importers that have a business license

4%***

Payments to persons who have a business license for providing goods, material, construction and services under contracts to government agencies, municipalities, state entities, private entities and others

2%

Dividends 20%****

Interest 20%****

Royalties from patents 20%****

Commission 20%****

Prizes 20%**

Rewards 20%****

* The rate depends on the monthly rent.

** The rate depends on the monthly salary.

*** The tax is calculated on the basis of the cost of the imported goods, including customs duty, and is collected by the customs office where the custom duty is paid. BRT deducted at import stage at 4% is adjustable against BRT payable by the importer, while the balance is treated as a tax credit against the tax liability for the year. See section on BRT.

**** This is a final WHT.


DividendsA company paying a dividend must withhold tax at a rate of 20% of the gross amount. Dividends are regarded as Afghan-sourced if they are received from resident companies operating in Afghanistan.

If a branch of a nonresident person pays or incurs an amount to the head office or any person connected to the non resident person, that amount is also treated as a dividend.

Dividends paid in cash, from which tax has been deducted at source, are allowed as deductions for the payers of the dividends. However, such deductions are not allowed to branch offices in Afghanistan making payments of dividends to their head offices and other affiliates.

Dividends paid in the form of securities, shares or loans of a similar nature are not deductible from the income of corporations or limited liability companies (LLCs).

Capital gainsGains arising from the sale, exchange or transfer of capital assets, including depreciable assets, shares of stock and trades or businesses, are included in taxable income. However, gains derived from the sale or transfer of movable or immovable property acquired by inheritance are not included in taxable income.

Legal persons transferring movable or immovable property must pay 1% tax on the amount received or receivable with respect to the transfer of ownership of such property. The tax paid may be used as a credit against tax payable when the tax return is filed.

Losses incurred on the sale or exchange of capital assets used in a trade or business are deductible from the taxable income in the tax year of the sale or exchange, if the gain from this sale or exchange would have been taxable.

Losses incurred on the sale or exchange of shares or stock may be offset only against gains from the sale or exchange of shares or stock in the same year. If the gains exceed the losses from such transactions, the excess is taxable. However, if the losses exceed the gains, the excess is not deductible.

Interest and penalties A legal person who fails to file a tax return by the due date without reasonable cause may be subject to additional income tax of AFN100 per day, with effect from the Hijri tax year 1392 filings (i.e., tax year 2011/2012 filings) by 20 March 2013. The late filing penalty was, however, at AFN500 per day before Hijri tax year 1392.

In addition, if a person fails to pay the tax by the due date, penalties amounting to 0.1% of the tax per day may be imposed. If no tax is paid, an additional tax of 10% may be imposed in addition to the 0.1% penalty.

A person who is determined to have evaded income tax may be required to pay the income tax due and the following additional penalties:

• In the first instance of tax evasion, an additional tax penalty of double the evaded tax

• In the second instance, an additional tax penalty of double the evaded tax and termination of the person’s business activity by order of the court

A person who fails to withhold tax from payments without reasonable cause may also be subject to additional tax of 10%.

Foreign tax credit If a resident person derives income from more than one foreign country, proportionate foreign tax credit is allow ed against income from each country.

AdministrationAfghanistan follows the solar period with a tax year that starts on 21 December and ends on 20 December in the following calendar year. If a legal person wishes to use a 12-month period other than the solar period as their tax year, they may apply to the Ministry of Finance (MoF) in writing and provide the reasons for the change. The MoF may grant this application if it is justifiable.

The income tax return, together with the balance sheet, must be filed within three months following the tax year-end, i.e., by 20 March.


Determination of taxable incomeGeneralThe determination of taxable income is generally based on the company’s financial statements, subject to certain adjustments.

Business expenses incurred during a tax year or in one of the preceding three tax years are deductible for purposes of calculating taxable income.

InventoriesAn inventory for a tax year is valued at the lower of cost or market value of the inventory on hand at the end of the year. All taxpayers engaged in manufacturing, trading or other businesses must value inventories in accordance with the method prescribed by the MoF.

Tax depreciationDepreciation of movable and immovable property (except agricultural land) used in a trade or business or held for the production of income is allowed as an expense. The total depreciation deduction for property may not exceed the cost of the property to the taxpayer.

A person is not entitled to claim depreciation for the part of the cost of an asset that corresponds to a payment for which the person failed to withhold tax.

Enterprises registered under the Law on Domestic and Foreign Private Investment in Afghanistan are entitled to a deduction for the depreciation of buildings and other depreciable assets over the following time periods:

• Four years for buildings

• Two years for other depreciable assets

Depreciation is calculated using the straight-line method, in equal proportions. However, if a depreciable asset is held by the enterprise for less than half of the year, depreciation is calculated and deducted for six months. If a depreciable asset is held for more than half of the year, depreciation is calculated and allowed for one year.

Net operating losses incurred by a taxpayer on account of depreciation may be carried forward by the enterprise until the loss is fully offset. However, to claim this offset, the enterprise must be an approved enterprise under the AITL.

Depreciation and expenditure that relate to a period covered by a tax exemption or to a period before an enterprise becomes an approved enterprise for the first time may not be included in the calculation of a net operating loss.

Hydrocarbon contractsSpecial provisions are embedded in the tax law relating to the taxability of qualifying extractive industries taxpayers (QEITs). A QEIT is a person who holds a mining license or mining authorization, or is a party to a hydrocarbon contract.


Relief for lossesA corporation or an LLC that incurs a net operating loss in a tax year may deduct the loss from its taxable income of the following three years in equal proportions.

Net operating losses incurred by approved enterprises as a result of depreciation may be carried forward until they are fully offset.

Miscellaneous matters Foreign exchange controlsIn general, remittances in foreign currency are regulated and are required to be converted to AFN at the established rate of Da Afghanistan Bank. In certain cases where Da Afghanistan Bank does not trade for a particular currency, the currency is first converted into US dollars and then into AFN.

Anti-avoidance rulesAll transactions between connected persons are expected to be carried out at arm’s length. If transactions are not conducted on an arm’s length basis, the tax authorities may determine the arm’s length standard under prescribed methodologies. These methods are similar to those available in the Commentary to the OECD Model Convention.

If a person enters into any transaction or arrangement with the intent to cause reduction in liability to pay tax, the MoF may disregard this transaction or arrangement and assess all persons affected by it as if the disregarded transaction or arrangement had not taken place.

Miscellaneous taxesAfghanistan does not impose VAT or goods and services tax. Customs duties apply to the import of goods.

Tax incentivesSome of the significant tax incentives available in Afghanistan are described in the following paragraphs.

Income derived from the operation of an aircraft under the flag of a foreign country and income derived by the aircraft’s staff is exempt from tax if the foreign country grants a similar exemption to the aircraft under the flag of Afghanistan and the aircraft’s staff.

Organizations that are established under the laws of Afghanistan and are operating exclusively for educational, cultural, literary, scientific or charitable purposes are exempt from income tax.

Income derived from agricultural or livestock production is not subject to income tax.

Scholarships, fellowships or grants for professional and technical training are exempt from income tax.

These incentives are subject to a private ruling obtained from the MoF.


Bilateral agreementsA bilateral agreement between Afghanistan and the United States exists in the form of diplomatic notes exchanged between the two countries. Under the diplomatic notes, tax exemption is provided to the US Government and its military, contractors and personnel engaged in activities with respect to the cooperative efforts in response to terrorism, humanitarian and civic assistance, military training and exercises, and other activities that the US Government and its military may undertake in Afghanistan.

Military and technical agreements have also been entered into with International Security Assistance Forces (ISAF), which allow similar exemptions.

Exemptions available under these agreements are subject to private rulings obtained in advance from the MoF. In addition, the agreements generally do not provide exemptions from the obligation to withhold tax from all payments to employees, vendors, suppliers, service providers, lessors of premises and other persons, as required under the local tax laws.

Furthermore, on 30 September 2014, Afghanistan signed a bilateral security agreement (BSA) with the Government of the United States of America and Status of Force Agreement (SOFA) for NATO forces. The agreement, which came into force on 1 January 2015, replaces all previous agreements applicable up to 31 December 2014 and makes amendments to previously offered exemptions for all NATO foreign and local contractors and subcontractors.


Taxation Bahrain levies no taxes on income, capital gains, sales, estates, interest, dividends, royalties or fees other than those specifically imposed on oil and gas companies.

Oil and gas companiesCompanies engaged in the exploration, production or refining of oil and other natural hydrocarbons in Bahrain are subject to corporate income tax at a rate of 46% on taxable income derived in Bahrain.

Taxable income is taken to be the net profit earned by a company after deduction of business expenses from gross business income.

Oil and gas companies are required to file an estimated tax declaration on or before the 15th day of the 3rd month of the tax year (calendar year). Tax must be paid in 12 monthly installments.

Trading losses of oil companies may be carried forward indefinitely. However, carry-back is not permitted.

IncentivesThe Government encourages foreign investment, expertise and technologies to develop and diversify the economy, privatize infrastructure projects, promote tourism and develop small to medium-sized enterprises.

Bahrain offers many concessions and incentives to foreign investors, including:

• A tax-free business presence with no personal, corporate and WHT taxes

• No restrictions on repatriation of capital, profits, royalties and dividends

• One hundred percent foreign ownership of companies, in permitted cases

• Foreign (non-GCC) ownership of high-rise commercial and residential properties, as well as tourist properties and banking, financial, health and training projects in specific geographic areas

Bahr

ain As Bahrain’s oil resources are limited, the country has focused on developing its

financial and commercial markets and industrial base with a globally competitive value creation proposition.

Bahrain provides an open and transparent business environment with good governance and skilled resources. Foreign investment is also strongly encouraged.

Bahrain is a leading financial services hub in the Gulf Cooperation Council (GCC) region, with particular emphasis on investment and Islamic banking activities.

Certain infrastructure-related industrial undertakings, such as power production and aluminum processing plants, have also been successfully established.

Although, in the past, many large commercial and infrastructure enterprises have been largely government owned, there is an increasing trend toward privatization. Currently, most industry sectors or business segments are open to foreign investors.

To carry out any commercial activity in the Kingdom of Bahrain, a legal vehicle should be established in accordance with the Bahrain Commercial Companies Law No. 21 of 2001.

The unit of currency is the Bahraini dinar (BHD). The official exchange rate is approximately BHD1 to US$2.6.


• Well-established industrial zones

• Developed infrastructure with excellent transportation and communication systems

• Well-defined laws and regulations

• Recognition of intellectual property rights

• Duty-free import of machinery and raw materials to be used in new processing industries in Bahrain

Companies with a Bahraini industrial license also qualify for treatment under the GCC common market accord (for example, duty-free imports of GCC-produced goods across GCC countries).

Companies wishing to qualify for incentives must employ a specified percentage of Bahraini national employees (normally 20%).

Employment-related incentives include:

• Subsidies for Bahraini nationals employed, including training incentives within the Tamkeen program

• Reimbursement for the costs incurred in training Bahraini employees for specialized job positions

Favorable and economically free business environmentIn Bahrain, there is no concept of “free zones” per se. However, there are certain areas where it is possible to obtain more benefits for the company. One example is the Bahrain International Investment Park (BIIP), where prospective companies can take advantage of the following:

• Zero percent CIT (with a 10-year guarantee)

• Duty-free access to the markets of the GCC (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates);

• 100% foreign ownership

• Availability of serviced industrial land at competitive rates

• Renewable 25-year leases

• No recruitment restrictions for the first five years

Many major food manufacturers and chemical producers have established in the BIIP because it offers :

• A customs free zone

• 100% foreign company ownership

• Easy access to land, sea and air transportation

Foreign exchange controlsThere are no exchange control restrictions on converting or transferring funds.


Other taxesPersonal income taxThere are no personal income taxes in Bahrain.

Social insuranceSocial insurance contributions are payable for employees who are Bahraini nationals at a rate of 15% of their compensation (basic salary plus recurring allowances),* of which 9% is contributed by the employer and 6% by the employee.

Employers are also required to contribute an additional amount equal to 3% of the compensation of all employees (both Bahraini and expatriates) as insurance cover against employment injuries.

Unemployment insurance at a rate of 1% is also payable by both Bahrainis and expatriate employees.

Special rates apply on GCC nationals (other than Bahraini) working in Bahrain, as per the Unified Law of Insurance Protection Extension to GCC Member State Citizens Working in other GCC Member States, which was first ratified in 2006. The applicable rates vary depending on the nationality of the GCC individual and are based on the social insurance contribution levels in their country of origin.

*The compensation for each employee, for the calculation of social insurance contributions, is limited to a maximum of BHD4,000 per month (i.e., where it exceeds BHD4,000 per month, the amount of contribution will be calculated only on BHD4,000).

End-of-service benefitAt the completion of their employment contract in Bahrain, expatriate employees are entitled to an end-of-service benefit, calculated on the following basis:

• Half a month’s salary for every year of service for the first three years of continuous service

• One month’s salary for every year of service thereafter

Foreign workers levyFees have to be paid in order to obtain employment visas for employees in Bahrain. Currently, the fee for a two-year employment visa is BHD200. All private and public companies are required to pay a monthly levy with respect to each expatriate that is employed. The levy is charged at a rate of BHD5 per employee for the first five expatriates employees and BHD10 for each expatriate employee thereafter.

An additional fee of BHD72 was introduced in January 2015, which covers health insurance when issuing or renewing a visa for an expatriate. If the employer provides the employee with compulsory health insurance, then the fee can be disregarded.

WHT and VATThere are no WHT, property tax or production tax in Bahrain. Ongoing discussions on the implementation of VAT in the GCC region, which includes Bahrain, continue. However, there has been no firm commitment to an implementation date.

Municipal taxA municipal tax is payable by individuals or companies renting property in Bahrain.

The tax rate varies for unfurnished or furnished residential property, and commercial property.

Customs dutiesThe GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE) announced the unification of customs duties with effect from 1 January 2003.

There are no customs tariffs on the trade of locally manufactured goods between GCC member states where the local shareholding is 51% and value added in Bahrain exceeds 40%.

Bahrain is a member of the World Trade Organization (WTO) and applies its customs tariff according to the codes issued by the World Customs Organization (WCO).

The following categories of the customs duty apply:

• Free duty — vegetables, fruits, fresh and frozen fish, meat, books, magazines and catalogs

• Five percent duty — all other imported items such as clothes, cars, electronics and perfumes

• One hundred percent duty — tobacco and tobacco-related products

• One hundred and twenty-five percent duty — alcohol


Tax treaties Bahrain has entered into double tax treaties with many countries, namely Algeria, Austria, Barbados, Belarus, Belgium, Bermuda, Brunei, Bulgaria, China, the Czech Republic, Egypt, Estonia, France, Georgia, Hungary, Iran, Ireland, the Isle of Man, Jordan, Korea, Lebanon, Luxembourg, Malaysia, Malta, Mexico, Morocco, the Netherlands, Pakistan, the Philippines, Seychelles, Singapore, Sri Lanka, Syria, Thailand, Turkey, Turkmenistan, the United Kingdom, Uzbekistan and Yemen.

Furthermore, treaties with Cyprus, Portugal, Tajikistan and Sudan are at various stages of negotiation or ratification.


Egypt is one of the largest economies in the Arab world, with highly developed economic and social structures and abundant labor resources.

In order to boost economic performance and restore growth, the Government is implementing a wide-scale economic and fiscal reform program. The substantial new initiatives aim to rebuild a robust free market economy, stimulate business growth and create much needed employment opportunities by encouraging local and foreign investments. During 2015 Government policies and initiatives were directed at lifting restrictions on imports, lowering customs duties, removing exchange control restrictions and floating the Egyptian pound (EGP). Egypt offers attractive incentives to encourage foreign investment, particularly in projects that contribute to the development of infrastructure, earning of foreign currency and reducing the country’s reliance on imports.

Free trade zones (FTZs) like the Badr Free Zone and the Eastern Port Said Free Zone and North West Suez Free Zone have been set up where projects can be established without having Egyptian equity participation.

Non-Egyptian nationals and businesses may engage in commercial, industrial and agricultural service activities. There is no restriction on foreign participation in Egyptian corporations other than those related to an agency or undertaking importing activities, where non-Egyptian participation is restricted.

The official exchange rate is approximately EGP7.83 to US$1.

Corporate taxesCorporate income taxEgyptian corporations are subject to corporate income tax on their profits derived from Egypt, as well as on profits derived from abroad, unless the foreign activities are performed through a PE located abroad. Foreign branches are subject to tax only on their profits derived from Egypt.

Rates of corporate income taxThe standard rate of corporate income tax effective from the 2015 tax year or the taxable year ending after 20 August 2015 is 22.5% (previously 25%). In addition, the 5% surtax starting from financial year 2014 for taxable amounts over EGP1m should only be enforced for one year instead of the original three-year period.

This additional tax was imposed on individuals and legal entities for the tax year starting 1 January 2014 and ending on 31 December 2014. For legal entities whose tax year is not a calendar year, the additional 5% tax was imposed for the tax year ending after the issuance of the said law on 4 June 2014. Accordingly, the additional temporary tax shall no longer apply to any tax year starting after 2014.

With respect to commercial and industrial revenues, non-commercial revenues and real estate revenues, the new reduced tax rates will be applied to the 2015 tax year beginning 1 January 2015 to 31 December 2015.

ExceptionsOil prospecting and production companies are subject to tax on their profits at a rate of 40.55%.

The Suez Canal Company, the Egyptian General Petroleum Corporation and the Central Bank of Egypt are subject to tax on their profits at a rate of 40%.

Capital gains from sale of assetsCapital gains are subject to tax at the ordinary corporate income tax rates, with any capital gains treated as business profits. Trading and capital losses derived from sales of other assets are deductible against taxable capital gains.

Capital gains from sale of securities Capital gains from the sale of securities realized by nonresident corporate persons are subject to tax at a rate of 10%.

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Capital gains from the sale of securities realized by resident corporate persons are taxed as follows:

• A 10% tax rate will be applied on the capital gains realized from securities registered at the Egyptian Stock Exchange (ESE) and from a source in Egypt.

• The standard CIT rate will be applied on the gains realized from dealing in securities from an Egyptian source but not registered at the ESE, the gains realized abroad and those realized from the sale of shares.

Income tax provisions applicable to capital gains realized from the disposal of securities registered with the ESE are suspended for two years beginning from 17 May 2015. However, capital gains tax remains applicable to gains realized from the disposal of securities not registered with the ESE or the disposal of shares in corporations regardless of whether they are realized in Egypt or abroad.

As amended from 21 August 2015, the income tax rate applicable to capital gains realized by nonresident individuals and legal entities is as follows:

• 10% rate applies to capital gains realized from the disposal of securities registered with the ESE.

• 22.5% rate applies to capital gains realized from the disposal of securities not registered with the ESE or from the disposal of shares in Egyptian corporations.

AdministrationCompanies must file their annual tax returns, together with all supporting schedules and the original financial statements, before 1 May each year, or four months after the end of the financial year. The tax return must be signed by the taxpayer and a chartered accountant.

Taxpayers can file a request for an extension of the due date for filing the tax return if the estimated amount of tax payable is paid at the time of the request.

A request for an extension must be filed at least 15 days before the due date.

An extension of up to 60 days may be granted. An amended tax return can be filed within 30 days of the due date of the original tax return. Any tax due must be paid when the tax return is filed. Effective from the financial year 2015 tax due on Egyptian corporations as well as the tax due on public jurisdiction persons should be paid electronically.

A late penalty is imposed at a rate of 2% plus the credit and discount rate set by the Central Bank of Egypt in January each year.

The law has set up appeal committees at two levels — the Internal Committee and the Appeal Committee. The Appeal Committee’s decision is final and binding on the taxpayer and the Egyptian Tax Authority (ETA), unless a case is appealed to the courts by either


party within 30 days of receiving the decision, which is usually in the form of an assessment.

DividendsDividends paid by corporations or partnerships, including companies established under the special economic zone system, to resident juridical persons, nonresident persons or nonresident juridical persons who have a PE in Egypt shall be subject to tax on dividends.

Tax on dividends at standard rate is 10% without any deductions or exemptions. However, this rate can be reduced to 5% if the following conditions are fulfilled:

• The person holds more than 25% of the distributing company’s capital or voting rights

• Shares are held for a duration no less than two years

Effective from 21 August 2015 dividends are not required to be added to the corporate income taxable if such dividends have been subject to Dividends Tax at 10% or 5% as applicable.

Foreign branches’ profits in Egypt are considered distributed profits by law within 60 days from the financial year-end date. Furthermore, branch remittance tax at a rate of 5% applies to foreign branches ‘profits.

The tax law granted some exemptions for investment funds, parent companies and holding companies under some conditions.

Dividends in the form of free stocks are not subject to tax on dividends.

WHTWHT on payments to nonresidents: in general, payments to nonresidents against services performed in or outside Egypt are subject to WHT at a rate of 20%.

The following services are exempted from WHT on payments to nonresidents:

• Transportation

• Shipping

• Insurance

• Training

• Participation in conferences and exhibitions

• Registration in foreign stock markets

• Direct advertising campaigns

• Services related to religious rituals

• Accommodations in Hotels and a like

WHT on local payments: in general, payments to resident companies exceeding EGP300 shall be subject to WHT. The WHT rates vary according to the type of activity as follows:

• Supplies or contracting — 0.5%

• Services — 2%

• Professional fees — 5%

• Commission — 5%

Law No. 53 issued in July 2014 has revoked the add-on tax system. However, entities and establishments are still obligated to report to the tax authority the transactions with suppliers and service providers.

Foreign tax reliefTax credit can be claimed for foreign tax paid by resident entities outside Egypt, if supporting documents are available.

Treaties concluded between Egypt and other countries regulate the credit for taxes paid abroad on income, subject to corporate income tax in Egypt.

Determination of taxable incomeGeneralCIT is based on taxable profits, determined in accordance with Egyptian GAAP and subject to adjustments for tax purposes in accordance with the statutory provisions relating to depreciation, provisions, inventory valuation, and intercompany transactions and expenses.

Interest on bonds listed on the Egyptian Stock Exchange is also exempt from tax if certain conditions are satisfied.

Start-up and formation expenses may be deducted in the first year.

Interest paid to individuals who are not subject to tax or are exempt from tax is not deductible. Deductible interest is limited to the interest computed at a rate equal to twice the discount rate determined by the Central Bank of Egypt.

InventoriesInventory is normally valued for tax purposes at the lower of cost or market value. Cost is defined as purchase price plus direct and indirect production costs. Inventory reserves are not permissible deductions for tax purposes. For accounting purposes, companies may elect to use any acceptable method of inventory valuation, such as first in, first out (FIFO) or average cost.


However, the method should be applied consistently and, if the method is changed, the reasons for this should be disclosed.

ProvisionsProvisions are not deductible, with the following exceptions:

• A provision of up to 80% of loans made by banks is required by the Central Bank of Egypt.

• Insurance companies’ provision is determined under Law No. 10 of 1981.

Bad debtsBad debts are deductible if the company provides a report from an external auditor certifying the following:

• The company is maintaining regular accounting records

• The debt is related to the company’s activity

• The debt appears in the company’s records

• The company has taken the necessary action to collect the debt

Depreciation and amortization allowancesDepreciation is deductible for tax purposes and may be calculated using either the straight-line or declining balance method in accordance with the following depreciation rates.

Type of asset Method of depreciation Rate

Buildings, ships and airplanes

Straight line 5%

Intangible assets Straight line 10%

Computers Declining balance 50%

Heavy machinery and equipment

Declining balance 25%

Small machinery and equipment

Declining balance 25%

Vehicles Declining balance 25%

Furniture Declining balance 25%

Other tangible assets Declining balance 25%

Accelerated depreciation is allowable only once, at a rate of 30%, on new machines and equipment in the year in which they are placed into service. Effective 13 March 2015 this accelerated depreciation deduction is no longer mandatory.

Normal depreciation is calculated after taking into account the accelerated 30% depreciation on the net value of new assets, provided that proper books of account are maintained.

Allocation of head office expensesThe deductibility of a branch’s share of head office overhead expenses is limited to 10% of the taxable net profit. Head office expenses, other than overhead and general administration expenses, are subject to negotiations with the tax authorities. They are fully deductible if they are directly incurred by the branch and are necessary for the performance of the branch’s activity in Egypt. These expenses must be supported by original documents and approved by the head office auditors.

Relief for lossesTax losses may be carried forward for five years. Losses incurred by construction companies on long-term projects may be carried back for an unlimited number of years to offset profits from the same project.

Group of companiesAssociated or related companies in a group are taxed separately for corporate income tax purposes. Egyptian law does not include provisions for group assessment, under which group losses may be offset against profits within a group of companies.

Deemed profit tax declarations clarified in 2015In the past, the ETA did not recognize tax filing on a deemed profit basis. In practice, tax assessments had been raised by assuming


the turnover declared as the net profit and fully subjecting such revenues to tax. In March 2015 the ETA issued a tax return format for tax filings based on deemed profit declarations.

Free zone taxCompanies in FTZs are permanently exempt from CITs. Law No. 11 of 2013, which is effective from 1 June 2013, requires all business entities set up under the special economic zone and free zone laws to withhold tax on interest, royalties, service fees, and sporting activity and artists’ fees.

Miscellaneous mattersForeign exchange controlsEgypt has a free market exchange system. Exchange rates are determined by supply and demand, without interference from the Central Bank or the Ministry of Economy.

Transfer pricingEgyptian tax law contains specific tax provisions relating to transfer pricing based on the arm’s length principle. Under these measures, the tax authorities may adjust the income of an enterprise if its taxable income in Egypt is reduced as a result of contractual provisions that differ from those that would be agreed upon by unrelated parties.

However, according to Egyptian tax law, it is possible to enter into arrangements in advance with the tax department regarding a transfer pricing policy (advance pricing agreement — APA).

An APA ensures that transfer prices will not be challenged after the tax return is submitted and, accordingly, eliminates exposure to penalties and interest on the late payment of taxes resulting from adjustments of transfer prices.

The ETA, in association with the OECD, has issued Transfer Pricing Guidelines. These guidelines advise taxpayers on the application of the arm’s length principle in pricing their intragroup transactions, as well as outlining the documentation taxpayers should maintain as evidence to demonstrate their compliance with the arms-length principle.

Supply and installation contractsWith respect to supply contracts, tax is not charged on profits from a contract when the supplier has no activity within Egypt.

In the case of a combined supply and erection (installation) contract, where the value of both parts is shown separately, the contract would be taxed as follows.

Value of supply portionThe supply portion would not be subject to tax in Egypt if the taxpayer provided appropriate custom clearance documentation or confirmation from the customer of receipt of the supply.

Value of the erection portionThe value of the erection portion of a contract would be taxed in all instances.

If it was not possible to separate the value of supply and erection portions, the total value of the contract would be subject to tax.

Reduced sales tax on assets used for productionEffective 13 March 2015 the sales tax rate on equipment and machines used for production purposes to 5%.

Other taxesPersonal income taxThe tax year is based on the calendar year.

Tax applies to salaries and similar remuneration as follows:

• All earnings due to the taxpayer resulting from work with third parties with or without a contract, periodically or non-periodically, whatever the names, forms or reasons of those earnings, whether they are for works performed in Egypt or abroad and paid by a source in Egypt, including wages, remunerations, incentives, commissions, grants, overtimes, allowances, shares and portions in profits, as well as monetary privileges and allowance in kind of all types

• Earnings due to the taxpayer from a foreign source for works performed in Egypt

• Salaries and remunerations of chairmen and members of the board of directors in public sector companies that are not shareholding companies

• Salaries and remunerations of chairmen and members of the board of directors

Tax is imposed on the total net income of natural persons (resident and nonresident).

From 21 August 2015, the tax is payable on income in excess of EGP6,500 of the total net income realized by a resident individual taxpayer during the year.

The new tax rates effective from 21 August 2015 are as follows.

Personal incomes Tax rate

EGP6,501 to EGP30,000 10%

EGP30,001 to EGP45,000 15%

EGP45,001 to EGP200,000 20%

Above EGP200,001 22.5%

With respect to commercial and industrial revenues, non-commercial revenues and real estate revenues, such rates will be applied to the 2015 tax year beginning 1 January 2015 to 31 December 2015.


Personal income tax also applies to all amounts paid to nonresidents by the entity or organization employing them for performing services under its supervision, at the rates previously mentioned after deducting the costs and exemptions prescribed by law.

Employers and those responsible for paying the taxable income, including companies or projects established under the FTZ system, are required to retain from the amounts payable to the nonresident an amount on account of the tax payable according to the tax law. The tax retained is required to be delivered to the appropriate tax district office within 15 days of the end of the month in which the amounts are retained.

A certificate of income and a withheld taxes statement is sufficient evidence for an individual income. An individual does not need to get a tax clearance certificate before leaving Egypt.

The following is exempted from the tax:

• An annual personal exemption of EGP7,000 for taxpayers starting from September 2013

• Social insurance and other contributions to be deducted according to the provision of the social insurance laws or any alternative systems

• Employees’ contribution to private insurance funds established according to the provisions of Law No. 54 of 1975*

• Premiums of life and health insurance on the taxpayer and any insurance premiums for pension entitlement*

* Total deduction may not exceed 15% of the net taxable income or EGP10,000, whichever is lower.

The following are the in-kind benefits:

• Meals distributed to the workers

• Collective transportation of workers or equivalent transportation cost

• Health care

• Tools and uniforms necessary for performing work

• Tenements provided by the employer to workers for performing their work

Any other in-kind benefits will be subject to tax. These include:

• Workers’ share in the profits to be distributed according to the law

• All that is obtained by members of the diplomatic and consular diplomatic personnel, international organizations and other foreign diplomatic representatives within the context of their official work, conditional upon reciprocity of treatment and within the limits of that treatment

Miscellaneous taxesEgypt imposes stamp duties, social security contributions, sales tax, real estate tax and entertainment tax.

Customs dutiesCustoms duties are imposed on imported goods at rates that vary according to official categories. General rates of customs duties range between 0% and 30% of the cost, insurance and freight (CIF) value. Higher rates are applied for passenger cars, nonessential and luxury consumer goods, and alcoholic beverages.

Tax treatiesEgypt has signed and ratified double tax treaties with Albania, Algeria, Austria, Bahrain, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, the Czech Republic, Denmark, Ethiopia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iraq, Ireland, Italy, Japan, Jordan, Kuwait, Lebanon, Libya, Malaysia, Malta, Morocco, Moriches, the Netherlands, Norway, Pakistan, Palestine, Poland, Romania, the Russian Federation, Serbia, Singapore, South Africa, South Korea, Spain, Sudan, Sweden, Switzerland, Syria, Tunisia, Turkey, Ukraine, the UAE, the United Kingdom, the United States, Yemen and Yugoslavia.


Corporate taxesCorporate income taxIn general, corporate income tax is imposed on taxable profit from all sources arising in, or deemed to arise in, Iraq. The Iraqi tax authority (known as the General Commission for Taxes — GCT) generally relies on the following factors to determine if income is deemed to arise in Iraq and therefore taxable in Iraq:

• The place of contract signature is in Iraq

• The place of performance of work is in Iraq

• The place of delivery of work is in Iraq

• The place of payment for the work is in Iraq

In 2015, the Iraqi MoF issued instructions that amended the language of these factors, whereby income is taxable in Iraq if:

1. The vendor or service provider has a branch or an office in Iraq, and the contract is signed by the branch or office representative, any of the branch or office’s employees, or any other person who is resident in Iraq and is authorized to sign the contract.

2. The vendor or service provider has a branch or an office in Iraq, and the contract is performed or executed by the branch or office representative, any of the branch or office’s employees, or any other person who is resident in Iraq and is authorized to perform the contract.

3. The contract’s legal formalities and requirements are completed in Iraq in the name of the vendor or service provider (e.g., customs clearance, payment of customs duties, opening of letter of credit and any related procedures).

4. Payments under the contract, whether to the vendor or service provider, are received fully or partially in Iraq, regardless of the currency used to make the payments.

5. The vendor or service provider receives the payment in barter.

Iraqi tax law applies a withholding or retention system to all payments made to contractors and subcontractors working under taxable contracts, whereby the payer under the contract should deduct and retain the applicable rate of tax from each payment. All retained amounts (except the entire amount of the final installment) should be transferred to the GCT within a month of the date of retention as a payment on account of the payee’s corporate income tax liability.

Iraq After decades of war and economic sanctions, the Iraqi Government

and the semi-autonomous Kurdistan Regional Government are keen to rebuild the country and develop its economy.

Despite the political and security instability in Iraq, which is now exasperated by the financial crisis the Iraqi Government is facing from falling oil and gas prices, Iraq’s economy has significant growth prospects.

Iraq’s economy is still largely dependent on the oil and gas sector, which has provided about 95% of foreign currency revenues.

Trade relations continue to grow along with developments in the operational environment. However, all sectors — especially the oil and gas sector — remain in great need of development and expansion.

The currency in Iraq is the Iraqi dinar (IQD). The exchange rate as published by the Central Bank of Iraq is approximately IQD1,166 to US$1.


The entire amount of the final installment may not be released to the contractor unless the contractor presents the company with a valid tax clearance certificate issued by the GCT authorizing the release of the retained final payment, or the company applies a 10% withholding on this final installment and remits it to the GCT.

This retention and remittance process is not currently observed in the Kurdistan Region of Iraq.

Tax ratesThe corporate income tax rate applicable to all companies (except oil and gas production and extraction activities and related industries, including service contracts) is a unified flat rate of 15% of taxable income. Activities relating to oil and gas production and extraction activities and related industries, including service contracts, are subject to income tax at a rate of 35% of taxable income. The higher rate of 35% has not yet been adopted in the Kurdistan Region of Iraq.

Capital gainsCapital gains from the sale of fixed assets are taxable at the general corporate income tax rate of 15% (35% for oil and gas production and extraction activities and related industries, including service contracts — except in the Kurdistan Region of Iraq, where the 35% tax rate has not been adopted).

Capital gains from the sale of shares and bonds not in the course of a trading activity are exempt from tax; otherwise, they will be taxable at the normal corporate income tax rates.

AdministrationIn Iraq, tax returns for all corporate entities must be filed in Arabic within five months after the end of the fiscal year, together with audited financial statements prepared under the Iraqi Unified Accounting System (IUAS). The Kurdistan Regional Government’s tax authority currently only requires the audited financial statements prepared using the IUAS to be filed within six months after the end of the fiscal year. A rate of 10% of the tax due is imposed as a delay fine, up to a maximum of IQD500,000, on a taxpayer that does not submit or refuses to submit an income tax filing within five months after the fiscal year-end (within six months in the Kurdistan Region of Iraq). Moreover, foreign branches that fail to submit financial statements by the income tax filings’ due date are subject to an additional penalty of IQD10,000.

After an income tax filing is made, the GCT will undertake an audit of the relevant filing, may request additional information and will eventually issue a tax assessment. Payment of the total amount of assessed taxes is due after the GCT issues its tax assessment based on its audit of the tax return and audited financial statements that were filed. If the tax due is not paid within 21 days from the date of notification, there will be an additional penalty of 5% of the amount of tax due. This amount will be doubled if the tax is not paid within 21 days after the lapse of the first 21-day period. The penalties applicable in the Kurdistan Region of Iraq and their administration differ, due to the Kurdistan Regional Government’s tax authority’s practice.


DividendsDividends paid from previously taxed income are exempt from corporate income tax in hands of the recipient.

InterestInterest paid to non residents is subject to a WHT rate of 15%.

Foreign tax reliefA foreign tax credit is available to Iraqi companies on income taxes paid abroad. In general, the foreign tax credit is limited to the amount of an Iraqi company’s income tax on the foreign income. Excess foreign tax credits may be carried forward for up to five years.

Determination of taxable incomeGeneralIn general, all income generated in Iraq is taxable in Iraq, except for income exempt by the Income Tax Law, the Industrial Investment Law or the Investment Law in the Kurdistan Region of Iraq.

Business expenses incurred to generate income are allowable, with limitations on certain items such as entertainment and donations. However, provisions and reserves are not deductible for tax purposes.

CIT is computed by applying the appropriate tax rate to taxable income, which is based on the profit as reported in the audited IUAS financial statements. The GCT may decide to accept the reported taxable profit or impose a deemed taxable profit figure based on a percentage of total revenue.

Tax depreciationThe Iraqi Depreciation Committee (IDC) sets the maximum depreciation rates for various types of fixed assets used in different industries. Generally, there are three acceptable depreciation methods:

• Straight line

• Declining balance

• Other methods (with the approval of the GCT)

If the rates used for accounting purposes are greater than the prescribed rates, the excess is disallowed for corporate income tax purposes.

Relief for lossesA tax loss from one source of income may be offset against profits from other sources of income in the same tax year. Unutilized tax losses may be carried forward and deducted from the taxable income of the taxpayer over the next five consecutive years, subject to the following conditions:

• Losses may not offset more than half of the taxable income of each of the five years.

• Losses may only offset income from the same source from which the loss arose.

In order for losses to be claimed, appropriate documentation must be obtained, including financial statements that support the loss, with sufficient evidence to support the expenses that created the loss. Losses may not be carried back against profits arising in earlier periods.

Groups of companiesIraqi law does not contain any provisions for filing consolidated returns or for relieving losses within a group of companies.

Miscellaneous mattersDebt-to-equity ratioThere are currently no debt-to-equity rules in Iraq. The only restrictions on debt-to-equity ratios are those stated in the memorandum of incorporation and articles of association. However, the GCT may disallow claims of interest expense if it deems the expense to be excessive.

Foreign exchange controlsIraq does not impose any foreign exchange controls. However, according to the Central Bank of Iraq’s instructions and regulations, fund transfers have to be in compliance with the Anti-Terrorism Law and the Anti-Money Laundering Law.

Tax treatiesIraq has entered into a bilateral double taxation treaty with Egypt and a multilateral double taxation treaty with the states of the Arab Economic Union Council. However, it is not prudent to rely on a treaty position in Iraq as, in practice, the tax authorities application of treaty provisions may be inconsistent.



Jordan is a politically stable country with well-established infrastructure, communications and business facilities. Its free market economy offers considerable trading, services, tourism and recreational business opportunities.

The Jordanian Government promotes foreign investment by granting favorable customs and tax regulations to foreign companies with the desire to invest in specific projects and in Jordanian free zones and development zones.

Foreign ownership of business is generally permitted in Jordan, allowing for foreign companies to register foreign branches to carry out their work in-country. Furthermore, non-Jordanian investors are allowed to have full ownership in many projects.

The currency is the Jordanian dinar (JOD). The official exchange rate is approximately JOD1 to US$1.41.

Corporate taxesCorporate income taxIn general, corporate income tax is levied on corporate entities and foreign company branches with respect to taxable profit in Jordan on all income earned in, or derived from, Jordan irrespective of where the payment is made, and on income generated from investing Jordanian capital abroad.

Tax ratesThe corporate income tax rates for resident corporations and foreign branches vary from 14% to 35%, depending on the type of activity, as follows:

Banking 35%

Finance companies, telecom companies, insurance and reinsurance companies, brokerage companies, legal entities that perform finance leasing activities, electric generation and distribution companies, and mining companies

24%

Industrial sector 14%

All other 20%

Furthermore, a corporate income tax rate of 10% is imposed on income generated by a Jordanian company’s foreign branch as reported in its local audited financial statements and on residents’ income from Jordanian capital or deposits.

Withholding tax on local servicesA WHT of 5% is applicable to payments made for services provided by the following:

• Doctors, lawyers and engineers

• Auditors, experts and consultants

• Taxpayers’ authorized agents

• Insurance and reinsurance agents

• Mediators

• Customs clearance agents

• Commissions-based earners

• Agents and brokers

• Financial brokers

• Shipping brokers

The WHT should be transferred to the Jordanian Income and Sales Tax Department (ISTD) within 30

Jord

an


days from the payment date as a payment on account of the payee’s corporate income tax liability. If timely deductions and remittances are not made, late payment penalties equal to 0.4% of the WHT amount due on each late week will be imposed.

Withholding tax on imported servicesPayments made by a resident taxpayer to a non resident entity for taxable activities performed in Jordan as defined under the Income Tax Law (e.g., royalties, professional and technical services, and interest other than deposit interest) are subject to a WHT at 10% of the gross payments. It is the responsibility of the resident taxpayer to deduct and remit the WHT to the ISTD within 30 days from the earlier of the due date (which, under the ISTD’s current practice, is considered as the invoice date) or the actual payment date.

Capital gainsBanks, telecommunication companies, mining companies, insurance companies, reinsurance companies, financial brokerage companies, finance companies and financial leasing companies are subject to tax on their capital gains realized from sales of shares and bonds in Jordan. For other companies, capital gains realized from sales of shares in Jordan are exempt from tax (except for capital gains attributable to goodwill). A formula is used to calculate the disallowed part of the relevant cost related to the exempt income.

Capital gains derived from sales of shares in foreign markets that arise from Jordanian funds are subject to income tax in Jordan.

AdministrationThe tax year for corporations corresponds to their accounting financial year and, for individuals, it is the calendar year. Tax returns must be filed on a prescribed form, in Arabic, within four months after the end of each tax year. The tax return must be accompanied by the taxpayer’s financial statements, which must be prepared under the requirements of International Financial Reporting Standards (IFRS) and audited by a Jordanian certified public accountant.

The tax return requires disclosures relating to the individual’s or corporation’s income, expenses, exemptions and taxes payable, including details of goods and services supplied and payroll incurred for the year.

The total amount of tax due must be paid at the time of filing to avoid penalties.

The ISTD has the authority to go back and open a tax filing and conduct an income tax audit for up to four previous years, during which it may assess any additional taxes. If a tax file is not opened by the ISTD after the lapse of the four-year period, the tax filing is considered as final and accepted by the ISTD.


Taxpayers whose gross income equals or exceeds JOD1m for the prior financial year are required to make an advance tax payment on account within 30 days following the taxpayer’s first half of the tax year-end, and another advance tax payment within 30 days following second half of the tax year-end. Each half-yearly payment is equal to 40% of the preceding year’s tax if the current year’s interim financial statements are not available.

The remaining income tax due must be settled within four months after the end of the fiscal year (i.e., by 30 April, assuming a 31 December year-end)

DividendsDividends received from Jordanian sources are exempt from tax, except for dividends received by banks and financial institutions from mutual investment funds. Twenty-five percent of exempt dividend income is added back to taxable income if the total income does not exceed the total allowable cost. In other words, the cap for disallowed expenses is the lower of 25% of dividends or reported costs.

InterestInterest paid by banks to depositors, except for interest on local interbank deposits, is subject to 5% WHT. The WHT is considered to be a payment on account for resident companies and a final tax for individuals and nonresident companies. Interest paid from Jordanian banks to non resident banks and non resident finance companies for deposits that are held in Jordan is not subject to WHT in Jordan. Any other type of interest (non-depository) paid to non residents is subject to a 10% WHT. Interest payments on loans from non residents are subject to WHT and general sales tax at 10% and 16%, respectively.

Foreign tax reliefForeign tax relief may be granted in accordance with the tax treaties signed with other countries.

Determination of taxable incomeGeneralIn general, income earned in Jordan is taxable in Jordan, except for income exempt under the Income Tax Law. Examples of income exempt from Jordanian taxation include:

• Non-operating foreign companies’ (representative offices) income

• Income derived in Jordan from trading in dividends and stocks, bonds, equity loans, treasury bonds, mutual investment funds, currencies, commodities in addition to futures and options contracts related to any of them, except that incurred by banks, financial companies, financial intermediation and insurance companies and legal persons who undertake financial leasing activities

• Compensation paid by insurance companies, other than reimbursements for the loss of income from business activity or employment

• Income generated in Jordan from agricultural activities, including: producing crops, grains, vegetables, fruits, plants, flowers and trees, and animal breeding, including fish, birds (including producing eggs) and bees (including producing honey)

• Income of any religious, charitable, cultural, educational, sporting or health institutions, and not-for-profit organizations

Business expenses incurred to generate income are generally allowable, with limitations on certain items, such as entertainment expenses, donations, and provisions and reserves. Head-office charges are considered as deductible expenses at the branch level up to a cap of 5% of the branch’s taxable income.

Tax depreciationDepreciation for tangible and intangible assets is addressed in the current Income Tax Law. On 7 July 2015, new regulations (Regulations No. (55) for the depreciation of tangible and intangible assets were issued. These regulations establish statutory maximum depreciation rates for various fixed and intangible assets. If the rates used for accounting purposes are greater than the prescribed rates, the excess is disallowed but may be used for tax purposes at a later date. The following are some of the maximum straight-line depreciation rates:

Asset Rate

Industrial, ordinary, and temporary buildings 2%,4%, 10%

Furniture for dwelling, sleeping and work purposes manufactured of iron, wood and fixed plastics

2%

Furniture for hospitals, tourist services, hotels and restaurants

15%

Other furniture 20%

Means of transport 15%

Other machinery and equipment 20%

Computer and appliances, machinery used in production and medical equipment

35%

The taxpayer is entitled to benefit from an accelerated depreciation method up to three times the straight line amount, as long as the taxpayer is using the accelerated depreciation until the asset is fully depreciated.

Machinery, equipment and other fixed assets that are imported on a temporary-entry basis (equipment that the Government allows foreign contractors to import on a temporary basis for the purpose of carrying out certain contractual work in Jordan) do not qualify for accelerated depreciation.


Relief for lossesTaxpayers are allowed to carry forward unabsorbed losses up to five years to offset profits of subsequent periods.

Losses may not be carried back.

Groups of companiesCompanies must file stand-alone financial statements for tax purposes.

Investment incentives The Investment Promotion Law No. 30 of 2014 (the Investment Law) repealed all earlier laws concerning foreign investments in Jordanian free zones and development zones. The new law opens up the economy to all investors, setting detailed guidelines for starting a business in Jordan and the incentives available.

Pursuant to the Investment Law, the Higher Council for Investment Promotion, chaired by the Prime Minister, was formed to achieve comprehensive development goals. The council is empowered to take appropriate decisions on all matters regarding investment in Jordan.

According to the provisions of the Investment Law, the Jordanian Investment Board (JIB) was established to assist the council in

promoting investment in the country. The JIB’s main function is to implement measures enhancing business confidence by simplifying registration and licensing processes and implementing investment promotion programs. The Investment Promotion Committee, with representatives from the income tax, customs, industry and trade departments, was also formed to carry out specific functions on taxation and duties.

Projects in certain sectors — industrial, agriculture, hotels, hospitals, maritime transport and railways — should be able to qualify for the privileges and exemptions granted under the Investment Law.

The Council of Ministers can add any other sector based on the recommendation of the Higher Council for Investment Promotion.

The main incentives for qualifying investors include:

• Fixed assets and goods imported into Jordan for the project are subject to 0% sales tax rate and exempt from customs duty

• A refund of sales tax paid on services regardless of whether these services were imported or rendered locally

• A refund of sales tax paid on raw materials regardless of whether these raw materials were imported or purchased locally


Miscellaneous mattersDebt-to-equity rulesThere are currently no debt-to-equity rules in Jordan.

Foreign exchange controlsJordan does not currently impose any foreign exchange controls.

Employee taxesPersonal income taxIndividuals, whether resident or nonresident, are taxed on income earned in Jordan from all taxable activities, including income from employment, business (either as sole proprietors or as partners), rental income and directors’ fees. Jordan does not tax foreign- source income.

Income from employment includes salaries and other employer- paid benefits, such as rent and school fees. However, the following benefits do not constitute taxable income to the employee:

• Occasional meals given to employees at work

• Accommodation given to the employees for work purposes

• Uniforms and equipment necessary for work

The following amounts are available as personal exemptions from individuals’ income before arriving at taxable income.

Single person JOD12,000

Married couple (if the spouse does not work) JOD24,000

Dependents allowances JOD12,000

Married couple (if the spouse is working and claiming his/her own exemption)

JOD12,000

In addition, an individual may claim a deduction for medical expenses, educational expenses, rent, home loans interest or murabaha, technical services, engineering services and legal services, up to JOD4,000.

Any single household’s total exemptions must not exceed JOD24,000.

Any amount that has been paid during the year as a donation to the Government of Jordan or armed forces, public institutions or local authorities is deductible from the net income for the year.

Subscriptions and donations paid inside the country without personal benefit for religious, charity, humanitarian, scientific, cultural, sport or vocational purposes are deductible if the Council of Ministers approves the subscriptions or donations.

Donations paid for political parties are also deductible, provided that the amount does not exceed what the Jordanian Political Parties Law allows and on condition that the amount deducted does not exceed one-quarter of the taxable income before the deduction.

The following tax rates apply for resident and nonresident employees:

• Seven percent for the first JOD10,000

• Fourteen percent for the next JOD10,000

• Twenty percent for an amount in excess JOD20,000

The employee’s monthly tax return form should be filed in Arabic with the ISTD, along with a submission of the employee’s withheld income taxes, within 30 days following the end of the month to avoid late payment penalties of 0.4% of the amount due at the beginning of each week.

An annual employee listing should be filed in Arabic. This should include employees’ names, salaries, benefits, income tax and welfare tax deductions, and should be filed with the ISTD within one month after the end of the year.


Miscellaneous taxesJordan does not levy net worth tax, inheritance tax or gift tax. The following table summarizes other significant taxes.

Nature of tax Rate

General sales tax 16%

Social security contributions on salaries and all benefits except overtime:

• Paid by the employer as of 2016 13.75%

• Paid by the employee as of 2016 7.25%

Social security

The Jordanian Parliament and Senate have issued an amendment to the Social Security Law that increases the monthly social security contributions to 21.75%, with the increase to be implemented over four consecutive stages starting on 1 January 2014. Accordingly, the employer and employees’ monthly contributions will reach 14.25% and 7.5%, respectively, in 2017.

Tax treatiesJordan has entered into double tax treaties with Algeria, Azerbaijan, Bahrain, Bulgaria, Croatia, Canada, the Czech Republic, Egypt, France, India, Indonesia, Iraq, Iran, Italy, Kuwait, Korea (South), Lebanon, Libya, Malaysia, Malta, Morocco, the Netherlands, Qatar, Pakistan, Poland, Palestine, Romania, Sudan, Syria, Tunisia, Turkey, the United Kingdom, Ukraine, Uzbekistan, and Yemen.

In addition, Jordan has entered into tax treaties, which primarily relate to transportation, with Austria, Belgium, Cyprus, Denmark, Italy, Pakistan, Spain and the United States.

Jordan is negotiating double tax treaties with Serbia, Montenegro and the UAE.


The Kuwaiti Government favors a free market, with little official intervention. Kuwait has a small, open economy that is dominated by its oil industry, so other non-oil sectors of the economy, such as agriculture and manufacturing, play a lesser role.

Foreign companies have generally operated in Kuwait either through an agent or as a minority shareholder in a locally registered company. In principle, the method of calculating tax is the same for companies operating through an agent and for minority shareholders.

For minority shareholders, tax is levied to the extent of the foreign company’s share of the profits (whether distributed or not by the Kuwaiti company) plus any amounts receivable for interest, royalties, technical services and management fees.

However, the new Company Law and the Law for Promotion of Direct Investment in the State of Kuwait have introduced new legal entities and ownership structures that allow 100% foreign ownership.

The unit of currency is the Kuwaiti dinar (KWD). The official exchange rate is approximately KWD1 to US$3.36.

Corporate taxesLaw No. 2 of 2008, amending Amiri Decree No. 3 of 1955 (the original tax law), became effective for fiscal periods commencing after 3 February 2008.

Subsequently, on 20 July 2008, the Kuwaiti MoF issued the Executive Bylaws for the implementation of the amendments approved under Law No. 2.

The following are the key changes approved under Law No. 2 and the bylaws:

• The income tax rate has been reduced to 15%.

• Profits earned by a body corporate from trading in securities listed on the Kuwait Stock Exchange (KSE), either directly or through mutual funds, shall not be taxable in Kuwait.

• Losses shall be allowed to be carried forward for a maximum period of three years, provided

• The entity has not ceased its operations in Kuwait.

• A statute of limitation period of five years, counted from the tax declaration submission date, has been approved and included in the tax law.

On 12 December 2013, the tax department released Administrative Order 875 of 2013 promulgating new executive rules and regulations (ERs) and instructions for the implementation of the original tax Law No. 3 of 1955 as amended by Law No. 2 of 2008.

These ERs are effective for fiscal periods ended 31 December 2013 and thereafter.

The ERs relating to the Kuwait Income Tax and the Zakat and National Labor Support Tax (NLST) laws introduced many changes that will have a significant impact on the tax filings, inspections and assessments of taxpayers to whom these ERs apply.

Corporate income taxForeign body corporates are subject to tax in Kuwait if they carry on a trade or business, either directly or through an agent, in Kuwait or in the islands of Kubr, Qaru and Umm al Maradim, which are in the offshore area of the partitioned neutral zone (PNZ) under the control and administration of Saudi Arabia, or in the offshore area of the PNZ.

Kuwaiti-registered companies wholly owned by Kuwaitis and companies incorporated in GCC countries (i.e., Bahrain, Kuwait, Oman, Qatar, Saudi Arabia or the UAE) that are wholly owned by GCC citizens are not presently subject to income tax.

However, the Kuwait MoF is working closely with the International Monetary Fund (IMF) on implementing a new business profits tax in Kuwait, which may apply to

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both foreign companies and GCC entities. The IMF has presented an analysis to the Financial and Economic Affairs Committee, recommending that Kuwait impose a 10% Business Profit Tax in the State of Kuwait, commencing 1 April 2016.

The term “body corporate” refers to an association that is formed and registered under the laws of any country or state, and is recognized as having a legal existence entirely separate from that of its individual members.

A joint venture or consortium has no legal status in Kuwait. Under the tax department’s rules, a consortium engaged in the joint performance of a contract must prepare combined financial statements for the total earnings from the contract. Each partner in the joint venture must be separately registered in their own legal name and is subject to tax on their share of individual taxable profit.

Law No. 2 also includes a definition of an agent, which states that it is a person authorized by the principal to carry out business, trade or any activities stipulated in Article 1 of the law or to enter into binding agreements with third parties on behalf and for the account of the person’s principal. A foreign principal carrying on business in Kuwait through an agent, as defined, is subject to tax in Kuwait.

Foreign companies carrying on a trade or business in Kuwait are subject to income tax under the original tax law, as amended by Law No. 2 of 2008. Foreign companies carrying on a trade or business in the islands of Kubr, Qaru and Umm al Maradim are subject to tax in Kuwait under Law No. 23 of 1961.

Foreign companies carrying on a trade or business in the offshore area of the PNZ under the control and administration of Saudi Arabia are subject to tax in Kuwait on 50% of the taxable profit under Law No. 23 of 1961. In practice, the tax department

computes the tax on the total income of the taxpayer and expects that 50% should be settled in Kuwait. Amiri Decree No. 3 of 1955 and Law No. 23 of 1961 differ primarily in respect to tax rates.

No specific ER (previously ER No. 50 of 2010) has been issued for incorporated bodies conducting business in the State of Kuwait and the PNZ.

The tax department has advised that the tax department’s circulars applied to Decree No. 3 of 1955 (i.e., before the issuance of Law No. 2 of 2008) will continue to be applicable to PNZ operations. However, the tax department has informally indicated that the previous ERs issued for Law No.2 of 2008 may not be applicable to operations in the PNZ . It appears that the uncertainty may need to be resolved on a case-by-case basis.

Tax ratesAs mentioned earlier, in accordance with Law No. 2 of 2008, the tax rate was reduced to a flat 15%, effective for fiscal periods beginning after 3 February 2008.

The tax rates under the Law No. 23 of 1961 are:

• Twenty percent if the taxable profit does not exceed KWD500,000

• Fifty-seven percent if the taxable profit exceeds KWD500,000

TerritorialityForeign companies doing business in Kuwait are subject to tax on Kuwait-sourced income only.

A source of income is considered to be in Kuwait if the place of performance of the services is within Kuwait. This includes work conducted outside Kuwait (offshore activity) under a contract that


also involves activity in Kuwait (onshore activity). For example, in supply and installation contracts, the taxpayer is required to declare the full amount received under the contract, including the offshore supply element, to the Kuwaiti tax authority.

IncomeGross income includes that from a trade or business, dividends, interest, discounts, rents, royalties and premiums, as well as any other gains or profits of an income or of a capital nature.

Profits on royalties and license fees are generally considered to be 98.5% of the gross payment, after deducting the head office overhead allowance.

For contract work, tax is assessed on progress billings (excluding advances) for work performed during an accounting period, minus the cost of work incurred. The tax authority does not accept the completed contract or percentage of completion methods of accounting.

Kuwait authorities adopt Virtual Service PE conceptKuwait’s Department of Inspections and Tax Claims (DIT) has changed its approach to the interpretation of the PE concept with respect to services rendered by nonresidents in Kuwait. The DIT has introduced the concept of a Virtual Service PE, which may result in the denial of income tax relief claimed by nonresidents under the applicable double tax treaties of Kuwait.

The Virtual Service PE concept takes into account only the duration of the contract itself, rather than the actual activities of the service provider in Kuwait. The DIT takes the position that a nonresident is deemed to have a PE in Kuwait, particularly if the following conditions are met:

• A nonresident furnishes services to an entity in connection with the latter’s activity in Kuwait

• The period during which such services are rendered according to the contract exceeds the threshold period under the applicable tax treaty

The DIT’s approach does not consider the physical presence of employees or contractors of a nonresident service provider for establishing the nexus to the source country, although such a threshold condition is clearly provided by both the OECD and UN Model Conventions, and applied in many countries.

Capital gainsCapital gains on the sale of assets and shares by a foreign shareholder are treated as normal business profits and are taxed accordingly.

Please also refer to the comments under “Trading in securities listed on the KSE.”

Kuwait Free Trade ZoneTo encourage exporting and re-exporting, the Government has established the Kuwait Free Trade Zone (KFTZ) near the Shuwaikh Port. The KFTZ offers the following benefits:

• Up to 100% foreign ownership is allowed and encouraged.

• All corporate income is exempt from tax.

• All imports into and exports from the KFTZ are exempt from tax.

• Capital and profits are freely transferable outside the KFTZ and are not subject to any foreign exchange controls.

In practice, the licenses required to set up in the KFTZ are extremely difficult to obtain.

Investment incentivesLaw No. 116 of 2013 regarding the promotion of direct investment in Kuwait, effective from December 2013, replaces the Direct Foreign Capital Investment Law (DFCIL) No. 8 of 2001. The incentives under this new law remain almost identical to the old law, and include:

• Opportunity for non-Kuwaiti investments in excess of 50% (up to 100%) in Kuwaiti companies

• Full or partial exemption from customs duties on certain imports and other government charges for approved projects for a period of up to five years

• A tax holiday of up to 10 years for non-Kuwaiti shareholders’ share of the profits from qualifying projects, and an additional tax holiday for further investment in an approved project

• A guarantee for repatriation of profits and capital invested in the project

• Benefits accruing from double tax treaties and investment promotion and protection agreements

• Long-term leases of land in industrial estates at low rents

• Employment of required foreign man power without being subject to the restriction contained in Law No. 19 of 2000 relating to the employment of Kuwaiti manpower

In addition, the new law provides for:

• Two new types of investment entities — a licensed branch of a foreign entity and a representative office solely for the purpose of preparing market studies without engaging in any commercial activities

• Adoption of a negative list approach to determine the applicability of the law

• Establishment of a new authority, the Kuwait Direct Investment Promotion Authority (KDIPA)

Significant changes have been introduced to widen the scope of the applicability of the law and to simplify the process of applying for a license.


Executive regulations on the promotion of foreign direct investmentOn 14 December 2014, the KDIPA issued ERs to Law No. 116 of 2013 for the promotion of foreign direct investment in Kuwait through Ministerial Decision No. 502 of 2014.

Incentives and exemptionsTo apply for a tax holiday or customs duty exemption, the investing entity must use the relevant application forms issued by the KDIPA.

The application for incentives and exemptions must be certified by one or more auditors approved by the KDIPA.

The Director General shall review the application and provide their decision within 15 days of receipt of the application. A copy of the exemption shall also be provided to the MoF.

The investor entity shall comply with all the provisions of the tax law, and submit tax returns and other necessary information required by the MoF.

Law No. 116 of 2014, the Public Private Partnership (PPP) Law, provides incentives for investors of PPP projects, including exemptions from income tax and other taxes, customs duties and other fees. The new law also improves corporate governance and investment security by providing protection for the intellectual property rights of a concept or idea originator.

The ERs to the PPP Law were issued on 29 March 2015.

Trading in securities listed on the KSEArticle 1 of Law No. 2 and Article 8 of the bylaws provide for a possible tax exemption of profits generated from dealing in securities on the KSE, whether directly or through investment portfolios. However, no further clarification has been provided with regard to the definition of “profits” or “dealing.” Under Law No. 2 of 2008, any capital gains arising from trading in securities listed on the KSE are not taxable. However, the MoF has not officially published any additional information as to whether their position on the exemption of capital gains arising from trading in securities listed on the KSE would differ if the shareholding of a foreign investor in a KSE-listed company were to exceed a certain threshold or a certain period of time. Consequently, it would be prudent to obtain clarification from the Kuwaiti tax authority as to the potential tax implications of a long-term investment in listed shares on the KSE before such an investment is undertaken.

Please note that, as mentioned below, Article No. 150 (duplicate) of the Law No. 22 of 2015 (effective from 10 November 2015) provides that, in addition to exemption from capital gains tax on disposal of Kuwaiti-listed securities, the returns from such securities, bonds, Sukuk and similar securities, regardless whether the listed company is a Kuwaiti or non-Kuwaiti company, would also be exempted from tax. Based on informal discussions with the MoF, it appears that this exemption from capital gain tax on disposal of Kuwaiti listed securities will apply to dealing in securities and not to long-term investments. This position would need to be formally clarified.

Dividend or distribution of profitsUnder the old tax law, no tax was imposed on dividends paid to foreign shareholders by Kuwaiti companies. However, tax was assessed on the share of profits attributable to foreign shareholders according to the audited financial statements of the company, adjusted for tax purposes.

In accordance with Law No. 2 of 2008, dividend income received by investors in companies listed on the KSE was subject to 15% WHT. The foreign investor’s custodian or broker in Kuwait was required to withhold the tax.

Tax compliance proceduresThe MoF required the local custodian or broker of a foreign investor to provide information about the foreign investor, to deduct 15% tax on payments of dividends to the foreign investor and to deposit the tax with the MoF.

Recently, the MoF started approaching companies listed on the KSE requesting the following information for the years from 2008 onward:

• Minutes of the Annual General Assembly meetings

• Shareholder records of non-GCC foreign entities and non-GCC foreign funds, in order to ensure compliance with the 15% WHT requirement

However, as mentioned earlier, since Article No. 150 (duplicate) of Law No. 22 of 2015 (effective from 10 November 2015) provides that, in addition to exemption from capital gains tax on disposal of Kuwaiti-listed securities, the returns from such securities, bonds, Sukuk and similar securities, regardless whether the listed company is a Kuwaiti or non-Kuwaiti company, also would be exempted from tax. Therefore, 15% WHT may not be applicable on the dividends distributed after 10 November 2015 and, accordingly, the local custodian or broker of a foreign investor may not be required to deduct 15% WHT tax on dividends declared after that date. As note above, this position needs to be formally clarified.

AdministrationThe bylaws to Law No. 2 require that every corporate body should register with the DIT within 30 days of commencing its activities or signing the contract in Kuwait and provide the following information:

• The company’s name and address inside and outside of Kuwait

• The date of commencement of its activities or contract in Kuwait

• The name and address of the company’s agent in Kuwait together with the agency agreement

• Other documents, if any, required by the DIT

The registration form requires the taxpayer to state the fiscal year selected for tax filings in Kuwait.

A taxpayer can select any year-end comprising 12 consecutive Gregorian months. For tax declarations covering the first and last periods in Kuwait, it is possible to obtain approval for a period shorter or longer than 12 months up to a maximum of 18 months.


Accounting records should be kept in Kuwait, and it is a normal practice for the tax authorities to insist on inspecting the books of account (which may be in English) and supporting documentation before agreeing to the tax liability.

The tax authorities have also issued notifications restating the requirement for taxpayers to abide by the bylaws that relate to the preparation of books and accounting records, and submission of information along with the tax declaration.

Article 13 requires the taxpayer to enclose the prescribed documents, e.g., trial balance, list of subcontractors, list of fixed assets and inventory register, along with the tax declaration.

Article 15 requires the preparation of prescribed books of accounts, including general ledger and stock list. In the case of noncompliance with these regulations, the DIT may finalize an assessment on the basis that it deems reasonable.

The bylaws provide that a taxpayer must register with the DIT within 30 days after signing its first contract in Kuwait. The prior tax law did not specify a period. In addition, a taxpayer is required to inform the MoF of any changes that may affect its tax status within 30 days after the date of the change. The taxpayer must also inform the ministry of the cessation of activity within 30 days after the date of cessation.

Tax cardsAs per the bylaws, a system of tax cards has been introduced. Currently, applications for tax cards are being accepted and the ministry is updating its database; however, no tax cards have been issued by the DIT to date.

The information required to apply for a tax card is similar to that required at the time of registration with the DIT. The following documents must be submitted with the tax card application form:

• A copy of the articles of association of the company and amendments, if any

• A copy of any agreements with an agent in Kuwait, together with a certificate of registration of the agency with Kuwait’s Ministry of Commerce (if applicable)

• A copy of all contracts entered into in Kuwait

• A copy of the exemption form (in cases where the company is exempt from tax under a specific law, such as a tax holiday under the Foreign Direct Investment Law)

• Letter of authority for the appointment of a firm of accountants or tax advisors

• Evidence of the authorization given to the authorized signatory of the form (e.g., power of attorney or any other official document authorizing the company official to represent the company in Kuwait)

Tax filingA tax declaration must be filed on or before the 15th day of the 4th month following the end of the taxable period (for example, in the case of a year ending 31 December, tax declarations must be filed on or before 15 April). Tax may be paid in four equal installments on the 15th day of the 4th (i.e., with the tax

declaration), 6th, 9th and 12th months following the end of the taxable period, provided that the declaration is submitted on or before the due date for filing.

Article 13 of the bylaws provides that companies that may not be subject to tax due to application of any tax laws, statutes or treaties for avoidance of double taxation with various countries are required to submit tax declarations in Kuwait.

ER No. 8 of 2013 concerning tax declarationsThe amounts included in the tax declaration should be in KWD.

An analysis of contract revenue and tax retentions should be included in the prescribed format.

Analysis of expenses, percentages of depreciation and provisions are to be included in the declaration.

All attached financial statements and analyses (breakdown) should include comparative figures for the previous year.

Circular No. 1 of 2014Circular No. 1 of 2014 applies to all taxpayers filing tax declarations. Where tax declarations are prepared on an actual accounts basis, the circular requires, inter alia, that all tax declarations shall be prepared in accordance with the tax laws and the ERs issued by the tax authorities. The circular requires submission of a draft income and expense adjustment computed in accordance with the last assessment finalized by the tax authorities within three months of the date of submission of the tax declaration.

Where tax declarations are prepared on a deemed profit basis, the circular requires, inter alia, that tax declarations should be submitted on the same percentage that was applied in the last assessment. It also requires details of all subcontractors and certain supporting documents to be provided with the tax declaration.

ER No. 59 of 2013 concerning auditor’s reportER No. 59 requires the auditors to provide a report on the declaration in the prescribed format and a separate note on the items that are not in line with the tax law, ER, rules and the instructions enforcing them, quantifying exceptions.

The tax department expects that all tax declarations are prepared in strict compliance with the ERs. This has a significant impact on tax filings and on the information to be appended to the tax declaration.

New template issued for electronic tax filingOn 2 February 2015, the Kuwaiti MoF introduced new templates to be attached to each taxpayer’s tax declaration, objection and appeal letters, via Letter No. 4610, in its efforts to standardize electronic communication.

The new templates serve as a pro forma summary for the main line items in the tax declaration, objection and appeal letters.

The new templates apply to tax declarations, objections and appeal letters filed in accordance with Income Tax Decree No. 3 of 1955, as amended by Law No. 2 of 2008, and Law No. 23 of


1961, related to the Partitioned Neutral Zone.

The new templates are effective immediately, regardless of the tax year and the tax declaration, objection or appeal letters they relate to, and should be duly signed by the authorized representative of the company.

Filing extension requestThe bylaws provide that a request for extension in time for filing the tax declaration should be submitted to the DIT by the 15th day of the 2nd month after the fiscal year-end. The maximum extension in time granted will be 60 days. If an extension is granted, no tax payment is necessary until the tax declaration is filed, and the payment must then be made as a lump sum and not in installments. Tax is payable in KWD.

PenaltiesIn the event of a failure to file a tax declaration by the due date, a penalty is payable equal to 1% of the tax for each of 30 days or fraction thereof during which the failure continues. In addition, in the event of a failure to pay tax by the due date, a penalty is payable equal to 1% of the tax payment for each of 30 days or fraction thereof from the due date to the date of the settlement of the outstanding tax.

Objection or appeal against tax assessmentIf the taxpayer does not agree with the assessment issued by the DIT, they have the right to file an objection against the tax assessment within 60 days from the date of issue. The time limit for resolution of the objection is 90 days from the date of filing. After the resolution of the objection filed by the taxpayer, the DIT issues a revised tax assessment. Tax payable as per the revised assessment is then required to be settled within 30 days of its issue.

Should an objection be rejected by the DIT, the taxpayer has a right of appeal against the revised tax assessment to the Tax Appeal Committee (TAC). The appeal should be filed with the TAC within 30 days of issue of the revised assessment (or 30 days from the expiry of 90 days following submission of an objection to the DIT, if a revised assessment is not issued). The matter is resolved through appeal hearings and the final revised assessment issued, based on the decision of the TAC.

Tax payable as per the revised assessment is then required to be settled within 30 days of the date of issue of the assessment.

In the case of a dispute with the DIT regarding the tax assessment after a rejection of appeal with the TAC, the company may turn to the administrative court to recover the disputed amount of tax claim. The company can then take this matter to the civil courts or reach a settlement under Ministerial Resolution No. 10, under which the undersecretary of the MoF may reconsider the assessment.

Under Ministerial Resolution No. 10, dated 28 March 2004, on submission of a request by a taxpayer, the assistant undersecretary to the MoF may reconsider the final assessment issued by the DIT if errors of fact exist.

The DIT issues its decision on the basis of the opinion received from the undersecretary of the MoF within 60 days of date of submission of the request by the taxpayer.

Revision of the tax declarationThe bylaws for Law No. 2 of 2008 include provisions for companies wishing to submit a revised tax declaration. The ER issued by the DIT states that the companies may file a revised tax declaration if the assessment for that fiscal period has not been issued by the DIT. Furthermore, it states that the company should obtain written approval from the DIT prior to the submission of the revised tax declaration.

If the DIT accepts the amended tax declaration, the date of filing of the revised declaration is considered as the actual date of filing for the purpose of imposing delay fines.

Statute of limitationsAs mentioned earlier, Law No. 2 of 2008 has introduced a statute of limitation period of five years in the tax law. The statute of limitation shall start from the date of submission of the tax declaration.

Determination of taxable incomeGeneralTax liabilities are generally computed on the basis of profits disclosed in audited financial statements, adjusted for tax depreciation and any items disallowed under the tax law.

The tax declaration, supporting schedules and financial statements, all of which must be in Arabic, are to be certified by an accountant in practice in Kuwait who is registered with the Ministry of Commerce and Industry.


ER No. 24 of 2013 concerning pre-operating expensesAs per ER No. 24, costs incurred prior to the commencement of operations and after signing of contracts are to be treated as incorporation expenses and shall be deducted in the year in which they are realized, provided appropriate substantiation documents are available.

ER No. 39 of 2013 concerning compensationsThe ER provides that any income earned from a compensation claim received by the taxpayer shall be considered as income in the year in which it is realized, subject to submission of underlying documents.

Design expenses and consultancy costsER No. 26 of 2013 design and consultancy incurred outside KuwaitThe percentage of costs allowed on design and consultancy revenues has now been fixed as follows:

Design costs incurred for work by ...

Maximum cost allowed as a percentage of related revenue

Maximum cost allowed previously as a percentage of related revenue

Head office 75% 75%–80%

Affiliates and related parties*

80% 80%–85%

Third parties* 85% 85%–90%

Consultancy costs for work by ...




Affiliates and related parties*

75% 75%–80%

Third parties* 80% 80%–85%* Taxpayers must comply with the requirements of ER Nos. 5 and 6 on the retention of 5% on each payment and submission of the contracts for these services.

If the contracts do not provide a split of the revenue, the tax department estimates the revenue from the design or consultancy work performed outside Kuwait as follows:

=Design or consultancy revenue Total costs

(Design or consultancy costs x total contract revenue)

Interest paid to banksInterest paid to local banks relating to amounts borrowed for operations (working capital) in Kuwait may normally be deducted. Interest paid to banks or financial institutions outside Kuwait is disallowed, unless it is proven that the funds were specifically borrowed to finance the working capital needs of operations in Kuwait. In practice, it is difficult to claim deductions for interest expenses incurred outside Kuwait. Interest paid to the head office or agent is disallowed. Interest that is directly attributable to the acquisition, construction or production of an asset is capitalized as part of the cost of the asset if it is paid to a local bank.

Leasing expensesThe DIT may allow the deduction of rents paid under leases after inspecting the supporting documents. The deduction of rent for assets leased from related parties is restricted to the tax depreciation charged on those assets. The asset value, for the purpose of determining tax depreciation, is based upon the supplier’s invoices and customs documents. If the asset value cannot be determined based on these items, the value is determined by reference to the amounts recorded in the books of the related party.

Agency commissionsThe tax deduction for commissions paid to a local agent is limited to 2% of revenue, net of subcontractors’ costs and reimbursement costs if paid to the agent.

Head office overheadsArticle 5 of the bylaws provides that head office expenses shall be allowed as follows:

1. Companies operating through an agent — 1.5% of the direct revenue

2. Companies participating with Kuwaiti companies — 1% of the foreign company’s portion of the direct revenue generated from its participation in a Kuwaiti company

3. Insurance companies — 1.5% of the company’s direct revenue

4. Banks — 1.5% of the foreign company’s portion of the bank’s direct revenue

Article 5 of the bylaws also provides, for the purpose of computation of head office overheads, that direct revenue is as follows:

• For companies listed in 1, 2 and 4 above — gross revenue minus subcontract costs, reimbursed expenses and design cost (except for design cost carried out by the head office)

• For insurance companies in 3 above — direct premium net of share of reinsurance premium plus insurance commission collected


InventoryInventory is normally valued at the lower of cost or net realizable value, on a FIFO or average basis.

ProvisionsProvisions, as opposed to accruals, are not accepted for tax purposes.

Tax depreciationTax depreciation is calculated using the straight-line method. The following are some of the permissible annual depreciation rates.

Asset Depreciation rate

Buildings 4%

Furniture and office tools 15%

Drilling equipment 25%

Electrical equipment and electronics 15%

Tools and equipment 20%

Computers and their accessories 33.3%

Software 25%

Trucks and trailers 10%

Cars and buses 20%

Relief for lossesArticle 7 of the bylaws provides that losses may be carried forward for a maximum of three years, provided that there was no cessation of activities.

Aggregation of incomeIf a foreign company has more than one activity in Kuwait, one tax declaration, aggregating the income from all the activities, is required.

Furthermore, the DIT believes that the Kuwait Tax Law allows it to aggregate taxable results of all the entities commonly owned and engaged in similar activities or on the same contract in Kuwait. Accordingly, if the DIT becomes aware that entities are related, it might issue a combined tax assessment on an aggregated basis for all related entities operating in Kuwait.

Foreign currency exchange gains and lossesAs per ER No. 37 of 2013, gains and losses on foreign currency conversion are classified into realized gains or losses and unrealized gains or losses.

Realized gains and losses resulting from fluctuation of exchange rates shall be allowed as a deduction (for losses) and as taxable income (for gains), provided the taxpayer is able to substantiate the basis of calculations and documents in support of such transactions.

Unrealized losses are not allowed as deductible expenses and unrealized gains are not considered as taxable income.

Foreign exchange controlsNo foreign exchange restrictions exist in Kuwait.

Equity capital, loan capital, interest, dividends, branch profits, royalties, management and technical services fees, and personal savings are freely remittable.

Reimbursed costsIn cases of deemed profit filings, reimbursed costs will be allowed as a deductible expense, subject to the following:

The costs are necessary and explicitly mentioned in the contract.

• The costs shall not exceed 30% of gross revenues.

• The costs have supporting documentation available.

Furthermore, in cases where the reimbursable costs exceed 30%, the taxpayer is required to file its tax declaration on the basis of financial accounts instead of a deemed profit.

Imported materialsER No. 25 of 2013 concerning material and equipment costsThe maximum costs allowed on imported material and equipment revenues have now been fixed as follows.

Material and equipment imported from ...




Affiliates and related parties

90% 90.0%–93.5%

Third parties 95% 93.5%–96.5%

In cases where contracts do not specify the split of revenues, the tax department now estimates the revenue from the supply of imported material and equipment as follows:

=Imported material and equipment related revenue Total costs

Imported material and equipment costs x total revenue

Supply and installation contractsIn supply and installation contracts, a taxpayer is required to account to the tax authorities for the full amount received under the contract, including the offshore supply element, which is the part of the contract (CIF to the applicable port) pertaining to the supply of goods.


Contractors’ revenue recognitionTax is assessed on progress billings (excluding advances) for work performed during an accounting period minus the cost of work incurred.

Subcontractors’ costsER No. 28 of 2013 concerning subcontractorsThe amended ER provides that:

• In the case of a sale or assignment of the main contract or subcontract, a written approval needs to be obtained from the main contract owner or subcontractor.

• The costs of the subcontractor works should not exceed the revenues of the work.

Based on discussions with the DIT, it appears that it would not accept any losses on work that is subcontracted to other entities. This is a large departure from the existing practices that taxpayers should consider.

Work in progressER No. 27 of 2013 concerning work in progressER No. 27 allows taxpayers to:

• Carry forward the costs as work in progress to the next year if the revenue related to the costs incurred cannot be reliably measured

• Recognize the estimated revenue against the costs incurred, provided that the estimated revenue should not exceed the costs incurred for the year

Furthermore, ER No. 27 is silent on the use of the percentage-of-completion method in determining the revenue against the costs incurred.

Tax retentionUnder Articles 37 and 38 of the bylaws and ER Nos. 5 and 6 of 2013, all companies and government departments are required to retain 5% from all payments to a body corporate until it presents a tax clearance from the DIT. In addition, the following rules must be complied with:

• Local and foreign establishments, authorities and companies carrying on a trade or business in Kuwait are required to provide the DIT with the details of the companies with which they are doing business as contractors, subcontractors or in any other form. Information to be provided should include the name and address of the company, together with a photocopy of the contract.

• The 5% amount retained from payments due to the contractor or subcontractor is to be kept with the company until the contractor or subcontractor presents a certificate from the DIT confirming that all tax liabilities have been settled.

• When inspecting the tax declaration filed, the DIT may disallow all payments made to subcontractors if these rules are not observed and followed.

Article 39 of the bylaws empowers the MoF to demand payment of the 5% retained amount referred to above from the entities holding the amounts, if the contractors or subcontractors concerned fail to settle their taxes due in Kuwait.

Furthermore, the article provides that the contractor is responsible for the tax due from the subcontractor if the contractor does not comply with the regulations.

The DIT has started pursuing compliance with this legislation aggressively, and we are aware of a number of cases in which the tax authority has visited companies and examined their documents for compliance.

Salaries paid to expatriatesThe Ministry of Social Affairs imposes stiff penalties, applicable from 1 October 2003, if companies fail to comply with the requirement to pay salaries to employees in their local bank accounts in Kuwait. This requirement was further emphasized through the new labor law issued in 2010. The DIT also seeks to disallow a percentage of payroll costs if salaries to employees are not paid by transfer to the employees’ bank accounts in Kuwait.

Offset programKuwait designed a countertrade offset program to meet the objectives of its economic development plan. As per Decision No. 890 of the Council of Ministers, on 7 July 2014, the offset program was officially suspended in Kuwait. The offset program has now been canceled with respect to all tenders issued after Decision No. 890 on 7 July 2014 and all other tenders that were issued earlier but had not closed as of the date of the decision.

The following are significant aspects of the program:

• All civil contracts with a value of KWD10m or more, and defense contracts with a value of KWD3m or more, attracted offset obligations for the contractors. The obligations became effective on the date of signing the contract.

• The contractors covered by the offset obligation were required to invest 35% of the value of the contract, after deducting certain items described in the guidelines, into a project approved by the National Oil Company (NOC).

The offset obligators had the following options:

• Implement investment projects suggested by the NOC

• Propose their own investment projects and seek approval from the NOC

• Participate in any of the funds that the NOC may establish

• Purchase commodities and services of Kuwaiti origin


Contractors (obligators) covered by the offset obligation were required to provide unconditional irrevocable bank guarantees issued by Kuwaiti banks to the NOC equal to 6% of the contract price. The value of the bank guarantee submitted was reduced gradually based on the following:

• Actual execution of its work by local subcontracts and locally procured goods or services

• Actual execution of the offset project approved by the NOC

The NOC had the right to cash in the bank guarantee if the obligator fails to respect their offset obligation. In practice, the offset program was likely to be implemented through the inclusion of clauses in supply contracts that refer to an offset obligation of the foreign contractor.

Other taxesWHTWith the recent cancellation of WHT on dividends distributed after 10 November 2015 by a KSE-listed company, now Kuwait does not impose any WHT.

Personal income taxNo personal income tax is levied in Kuwait either on salaries or on income from commercial activities.

Social securityThere are no social security obligations for expatriate workers. However, for foreign employees, it is generally necessary to make a terminal indemnity payment, calculated at 15 days of pay per year for the first 5 years of service and 1 month’s pay per year thereafter.

Employees’ contribution toward the computation of social security has been increased by 2.5%. Previously, the employees’ contribution was at 8%, which has now been revised to 10.5%, accounting for the additional 2.5% contribution.

The calculation difference arises due to the difference in the cap amounts. Under the new rules up to KWD1500, the rate is 2.5% and on sums above KWD1500 and up to KWD2750, the rate is 10.5%.

Employers’ contribution toward computation of social security is 11.5%, with the cap amount being KWD2, 750.

Contributions are also payable for other GCC nationals at varying rates.

National Labor Support Tax (NLST)As per Law No. 19 of 2000, Kuwaiti companies quoted on the KSE are required to pay an employment tax as follows.

Basis of computation: 2.5% of the net profits per the financial statements (before payments for Kuwait Foundation for the Advancement of Sciences (KFAS), NLST and directors fees) minus cash dividends and profit share from companies listed on the KSE, whether or not such annual profits are distributed to shareholders.

All companies subject to the provisions of the law are required to submit a declaration audited by one of the accounting and auditing offices approved by the MoF on or before the 15th day of the 4th month following the end of the fiscal period. The NLST declaration should be accompanied with the following details:

• Balance sheet, financial statements, disclosures and supplementary notes

• Documents in support of cash dividends received

• Minutes of General Assembly

• Quarterly financial statements of subsidiaries or associates

• Confirmation of quarterly shareholding of said subsidiaries or associates

Major changes to the NLST ERsER No. 7 relates to the notification of cessation of trading activity, delisting, assignment, amendment or change in the statutory information relating to a company.

The amendments to ER No. 7 require each company subject to NLST to notify the DIT within 30 days from the date on which its shares cease to be traded on or are delisted from the KSE.

This ER now also provides that, where the company’s shares have been suspended from trading on the KSE, it shall continue to file its tax declarations and pay its taxes. However, where a company is delisted from the KSE, it shall file its tax declaration and pay NLST only up to the date of delisting. If the company is then re-listed on the KSE, it shall resume the submission of tax declarations and the payment of taxes from the date of re-listing.

ER No. 21 — concerning tax treaty relief or benefitThis new NLST ER No. 21 is similar to ER No. 18 for Zakat, except that, in the case of NLST, the taxpayer is entitled to credit all income taxes paid in the other country against the NLST up to the prescribed limit.

These income taxes may be deducted from the subsidiary’s profits that are included in the taxpayer’s financial declaration, provided that this deduction does not exceed 2.5% of the subsidiary’s profits.

Changes to the following ERs are similar to those relating to the corresponding Zakat ERs:

• ER No. 4 (concerning submission of tax declaration): refer to Zakat ER No. 4

• ER No. 13 (concerning objection to tax assessment): refer to Zakat ER No. 10

• ER No. 18 (concerning the auditor’s report): refer to Zakat ER No. 15


Tax treatiesKuwait has entered into double tax treaties with many jurisdictions, including Austria, Belarus, Belgium, Brunei, Bulgaria, Canada, China (mainland), Croatia, Cyprus, the Czech Republic, Denmark, Egypt, Ethiopia, France, Germany, Georgia, Greece, Hong Kong SAR, Hungary, Ireland, India, Indonesia, Iran, Italy, Japan, Jordan, Korea, Latvia, Lebanon, Malaysia, Malta, Mauritius, Moldova, Morocco, the Netherlands, Pakistan, Poland, Portugal, the Philippines, Romania, the Russian Federation, Serbia and Montenegro, Singapore, the Slovak Republic, South Africa, Spain, Sri Lanka, Sudan, Switzerland, Syria, Thailand, Tunisia, Turkey, Ukraine, the United Kingdom, Uzbekistan, Venezuela, Vietnam and Zimbabwe.

Further treaties with several other countries are at various stages of negotiations or ratification.

Kuwait has also entered into treaties with several countries relating solely to international air and sea transport.

Kuwait is a signatory of the Arab Tax Treaty and the GCC Joint Agreement, both of which provide for the avoidance of double taxation in most areas. The other signatories of the Arab Tax Treaty are Egypt, Iraq, Jordan, Sudan, Syria and Yemen.

The DIT is very stringent in allowing any tax treaty benefits. Currently, the DIT is concerned that companies from the countries not having tax treaties with Kuwait may be taking an unfair advantage by using their subsidiaries in the countries that do to sign the contracts in Kuwait.

The DIT, therefore, requires to be convinced that the company has substance and is in itself the principal contractor.

There is, however, very limited experience of application of tax treaties in Kuwait, and differences of opinion between taxpayers and the DIT regarding the interpretation of the various clauses of tax treaties are not uncommon.

Disagreements that normally arise with the DIT relate to:

• Existence of a PE

• Income attributable to a PE

• Tax deductibility of costs incurred outside Kuwait

ER No. 47 and 48 of 2013 — concerning tax treatment for incorporated bodies subject to tax treaties and exempted under a specific lawThese ERs deal with disallowance of indirect costs by the tax authority in cases where the taxpayer is claiming treaty relief or exemption of income on certain operations.

The following are as per the amended ERs:

• Disallowance of indirect costs (general and administrative expenses) incurred in the state of Kuwait under the revised ERs 47 and 48 has been fixed at 20% of the costs. The earlier range for these disallowances was 15%–20%.

• There are no other changes made in the ERs. The ERs still do not define the elements of costs to be considered as indirect costs and the tax authority is, therefore, likely to exercise its discretion.

VATCurrently, Kuwait does not impose any VAT or other sales taxes. However, VAT is expected to be implemented across the GCC in the next two to three years.

Customs dutiesSee Appendix 1: Customs duties in the GCC region.

ZakatThe MoF has issued bylaws (in the form of Ministerial Order 58 of 2007) for implementation of Zakat in Kuwait.

Basis of computation: according to these bylaws, public and closed Kuwait shareholding companies (KSCs) are subject to Zakat on the basis of 1% of gross income of operations of the company after deduction of costs incurred by the company.

Provisions for expenses or reserves are not allowed as a deductible expense. Statutory provisions or reserves required by banks and insurance companies are allowed as a deductible expense.

The following amounts are allowed to be deducted:

• Cash dividends received from companies subject to Zakat

• Share of profit received from unconsolidated affiliate or associate companies that are subject to Zakat

A holding or parent company that consolidates the financial statements of its subsidiaries shall be treated as one entity subject to Zakat. The amounts paid by the subsidiaries under this law shall be deducted from the amount due from the parent company.

All companies subject to Zakat are required to submit a declaration audited by one of the accounting and auditing offices approved by the MoF on or before the 15th day of the 4th month following the end of the subject period.

ER No. 4 — concerning submission of the financial declarationThe changes require the Zakat payer to provide additional information along with the financial declaration. Furthermore, as per the new format of the financial declaration, the tax department requires consolidated revenues and expenses to be reported.

If Zakat payers fail to submit their declarations with all the required information, the tax department shall issue assessments based on the financial statements obtained from other sources. In addition, any amended financial declaration filed by a Zakat payer after the issuance of the assessment shall not be considered.

The ER now enables Zakat payers to submit an amended financial declaration if there has been a material accounting or legal error, provided that no assessment has been issued for that year.

In order to avoid arbitrary assessments, it is clear that Zakat payers need to ensure that they file their Zakat declarations promptly.


ER No. 10 of 2013 — concerning objection to Zakat assessmentThe revision to this ER states that, where assessments have been issued based on the information available, Zakat payers who did not enclose the documents required under ER No. 4 with the financial declaration are precluded from objecting to those items in the assessment for which documents were not submitted, even if the supporting documents are submitted at the time of the objection.

In effect, if the specified additional information is not submitted with the financial declaration, the Zakat payer shall lose its right to object to the assessment.

ER No. 15 of 2013 — concerning the auditor’s reportThe new ER requires the auditors to provide a report on the declaration in the format specified in the ER as well as a separate note stating the items that are not in compliance with the ERs issued by the tax department, quantifying the exceptions.

This will have a significant impact on future Zakat filings and the disclosures that may need to be appended to the financial declaration.

ER No. 18 of 2013 — concerning benefiting from tax treaties advantagesThis ER specifies the documents that need to be submitted with the financial declaration in order to qualify for double taxation agreements (DTAs). The ER also states the manner in which the Zakat payer may benefit from the DTA and details the situations in which the Zakat payer will not be entitled to benefit from the DTA. Only companies, subject to Zakat in the other contracting state, may benefit from the DTA in Kuwait.

The Zakat payer shall be entitled to deduct the Zakat paid in the other country from the subsidiary’s profits, which are included in the Zakat payer’s financial declaration, provided that this deduction does not exceed 1% of the subsidiary’s profits.

This benefit is available only to the Zakat payer and not to entities that are shareholders in the Zakat payer. This benefit is also available only in relation to the direct subsidiaries of the Zakat payer and not to the Zakat payer’s indirect subsidiaries.

The benefit shall not be available where the documents required under this ER were not submitted or where the Zakat payer did not explicitly request for the Zakat paid in the other country to be deducted at the time when the financial declaration, objection or appeal is submitted.

In accordance with ER No. 18, it appears that a Zakat payer in Kuwait shall only be entitled to DTA relief for Zakat paid in the other country and not for any income tax paid in the other country. This appears to be contrary to the DTAs entered into by Kuwait, and will need to be clarified by the tax department.

Contribution to Kuwait Foundation for the Advancement of Science (KFAS)KSCs and closed shareholding companies in Kuwait are required to pay 1% of their profits after transfer to the statutory reserve and the offset of loss carry-forwards to the KFAS, which supports scientific progress. KFAS provides sponsorship and grants for many types of scientific research projects in Kuwait.


The Lebanese economy is based on free market enterprise, with the private sector providing the backbone of economic activity. The most important business sector is the services sector, with well-established banking, insurance and shipping industries. The tourism industry is returning to prewar prosperity. Lebanon also has light industries relating to leather, plastic and light metal products.

There are no exchange controls in Lebanon. Residents can freely import and export currencies; own, deal in, export and import gold; own foreign currencies and foreign securities; and maintain bank balances abroad. Overseas remittances and capital transfers abroad are unrestricted. Nonresidents can freely import and export any currency, and can maintain foreign currency accounts with banks in Lebanon.

A foreign company wishing to do business in Lebanon may choose between establishing a branch office of a foreign incorporated company and setting up a local company, either wholly owned or in partnership with Lebanese nationals.

The laws and regulations for setting up and administering such organizations are the same for foreign investors as they are for local organizations.

The unit of currency is the Lebanese pound (LBP). The official exchange rate is approximately LBP1,508 to US$1.

Corporate taxesCorporate income taxLebanese companies and branches of foreign companies carrying on business in Lebanon are subject to tax on their income derived from Lebanon.

A company is considered Lebanese if all of the following apply:

• The company’s registered office is located in Lebanon.

• The majority of its directors are of Lebanese nationality (unless the Government authorizes the company to have less than a majority).

Rates of corporate income taxIn general, companies are subject to tax at a flat rate of 15%.

Profits (after tax of 15%) derived in Lebanon by branches of foreign companies are presumed to be distributed and subject to 10% remittance tax.

Contractors on government projects are subject to tax at the regular corporate rate on a deemed profit of 10% or 15% of actual gross receipts, according to the type of project.

Lebanese holding companies and offshore companies are exempt from corporate income tax. However, special taxes apply to these companies.

A Lebanese holding company is a special type of company that is formed to hold investments in and outside Lebanon (“holding company” is not synonymous with “parent company”). An offshore company is a company that engages exclusively in business transactions outside Lebanon.

Leba

non


Insurance companies are subject to tax at the regular corporate income tax rate of 15% on a deemed profit (ranging from 5% to 10% of their premium income) as per Decision 1247/1 dated 24 December 2012.

Marine and air navigation companies are exempt from corporate income tax. Foreign air and sea transport companies are also exempt from corporate income tax if their home countries grant reciprocal relief to Lebanese companies. However, they are still subject to tax on dividend distributions at 10%.

Capital gainsCapital gains on the disposal of fixed assets are taxed at a rate of 10%.

If a company reinvests all or part of a capital gain subject to the 10% rate to construct permanent houses for its employees during a two-year period beginning with the year following the year in which the gain was realized, it may obtain a refund of the tax imposed on the reinvested gain.

AdministrationThe official tax year is the calendar year. Companies or branches may use a different tax year if they obtain prior approval of the tax authorities.

Corporations with a financial year-end of 31 December must file their tax returns by 31 May of the year following the year in which the income is earned. Other corporations must file their returns within five months of their financial year-end.

The head of the revenue department of the MoF may grant a one-month extension at the request of the taxpayer if the taxpayer’s circumstances warrant the extension. Tax must be paid within the same deadline.

If a taxpayer does not submit timely returns, the tax authorities may levy tax on an amount of deemed profit and impose a fine of 5% of the tax due for each month or part of a month for which the return was late. The minimum penalty is LBP750,000 for joint stock companies (JSCs), LBP500,000 for LLCs and LBP100,000 for other taxpayers. The maximum penalty is 100% of the tax due. For failure to pay tax by the due date, a penalty of 1% (1.5% in the case of WHT) of the tax due is imposed for each month or part of a month for which the tax remains unpaid.

As per article 29 of Law No. 173 dated 14/2/2000 and its addendums (Budget Law 2000), starting from the year 2016, an annual lump-sum fee is due on all taxpayers as follows:

Legal form of taxpayers Fee amount (LBP)

JSCs 2,000,000

LLCs 750,000

Partnerships and persons taxable based on real profits

550,000

Individual taxpayers taxable based on deemed profits

250,000

Taxpayers taxable based on lump-sum profits

50,000


Important notes:

• This fee is imposed on the following:

• On each head office and each branch for Joint stock companies, LLCs and partnerships

• On each place of operations for establishments, commercial, manufacturing and freelance activities

Note: A branch is considered to be a place the taxpayer operates other than the head office.

• This fee is imposed on commercial, manufacturing and occupational activities that are subject to income tax.

• Branches that operate in Lebanon are subject to this fee based on their parent company’s legal form.

• Offshore, holding and other taxpayers who are not subject to income tax are exempted from the annual lump-sum fee.

• In the case of cessation of activities, the taxpayer is exempt from this fee in the year that follows.

• The annual lump-sum fee is a non deductible expense and should be added back to taxable results.

DividendsIn general, dividends and interest are subject only to WHT of 10%.

Dividends received by a Lebanese corporation from another Lebanese corporation should be excluded from the taxable income of the receiving company. However, dividends redistributed by a parent company to its shareholders or partners are subject to WHT of 10%.

Dividends distributed by offshore companies are exempt from dividend WHT.

Dividends and interest income earned by banks and financial institutions are considered trading income and, consequently, are subject to tax at the regular CIT rate of 15%.

Interest revenueInterest income and other income from creditor and savings accounts with banks are subject to tax at 5%, which is deducted at source.

Determination of taxable incomeGeneralTax assessment is based on audited financial statements prepared in accordance with IFRS, subject to certain adjustments.

Deductions are allowed for expenses incurred wholly and exclusively for business purposes. Branches, subsidiaries and affiliates of foreign companies may deduct the portion of foreign head office overhead charged to them if the auditors of the head office present to the tax authorities a certificate confirming that the overhead was fairly and equitably allocated to the various subsidiaries, associated companies and branches, and that the amount of head office overhead charged back to the Lebanese entity is in accordance with the limits set by the MoF. However, the deductible portion of the overhead charged back to the Lebanese entity is subject to a tax of 7.5%.

InventoriesInventories are normally valued at the lower of cost or net realizable value. Cost is usually determined using the FIFO method or the weighted-average cost method.


ProvisionsThe following provisions are normally allowed for tax purposes:

• The actual amount due to employees on the balance sheet date for their end-of-service indemnities

• Doubtful debts owed by debtors who have been declared legally bankrupt

• A provision for obsolete inventory if the following conditions are met:

• The tax authorities are notified about the intention to destroy the obsolete stock.

• The obsolete stock is destroyed in the presence of a representative from the tax authorities.

• The tax authorities prepare formal minutes evidencing the destruction of the obsolete stock.

Banks and financial institutions may deduct provisions for doubtful debts before declaration of bankruptcy of the debtor if they obtain the approval of the Banking Control Commission of the Central Bank of Lebanon.

Tax depreciationDepreciation must be calculated using the straight-line method. The MoF has specified the minimum and maximum depreciation rates. A company may select appropriate rates within these limits for its activities. Companies must notify the relevant income tax authorities of the adopted depreciation rates before the declaration deadline. Otherwise, the company is considered eligible for the minimum depreciation rates only.

Depreciable fixed asset Minimum rate Maximum rate

Developed buildings from concrete for commercial, touristic and service sector use (offices, shops, stores, restaurants, hotels, hospitals, etc.)

2% 5%

Developed buildings from concrete for industrial use and handcrafts 3% 10%

Developed buildings from metal for commercial and industrial use 6% 20%

Large renovation, maintenance and decoration works for buildings 6% 25%

Technical installations, industrial equipment and accessories 8% 25%

Computer hardware and software 20% 50%

Cars 10% 25%

Vehicles for transportation of goods and people 6% 20%

Sea transport vehicles 5% 10%

Air transport vehicles 20% 25%

Office equipment, furniture and fixtures 8% 25%

Nonconsumable tools in restaurants, coffee shops, etc. (i.e., glass cups and silver spoons)

–* –*

Gas bottles 8% 20%

* These items are subject to inventory count every year to be valued at cost.


Industrial establishments may obtain certain tax incentives in respect of investments which improve their production capabilities. Amounts invested will be set off against a maximum of 50% of the profit achieved during the financial year in which the financial investment was made and over the following three years. However, this percentage rises to a maximum limit of 75% if the investment is made in one of the areas the Government wishes to develop (prior approval from the tax authorities is required).

Law for the encouragement of investmentIn August 2001, the Lebanese Parliament passed a new law (No. 360) for encouraging investment in Lebanon. Some of the benefits that this law provides, depending on the geographic location of the project, include:

• Exemption from income taxes for an additional two years when a certain percentage of the shares is publicly traded

• A reduction, for a period of five years, of 15% in the income tax on profits and on dividends

• Full exemption, for a period of 10 years, from the income tax on profits and on dividends

The law also provides a “package deal” for investors who satisfy certain conditions. Under the package deal system, investors may be granted the following incentives:

• Full exemption from the income tax on profits and dividends resulting from the project for a period of up to 10 years from the date of the commencement of the investing project

• The granting of work permits for various staff categories, provided that the beneficiary system maintains the ratio of at least two Lebanese nationals against each non-Lebanese national as per the registration in the National Social Security Fund

• A reduction in the duties on work and residence permits for up to a maximum of 50% for all staff categories and a reduction in the deposit that has to be placed with the Housing Bank of up to 50%

• A reduction of up to a maximum of 50% of the license dues in respect of the construction of buildings necessary for realizing the investing project benefiting from the provisions of the package deal

• Full exemption from the real estate registration dues in the Real Estate Register

Miscellaneous mattersForeign exchange controlsLebanon does not impose any foreign exchange controls.

Transfer pricingTransactions with related entities must be on arm’s length basis.

Anti-avoidance legislationUnder the Lebanese tax law, criminal or tax penalties may be imposed for specified tax avoidance schemes.

Electronic tax filingTo enhance taxpayers’ services and increase efficiencies, the Lebanese MoF has introduced electronic tax (e-tax) services.

Article 38 of the new Tax Procedures Law No. 44 permits taxpayers to submit their tax returns via email. The MoF has also issued Decision No. 883/1 requiring all large taxpayers to submit their quarterly tax returns through the e-tax system from the first quarter of 2014. Other taxpayers can voluntarily register to submit tax returns electronically.

The taxpayers should first complete the electronic registration by submitting the application form.

Since 1 January 2014, the MoF does not accept manual filing for VAT returns, quarterly employees’ income tax returns and construction property tax returns. Other returns, such as corporate income tax returns, movable capital tax returns, and the annual employees’ income tax returns, have not been activated electronically, and manual returns are still required for these tax filings. It is worth noting that taxpayers who are not registered with VAT can still submit the quarterly employees’ income tax returns manually.


Electronic tax returns for corporate income tax filing for 2014To enhance taxpayers’ services and increase efficiencies, the Lebanon MoF continues to introduce e-tax services.

With the issuance of the MoF Notification No. 2290/S1, dated 29 May 2015, all taxpayers who are required to file corporate income tax (CIT) returns (CH1) have the option to register and file their tax declarations online, starting with the CH1 for the 2014 tax year.

Large taxpayers should be aware that they may be subject to late declaration penalties if they do not submit their returns electronically within the set due dates.

In addition, the MoF issued Decision No. 17/1 requiring taxpayers subject to built property tax who have revenues of more than LBP20m from one section of a plot to submit their returns through the electronic tax system starting in 2015 for their revenues of the year 2014. Taxpayers should first complete the electronic registration due by submitting the application form.

The electronic registration can be completed at the MoF website (www.finance.gov.lb) and by following the instructions to complete the taxpayer’s registration requirements and process.

Reporting details of unregistered suppliers and service providersAccording to Article 34 of Law No. 44 (Tax Procedures Law), taxpayers should include details of the persons with whom they deal, including names, addresses and tax identification numbers on all documents they release.

In addition, Article 113 of the same law imposes a penalty of 0.5% of the value of the invoice on any person who does not include the tax identification number or other information for the verification of tax required to be paid on invoices or similar documents. The related Ministerial Instruction No. 3083 states that persons whom the taxpayer deals with include suppliers, service providers and clients.

Article 6 of Decision No. 523/1 states that taxpayers dealing with non-registered persons resident in Lebanon are required to provide the tax authorities with the names and full addresses of these persons within 20 days of the end of each quarter to avoid penalties under Article 113 of Law No. 44.

As the majority of taxpayers have misapplied these requirements, the MoF has issued Circular No. 1135/S1 to clarify their application.

Taxpayers who submitted lists including information related to non-registered clients before the release of this circular should resubmit information related to non-registered clients to the tax authorities.


Other taxesPersonal income taxSalaries, wages and benefits paid to local and expatriate employees, after deduction of family exemptions, are taxed at an escalating rate ranging from 2% to 20%. Amounts over LBP120,000,001 are taxed at the rate of 20%.

Nonresidents and persons with no registered place of business in Lebanon who earn business income for services rendered in Lebanon receive special treatment under the business income tax rules. They are taxed on a deemed profit of the income received from Lebanon. The deemed profit percentage is 50% on services and 15% on products, and the tax rate is 15%. Therefore, the effective tax rate is 7.50% and 2.25%, respectively, of income generated from Lebanon.

Miscellaneous taxesOther significant taxes are set out in the table below.

Nature of tax Rate

VAT imposed on the supply of goods and services by a taxable person in the course of an economic activity in Lebanon and on imports: certain supplies are exempt and registration with the Directorate of VAT is required if an entity’s total taxable turnover for the four preceding quarters exceeded LBP150m.

10%

Tax on a portion of a foreign head office overhead allocated to a Lebanese subsidiary associated company or branch.

Annual tax of Lebanese holding companies is calculated on total capital and reserves, and is limited to a maximum tax of LBP5m (tax is due in full from the first year of the company’s operations, regardless of the month operations begin).

7.5%

maximum tax of LBP5M

Stamp dutyAs per the Lebanese stamp duty law, fiscal stamps at the rate of LBP3 per LBP1,000 must be affixed on all deeds or contracts. Payment of stamps is due within five days from the date of signature of the deed or contract. A fine equal to five times the duty will be imposed where the stamp duty is paid after the time limit allowed or is not settled.

Customs dutiesCustoms duties differ according to the tariff and the value declared to the customs authorities. The parts of the declaration that are necessary for charging are value, the type of tariff and origin of the goods.

The majority of the imported products are subject to an ad valorem tariff duty that ranges between 0% and 138%. The customs value is calculated on the basis of CIF value.

Customs duty applies on products such as tobacco, cement, gasoline, motor vehicles and alcoholic beverages. Preferential customs duties apply for items used as raw materials and inputs in production — 3% for industry and 6% for agriculture.

All ordinary personal effects are exempt from customs duty.

Tax treatiesLebanon has entered into double tax treaties with Algeria, Armenia, Bahrain, Belarus, Bulgaria, Cuba, Cyprus, the Czech Republic, Egypt, France, Gabon, Iran, Italy, Jordan, Kuwait, Malaysia, Malta, Morocco, Oman, Pakistan, Poland, Qatar, Romania, Russia, Senegal, Sudan (signed but not yet enforced), Syria, Tunisia, Turkey, Ukraine, the UAE and Yemen.



Corporate income tax is levied under the provisions of Income Tax Law 7/2010, enacted on 28 April 2010.

Oil companies are assessed for tax under the provisions of Petroleum Law 25/1955, as amended, and by the specific terms of their exploration and production sharing agreements (EPSAs).

Libya offers investment incentives under Investment Law No. 9. The law is applicable to the industry, health, tourism, services and agriculture sectors, and to any other field specified by a decision of the Government upon a proposal by the Minister for Planning, Economy and Commerce.

The Stamp Duty Law 12/2004, as amended by Law 8/2010, specifies that any document to be used or executed in Libya is subject to duty. This specifically includes EPSAs.

The unit of currency is the Libyan dinar (LYD). The official exchange rate is approximately LYD1.37 to US$1.

Corporate taxesCorporate income taxTaxes are levied under the provisions of Income Tax Law 7/2010, which was enacted on 28 April 2010. The law has been applied to accounting periods that ended after that date.

Article 1 of the Income Tax Law states that all income arising in Libya from any tangible or intangible assets situated therein, or from any activity or work carried out in Libya, is subject to tax.

As a matter of practice, de facto PE status is established if any work is undertaken, or service performed, in Libya.

Rates of corporate taxCorporate tax for all companies and branches, foreign and national, is assessed at a flat rate of 20%. A further 4% of profits is payable as Jihad tax.

Capital gainsThere is no specific capital gains tax in Libya. Gains generated by a branch or company are assessed as trading income.

AdministrationTax is assessed on income of the preceding year.

Under the Libyan tax law, a company is required to submit a tax declaration no later than one month after the approval of its accounts by the directors, and no later than four months after its year-end. The financial year runs from January to December, but a company may choose a different financial year if it has obtained approval from the Libyan tax authorities.

As a result of disruption caused by civil and political unrest tax filing deadlines for FY2010 to FY2014 were postponed, but all companies and foreign branches should now be up to date and compliant.

CIT, payroll tax and stamp duty payments should be paid by the relevant due dates.

Penalties for late filing of any of these years will be as set out in the tax law. It is a fine equal to the amount of taxes due after audit. When there is no revenue and no profit, there is no late filing penalty.

Liby

a


All companies and branches are subject to audit by the tax department in order to determine final tax liabilities. Audits are frequently conducted at three- or four-year intervals for three or four years’ accounts.

Taxes are assessed almost exclusively on a deemed profit basis for foreign service providers and Libyan private companies.

Libyan companiesOil companies are assessed for tax under the provisions of Petroleum Law 25/1955, as amended, and by the specific terms of their EPSAs.

DividendsDividends received are taxable, but the process for WHT on a dividend payable to an overseas shareholder has not yet been confirmed.

Interest paid on bank deposits is subject to 5% WHT.

Foreign tax reliefForeign tax relief is granted in accordance with tax treaties signed with certain other countries. Libya has DTAs with several countries in the Middle East and Asia, including Pakistan, as well as with the United Kingdom, Malta and France. Various other agreements have been signed but not yet ratified. There is no agreement with the United States.

Determination of taxable incomeAll companies must prepare a balance sheet and a profit and loss account for submission with the annual tax return. There is no body of Libyan accounting standards, so a generalized GAAP may be applied. Accounts may be prepared either on a cash or an accruals basis.

With the exception of general provisions, all business expenses are generally deductible; but it should be noted that the law states that “general expenses, service remunerations, and interest and commissions charged by a foreign company to its branch will only be allowed by the tax department up to a maximum of 5% of administrative expenses approved by the tax department.”

Tax is payable on declared profit at scale rates set by the law, plus Jihad tax. No tax is payable if a loss is declared subject to the comments below regarding the deemed profit basis of assessment.

At the request of either the company or the tax department, an audit of the company’s books and records will be undertaken in order to determine the final liability to CIT for a particular year.

There is a seven-year statute of limitations for the assessment of company taxes. Although the Corporate Tax Law is based on the usual add-back basis, whereby disallowed expenditure is added back to declared net profits or losses, practice is that the tax department raises assessments based on a percentage of turnover — the deemed profit basis of assessment. Tax is, therefore, payable even when losses are declared.


The level of deemed profit applied to turnover varies according to the type of the branch’s business activity. This ranges from 12% to 15% for civil works and contracting (turnkey projects), 15% to 25% for oil service, and 25% to 40% in the case of design or consulting engineers. Within these broad ranges, each case is reviewed individually and, once the preliminary final assessments are issued, taxpayers have a period of 45 days to negotiate an agreed settlement or to appeal. Thereafter, an appeal process exists through first and second appeal committees, the Court of Appeal and then the Supreme Court.

The Commercial Code of 2010, together with the tax law of 2010, requires that accounts must include a report issued by a Libyan public accountant that, if accepted, will result in assessment on an actual basis for FY2010 and subsequent years. The public accountant must also sign the annual tax return. Audits will be conducted at random. There is, as yet, no precedent relating to the application of this process.

The tax department has stated that losses for FY2011 (the year of the revolution) will be accepted subject to providing documentary support for losses incurred.

Investment incentivesLibya offers investment incentives under Investment Law No. 9. The Investment Law provides the following benefits to an approved project:

• Exemption from customs duties, fees or taxes on the importation of machinery, equipment and tools required to execute the project

• Exemption from customs duties, fees or taxes for five years for the operation of the project after commencement, including equipment, spare parts and raw materials, and free export of all products involved with the project

• Exemption from stamp duty on all commercial documents

• A 5-year exemption from corporate income tax (but not payroll taxes) with the possibility of a further extension of 3 years, and tourism projects exempt for 10 years

• Approval for repatriation of profits

• Ability to repatriate invested capital upon expiry of the project

• Option for the investor to employ and import expatriates and technical expertise necessary for the establishment and operation of the project

The law is applicable to the industry, health, tourism, services and agriculture sectors, and to any other field specified by a decision of the Government upon a proposal by the Minister for Planning, Economy and Commerce.

Article 27 of the law specifically prohibits it from applying to projects undertaken by oil companies.

Other taxes and dutiesPersonal income taxTax is applied to wages, salaries and similar incomes derived from employment or service, whether permanent or temporary, or whether in cash or in kind, for services rendered in Libya.

The annual rates of personal tax on income are as follows:

First LYD12,000 5%

Balance of income 10%

All individuals are granted a personal allowance: LYD1,800 for a single person, LYD2,400 for a married man without children and LYD300 for each dependent child. A recent interpretation of the Income Tax Law by the tax department has stipulated that expatriates (irrespective of actual marital status) are only permitted the single person allowance, unless their wives and children are also resident in Libya.

At the same time as carrying out the tax audit for CIT purposes, the tax inspector will review the company’s records to determine whether there are any salaries or benefits in kind paid that had not previously been subjected to personal taxes. The additional payroll taxes due on such undeclared salaries and benefits will be assessed at a rate of 15% (plus 3% Jihad tax).

Miscellaneous taxesLibya does not have capital gains, inheritance or gifts taxes, or any VAT. Other significant deductions are given below.

Employer (social security) 11.25% of gross salary

Employee (social security) 3.75% of gross salary

Social solidarity fund 1.00% of gross salary

Jihad tax 3.00% of gross salary

(Taxable salary is gross salary minus employee social security and social solidarity fund.)

Stamp dutyThe Stamp Duty Law 12/2004, as amended by Law 8/2010, specifies that any document to be used or executed in Libya is subject to duty. This specifically includes EPSAs.

There are 45 schedules to the law, but its practical application to companies and branches is that a duty of 1% of the contract value is payable on any contract for the provision of goods and services in Libya.


Customs dutiesCustoms duties were reintroduced in 2012. The rates are as follows:

• Base rate — 5% of pro forma import invoice

• Vehicles — 10% of pro forma import invoice

• Luxury items — 10% of pro forma import invoice

Equipment and materials imported for use in the oil and gas sector are exempt from customs duty.

Foreign exchange controlsLibya has foreign exchange controls, and the LYD is not a freely convertible currency. However, by concession, foreign companies may be paid in foreign currency. Amounts paid in LYD may not be remitted.

Foreigners may freely convert foreign currency at a bank, subject to that currency having been declared upon arrival in Libya.

Nationals and other residents may freely convert LYD into foreign currency (up to US$10,000 per year).

Transfer pricingThere is no transfer pricing or anti-tax avoidance legislation in Libya.


The Income Tax Law, effective from 1 January 2010, was published by the official gazette on 1 June 2009. The executive regulations (ERs) providing clarifications to the law were issued through Ministerial Decision 30/2012.

The Government of Oman encourages foreign expertise and technology in strategic sectors, aimed at leveraging Oman’s natural resources to develop and diversify the economy.

The Government has embarked on substantial projects to develop a modern, sophisticated infrastructure that will provide a conducive business environment for substantial economic growth. Interest-free loans and other incentives are granted to qualifying projects and businesses. Tax-free contracts are available in exceptional situations. A tax holiday, or exemption, is granted for specific projects up to a maximum of 10 years.

Non-Omani nationals wishing to engage in trade or business, or to acquire an interest in the capital of an Omani company, must obtain a license to do so from the Ministry of Commerce and Industry. Foreign companies may do business in Oman by establishing a branch or by participating in the formation of a LLC or a JSC.

Commercial banks and investment and brokerage JSCs that are registered in Oman may establish funds. These funds are exempt from tax.

The unit of currency is the Omani rial (OMR). The official exchange rate is approximately OMR1 to US$2.58.

Corporate taxesCorporate income taxOmani sole proprietorships, Omani-registered companies (including partnerships and joint ventures) and PEs are subject to Omani income tax. A PE is defined in the law.

In addition, a PE is also created if a foreign company provides consulting or other services in Oman, whether through employees or through designated agents, for periods of no less than 90 days, in aggregate, in any 12-month period.

Foreign shipping and aviation companies are exempt from taxation in Oman if similar Omani companies enjoy reciprocal treatment in the respective foreign countries. Omani sole proprietorships and companies engaged in shipping activities are tax-exempt.

Omani sole proprietorships, companies registered in Oman (regardless of the extent of foreign participation) and PEs of foreign companies are subject to tax at a rate of 0% on the first OMR30,000 of taxable income, and at a rate of 12% on taxable income in excess of OMR30,000.

A WHT of 10% of gross payments is imposed on specific payments (royalties, consideration for R&D, management fees and consideration for the use of or right to use computer software) made to foreign companies that do not have a PE in Oman. If a foreign company has a PE in Oman that does not include incomes that are subject to WHT in its gross income, WHT will be applicable on such payments. Taxpayers in Oman (including PEs) are responsible for deducting and remitting WHT to the Secretariat General for Taxation (SGT). The WHT is final, and foreign companies have no filing or other obligations in this regard.

Oil exploration and production companies are taxed under special rules covered by concessional agreements.

Investment funds established under the Omani Capital Market Law or those established outside Oman to deal with Omani financial instruments listed on the Muscat Securities Market (MSM) are exempt from taxation.

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Capital gainsNo special rules apply to capital gains. They are taxed as part of regular income. Profit on sale of securities listed on the MSM is exempt from tax.

AdministrationThe tax year is the calendar year. A company is permitted to have a different accounting year for its tax year. Provisional tax returns must be filed within three months from the end of the accounting year and final returns within six months. A foreign person who carries on business in Oman through multiple PEs is required to submit a consolidated tax return to the SGT.

There are no advance payment procedures, and tax due should be paid with the provisional return. A fine of 1% per month is levied on late payments. If the tax returns are not filed by the due date, a maximum fine of OMR1,000 may be imposed.

Since March 2015, the SGT has started imposing penalties after giving errant taxpayers an opportunity to file the overdue tax returns and representation at a hearing.

Revised tax compliance formsThe ERs prescribe revised forms for filing the provisional return and the final return of income. Specific forms have been prescribed for various categories of taxpayers, including Omani companies. Revised forms require taxpayers to provide significant additional information along with tax returns.

The ERs also prescribes a new form for filing WHT returns. This form has expanded the scope of payments that are subject to WHT in Oman.

The ERs also introduced a new form for disclosure of business particulars (FDBP) that taxpayers have to use for notifying prescribed information. For professional businesses listed in the ER, notification of practicing licenses is also required.

The Oman Tax Department (OTD) issued Circular No. 1/2014, requesting all auditors and taxpayers to:

• Ensure that tax returns are duly approved with both the signature of the authorized signatory (the principal officer) and the official stamp, in the space designated for this purpose

• Prepare the information and details that are required to be enclosed with the tax returns together with an original copy of the final accounts, which should be approved by a competent auditor

• Ensure that all pages and details enclosed are signed and stamped by the taxpayer before submitting these documents to the SGT

In case of failure to adhere to any of these statutory requirements, the related tax returns or financial accounts will not be accepted and will be categorized as incomplete tax cases.

Such failure can lead to application of the penalties set forth in the Income Tax Law No. 28/2009.

Circular No. 1/2014 is effective from 1 January 2015.


Other developments under the ERsThe tax authorities have created a large taxpayer unit (LTU) for assessing larger taxpayers. The formation of the LTU will result in a more stringent compliance environment for large taxpayers.

For assessment purposes, the ERs have introduced provisions that authorize tax authorities to carry out examination of taxpayers’ records at their premises. Such examination shall be carried out by giving advance notice to the taxpayer.

DividendsDividends received by companies from Omani companies are not taxed.

Foreign tax reliefForeign taxes can be set off against taxes due on the same income in Oman.

Determination of taxable incomeTax is levied on the taxable income earned by Omani companies, sole proprietors and PEs. Financial accounts must be presented on an accrual basis of accounting.

Expenses are deductible only if they are incurred wholly and exclusively for the purpose of production of gross income.

If only a portion of the expense is incurred for the purpose of income generation, the proportion of expense incurred that is attributable to income generation will be allowed as deduction. Expenses incurred prior to registration, incorporation or commencement of business shall be deemed to be incurred on the day business commenced and are deductible in the first year of commencement of operations.

Costs incurred in generating tax-exempt income shall not be allowed as deduction.

Special rules apply to allowances such as depreciation, bad debts, donations, shareholders’, proprietors’ and directors’ remuneration, rent, interest, head office overhead allocated to branches and sponsorship fees. Any exchange difference relating to head office or related party balances is normally disallowed.

InventoriesThe tax law does not stipulate a required method of accounting for inventories. However, the accounting method adopted should be in accordance with International Financial Reporting Standards (IFRS).

In general, inventory is valued at the lower of cost or net realizable value, with cost determined using the weighted-average or FIFO method. Provisions for slow moving or obsolete inventory, however, are not allowed for tax purposes.

ProvisionsSubject to the limited exceptions, provisions of any nature, whether specific or general, are not allowed as deductions for tax purposes. The SGT takes a view that deduction will only be allowed when an expense is actually incurred.

Provision for loan losses is tax deductible in cases of banks and other financial companies regulated by the Central Bank of Oman subject to certain conditions. Provisions for unexpired risks, unsettled claims and contribution to contingency funds are tax deductible for insurance companies.

Other regulationsIn accordance with the Income Tax Law, interest payable by an Omani company, other than banks and insurance companies, may be deducted from the taxable income, subject to conditions prescribed by the ERs.

In accordance with the provisions of the ERs, interest on loans from related parties paid by an Omani company other than banks and insurance companies may be deductible, provided the total debt does not exceed twice the value of shareholder’s equity.

The ERs have introduced specific thin capitalization provisions requiring Omani companies to comply with minimum capital requirements so that loans do not exceed a debt-equity ratio of 2:1.

Tax depreciationThe tax law sets the following fixed annual depreciation rates.

Assets RateCategory APermanent buildings (selected materials) 4%

Buildings (other than selected materials) 15%

Quays, jetties, pipelines, roads and railways 10%

Ships and aircraft 15%

Hospital buildings and educational establishments 100%

Category BTractors, cranes and other heavy equipment 33.33%

Computers, vehicles and self-propelling machines 33.33%

Furniture and fixtures (including computer software and copyrights)

33.33%

Drilling rigs 10%

Other machinery and equipment 15%

Depreciation of assets, other than those mentioned in Category A, have to be calculated on a pooling (or block) of assets basis. Each pool’s asset base is calculated with reference to written-down value plus additions minus sale proceeds of disposals. The rate for intangible assets is determined by the SGT.

Straight-line basis depreciation is applicable for assets mentioned in Category A.


Allocation of head office expensesHead office costs, such as costs for technical consultants, R&D, data processing, general administration and other similar expenditures incurred by the head office and allocated or charged by head office to the PE, are allowed as deductions. The ER specified that indirect expenses incurred by the head office and allocated to the Omani PE are capped at the lower of 3% of gross income (5% for banks and insurance companies, and 10% for high-tech industrial companies) or actual charges. Where the head office has merely a supervisory or control role over the Omani PE, no overhead deduction is allowed.

Relief for lossesLosses may be carried forward for five years. Losses of earlier years should be set off first before utilizing losses of a later year.

Omani companies and establishments that are tax-exempt by virtue of carrying on specific activities as set out in the “Investment incentives” section will be eligible to carry forward net losses incurred during the first five years of exemption for an indefinite period. No carry-back of losses is permitted.

Groups of companiesThere is no concept of group taxation in Oman.

Investment incentivesTax holidays are available to companies engaged in manufacturing, mining, exports, operation of hotels and tourist villages, farm and animal products processing, fishing and fish processing, and farming and breeding. Universities, higher education colleges or institutes, private schools, training colleges, nurseries and private hospitals are tax-exempt. The exemption under these categories is available for five years, but may be renewed for an additional period of five years.

The performance of management contracts and construction contracts may not qualify for tax holidays.

WHTOman does not impose WHT on dividends or interest.

WHT of 10% of gross payments is imposed on specific payments (royalties, consideration for R&D, management fees and consideration for the use of or right to use computer software) made to foreign persons that do not have a PE in Oman. Entities in Oman (including PEs) are responsible for deducting and remitting tax to the Government. The tax is final, and foreign persons have no filing or other obligations in this regard.

If a foreign person has a PE in Oman, but does not consider the receipt of income that is subject to WHT in its gross income, WHT will be applicable on such payment.

The term “royalty” is defined to include payments for the use of or right to use software, intellectual property rights, patents, trademarks, drawings, equipment rentals and consideration for information concerning industrial, commercial or scientific experience and concessions involving minerals.

The payer of these types of income must withhold and remit the tax to the Government on a monthly basis. Penalties are imposed for delays in payment.

Foreign exchange controlsOman does not impose foreign exchange controls.

Transfer pricingSpecific transfer pricing provisions have been introduced by the Income Tax Law, which seeks to restrict any measures that may be taken by related parties for the avoidance of tax through transactions made between them.

Anti-avoidance legislationWhere a company carries out a transaction with a related party that was intended to reduce the company’s taxable income, income arising from the transaction is deemed to be the income that would have arisen had the parties been dealing at arm’s length.

In respect of transactions between related parties that are not at arm’s length, certain arrangements and terms may be ignored by the SGT if such arrangements or terms result in lower taxable income or higher losses.

The SGT has the right to make adjustments if the main purpose of a transaction, even between unrelated parties, is to avoid taxation.

Other taxesPersonal income taxPersonal income other than from business is not taxable in Oman.

Miscellaneous taxesOther significant taxes are set out in the table below.

Taxes Rate Vocational training levy for each non-Omani employee paid biennially (once every two years) by employer

OMR200

Social security contributions on monthly wage of Omani employees effective from 1 July 2014 Pension fund contributions paid by: Employer 10.5%

Employee 7%

Government 5.5%

Occupational injuries and diseases, payable by employer

1%

A monthly wage is defined as “all amounts paid to the insured in cash or in kind, or periodically or regularly for their work, whatever the method used for its determination, or is the sum of basic wages plus allowances that shall be determined by a decision of the minister after the approval of the Board of Directors.” The monthly wage is capped at OMR3,000 per month.

With respect to expatriate staff, an end-of-service


benefit is accrued at the rate of 15 days of salary for each of the first 3 years and 30 days’ salary for years of service in excess of 3 years. The end-of-service benefit is payable on termination of services.

Tax treatiesOman has entered into double tax treaties with Belarus, Brunei Darussalam, Canada, China, Croatia, France, India, Iran, Italy, Japan, Korea (South), Lebanon, Mauritius, Moldova, Morocco, the Netherlands, Pakistan, Seychelles, Singapore, South Africa, Spain, Syria, Thailand, Tunisia, Turkey, the United Kingdom, Uzbekistan and Vietnam.

Oman has also signed double tax treaties with Algeria, Belgium, Egypt, Germany, Portugal, the Russian Federation, Sudan, Switzerland and Yemen, but these treaties are not yet in force.

Finally, Oman has entered into treaties with several countries with respect to the avoidance of double taxation on income generated from international air transport.

Oman has ratified a free trade agreement (FTA) with the United States, effective from 1 January 2009. Under the FTA, a number of concessions are available to American companies wishing to set up business in Oman. The GCC countries, of which Oman is also party, have entered into an FTA with Singapore, but the agreement is not yet ratified by Oman.

Oman has signed a protocol with France that provides for 7% WHT on royalty payments (effective from 1 February 2014). The protocol with the United Kingdom provides for 8% WHT rate.

FTZsSalalah Free Zone is adjacent to the super hub port of Salalah, which is located close to the equatorial trade route. The Salalah Free Zone is managed by Salalah Free Zone Company (SAOC). The zone offers a host of investment-friendly incentives that include a low initial cost of setting up and a one-stop shop arrangement for licenses, permits, visas and customs clearances.

In addition, Oman has established a FTZ along the borders with Yemen. The zone is located in the town of Al Mazyouna, 260 km from Salalah. Oman has also established a free zone in Sohar.

The Duqm Economic Zone is located in the south and is yet another attractive free zone being established, with a number of major projects in progress or in the pipeline.

Foreign capital investment lawUnder this law, foreign entities wishing to invest in Omani companies must file applications for licenses with the Ministry of Commerce and Industry. In general, the Ministry grants licenses to applicants if both of the following conditions apply:

• The paid-up capital of the Omani company in which the investment is made is at least OMR150,000 (US$390,000)

• The foreign ownership of the company does not exceed 49%

The Ministry may, subject to recommendation from the Foreign Capital Investment Committee, increase the permissible level of foreign ownership of an Omani company to 65%. In accordance with a commitment provided to the WTO, approvals are granted for foreign ownership of up to 70% under certain circumstances. If a project has capital of at least OMR500,000 (US$1.3m) and contributes to the development of the national economy, the Ministry may recommend to the Council of Ministers that the permissible percentage of foreign ownership be increased up to 100%.

Oman’s restrictions on foreign ownership do not apply to GCC nationals investing in or pursuing activities, apart from a few that are specifically prohibited.

The Ministry may exempt the following entities from the licensing conditions specified:

• Companies conducting business through special contracts or agreements with the Government

• Companies established by the Royal Decree

• Parties conducting a business that the Council of Ministers declares necessary to the country

In practice, contracts awarded by the Government, Petroleum Development Oman LLC (PDO) and Oman LNG LLC (OLNG) enable foreign companies to establish branches in Oman by registering those branches with the Ministry of Commerce and Industry. These foreign companies are exempt from registering an Omani company.

In accordance with a recent ministerial decree, Gulf companies shall be permitted to open branches in Oman that shall be afforded the same treatment enjoyed by Omani companies, subject to satisfying certain conditions.


In-country value requirementsOil and gas contractors should prepare for in-country value plansDuring the next five years, Oman expects to spend more than US$65b on key oil and gas and infrastructure investments, thus doubling the level of investments made during the last five years. An estimated US$20b will be spent on transportation infrastructure, including the Oman National Railway project, new regional airports and expressways. BP’s US$15b Khazzan tight gas project and the development of a US$10b refinery and petrochemical complex at Duqm, will lead oil and gas investment spend, while another US$13b worth of investments will be made in the manufacturing and industrial sectors.

Following a similar “offset obligations initiative” in Kuwait, the Omani Government is determined that this unprecedented investment in megaprojects should create new opportunities “within the country, rather than letting the outcome of such projects merely turn into foreign exchange outflows, and the creation of jobs and economic activity abroad.”

Oman’s Minister of Oil and Gas Mohammed bin Hamad Al Rumhy recently commented, “The oil and gas sector is not only the major source of income in the country, but has also contributed by creating employment opportunities, to the extent that Omanization levels have reached more than 80%. Therefore, besides fueling the economy of the country, we focus on maximizing the utilization of local content as well as creating new value-added chains from which both companies and citizens of

Oman can benefit. In this context, we will be working very closely with other government authorities as well as local entrepreneurs to maximize the in-country value (ICV) for Oman.”

These comments clearly define the Omani Government’s plans to further encourage compliance with new ICV regulations.

The new ICV rules will ensure that ICV plays a key role in policy issues, and preference will be given to highly Omanized companies or those with a comprehensive Omanization policy in place, as well as local companies or companies that plan to set up a local supply base.

It is also likely that ICV will become a key parameter in tender evaluation. Omani suppliers will be required to be the default suppliers and permission from them will be sought if services are to be sourced from outside the country.

Nasser bin Khamis al Jashmi, Oil and Gas Ministry Undersecretary, has stated that ICV planning will be a standard prerequisite for companies looking to participate in Oman’s lucrative oil field industry.

It would be prudent for all companies looking to bid for oil and gas contracts in Oman, as well as other important sectors such as railway, to plan and prepare ICV plans in advance of intended participation.

In addition, early in 2014, the Government of Oman set up the authority for partnership in development (PID). Through the PFD program, for all government-related projects of OMR5m and above, there is a requirement to set up a certain percentage of contract value for reinvestment in Oman. In view of this, the PFD program will supplement the ICV initiative and will cover a broader base of the economy, including the railway sector.


The Palestinian economy is a market-based economy in which the private sector plays a leading role with the public sector limited to providing basic infrastructure. Foreign firms seeking access to Palestinian markets have a variety of options available. Goods can be imported directly into Palestine through the use of local agents and distributors. Contractual franchising or licensing arrangements are becoming increasingly common, and joint ventures between local and international partners are also growing.

In order to carry out any commercial activity in Palestine, investors may structure operations as sole proprietorship, an ordinary private company or a shareholding company.

The unit of currency in Palestine is the new Israeli sheqel (NIS). The official exchange rate is approximately NIS3.8 to US$1.

Corporate taxesCorporate income taxPalestinian companies and branches of foreign companies carrying out business in Palestine are subject to corporate income tax. A company is considered Palestinian if it is registered in Palestine.

A branch of a foreign company registered in Palestine is treated as a Palestinian company.

Tax is calculated in NIS. In cases where accounts are maintained in other currencies, the exchange rate that should be used is the one prevailing at the date when income tax is due.

Unless an exemption is mentioned explicitly in the law, all income realized for any person from any source whatsoever is subject to income tax.

Rates of corporate income taxThe income tax rate is 15%, except for telecommunications companies that are subject to a rate of 20%. The income tax rate on life insurance companies is 5% of the total life insurance premiums owed to the company. Interest revenue generating from Small and Medium Enterprises (SME) finance programs are subject to income tax at 10%.

Capital gainsIn general, capital gains are taxable. An exception is the exemption of gains arising from the sale of shares and bonds, where a certain percentage of the entity’s expenses have to be added back to income as disallowed expenses.

AdministrationCompanies must file a CIT return by the end of the fourth month after the year-end. All companies must use the calendar year as their tax year, unless the tax authorities approve a different one. As a result, tax returns are generally due on 30 April.

The regulations provide incentives for advance payments made during the tax year. The incentive rates are announced at the beginning of the tax year. For 2015, an 8% discount is granted for payments made during the first and second months of the tax year, and a 6% discount is granted for payments made during the third month of the tax year.

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Special incentives are granted for companies that file and pay within a certain period after the tax year-end. For submission of a tax declaration for the first, second and third months, the incentives as follows:

Month of payment Discount

First month 4%

Second and third months 2%

DividendsPursuant to the President Decree in 2014, dividends are subject to income tax.

WHTEvery resident person paying non-exempt income to a nonresident must deduct 10% of this amount, except reinsurers’ premium payments. The deducted amounts shall be paid to the Income Tax Directorate.

All government agencies and public companies that pay rent to local persons and make payments to local providers of services and suppliers of goods should request a deduction at source certificate. Payments exceeding NIS2,500 are subject to WHT at the rate stated in the certificate. If the beneficiary does not provide a deduction at source certificate, payments are subject to WHT at a rate of 10%.

Under the Income Tax Law amendments in 2014, dividends distributed by companies resident in Palestine are subject to WHT at a rate of 10% and are considered as a payment on account. However, in January 2015, the MoF held the application of this rate.

Foreign tax reliefThe Palestinian National Authority has entered into double tax treaties with Sudan, Sri Lanka, the UAE, Oman, Vietnam, Turkey, Serbia and Jordan.

Determination of trading incomeGeneralTaxable income is the income reported in companies’ financial statements, subject to certain adjustments.

All types of income are taxable, unless otherwise stated in the law. All business expenses incurred to generate income may be deducted, but the deductibility of certain expenses is limited.

InventoriesCompanies can use any method allowed for accounting purposes to value their inventories. The tax law does not specify a particular method for determining the cost of inventory.


ProvisionsIn general, provisions are not deductible for tax purposes, except for banks and insurance companies. Banks can deduct bad debt provisions from their taxable income, and insurance companies can deduct unexpired risks and outstanding claims provisions for tax purposes.

Tax depreciationThe Palestinian tax law provides for straight-line tax depreciation rates for various types of assets, which are applied to the purchase price of the assets, as mentioned in the table below.

Assets RateBuildings and industrial buildings 2%–3%

Transportation 5%–15%

Office furniture Equipment used in industrial activities

10%

5%–10%

Equipment used in agricultural activities 7%–25%

Technological equipment 20%–25%

Furniture and decorations 10%–15%

Computers 20%

Allocation of head office expensesHead office charges are limited to 2% of net taxable income.

Relief for lossesCompanies may carry forward losses to offset profits for the following five tax years.

Groups of companiesPalestinian tax law does not allow the filing of consolidated tax returns.

Investment incentives The Palestinian National Authority has created a framework of economic laws to encourage and support foreign and local investment in Palestine. The implementing agency is the

Palestinian Investment Promotion Agency (PIPA). These laws were created to help protect potential investors from undue risk and to promote the profitability of their investment.

Under the Law on the Encouragement of Investment, as amended in 2014, approved companies may pay income tax at the following rates:

• Five percent for a period of five years beginning on the date of realization of profit, but not exceeding four years from the beginning of the company’s operations

• Ten percen for a period of three years after the end of the first phase

• The standard rate after the end of the three-year period

An application must be filed with PIPA to obtain approval for these tax benefits.

Other taxesPersonal income taxIncome tax is assessed on all remuneration and benefits earned in Palestine. This includes director’s fees and employer-paid rent, school fees, air tickets and relocation expenses, subsistence and travel expenses.

Palestinian individuals must pay tax on income earned from all taxable activities, including self-employment and business activities, at an escalating rate ranging from 5% to 15%.

Miscellaneous taxesProperty tax is levied at the rate of 17% of the assessed rental value of the property. Real property is assessed every five years.

VATAll transactions in Palestine are subject to VAT except payment of wages, payments of rent for residential properties and payments for agricultural products sold directly by the farmer to the consumer. The general VAT rate is 16%. A nil rate applies to exports of goods and services. Financial institutions are subject to VAT at 16% on wages on a monthly basis and on their net profits.

Purchase tax is mainly collected on consumer and processed goods, as well as raw materials.

Customs dutiesThe excise duty rates vary up to 50% of the CIF value of imports. There are three rate schedules: one for imports from the United States, another for imports from European Economic Community (EEC) countries and a third rate schedule for all other countries.

Tax treaties

Palestine has entered into tax treaties related to customs duties with the United States, the EEC countries, Japan and certain Arab countries.

Under these agreements, goods imported from the listed countries have either full or limited exemption from customs, depending on the type of goods imported.



Pakistan, officially the Islamic Republic of Pakistan, lies in South Asia. It has a 1,046 km (650 miles) coastline along the Arabian Sea and the Gulf of Oman. Pakistan is bordered by Afghanistan and Iran in the west, India in the east and China in the northeast. Therefore, it occupies a strategic position between South Asia, Central Asia and the Middle East.

Pakistan is currently the sixth most populous country in the world and has the third-largest Muslim population. It is one of the founders of the Organization of the Islamic Conference and a member of the United Nations, Commonwealth of Nations and the G20. In 2015, the IMF ranked the Pakistan economy as the 26th-largest in the world in terms of purchasing power parity, and the 41st-largest in nominal terms. Pakistan has a semi- industrialized economy that mainly encompasses textiles, chemicals, food processing, agriculture and other services industries.

According to the State Bank of Pakistan (SBP), Pakistani GDP comprises 20.9% agriculture, 20.3% industry and 58.8% services. According to the SBP, the economic growth rate for fiscal year 2015 was reported to be 4.3% (up from 4.1% in 2014). The drive for a free, open market has set in motion significant measures for promoting investment, diversification and growth.

The unit of currency is the Pakistani rupee (PKR). The official exchange rate is approximately PKR105 to US$1.

Corporate taxationCorporate residencyCompanies that are resident in Pakistan are subject to corporation tax on their worldwide income. Tax is levied on the total amount of income earned from all sources in the company’s accounting period, including dividends and taxable capital gains. Branches of foreign companies and nonresident companies are taxed only on Pakistan-sourced income. A company is resident in Pakistan if it is incorporated in Pakistan or if its control and management are exercised wholly in Pakistan during the tax year.

A company is defined to include the following:

• A company as defined in the Companies Ordinance 1984

• A body corporate formed by or under any law in force in Pakistan

• An entity incorporated by or under the corporation law of a country other than Pakistan

• The government of a province

• A local authority

• A foreign association that the Federal Board of Revenue declares to be a company

• A Modaraba, a cooperative society or finance society, or any other society

• A nonprofit organization

• A trust, an entity or a body of persons established or constituted by or under any law for the time being in force

Tax ratesThe corporate income tax rate for the tax year 2016 (corresponding to the income year ending between 1 July 2015 and 30 June 2016) is 32% for companies other than banking companies. For banking companies, the tax rate is 35%.

Small companies are subject to tax at a rate of 25%.

Small companies are defined as companies that meet all the following conditions:

• Companies with paid-up capital and undistributed reserves not exceeding PKR50m

• Companies with not more than 250 employees at any time during the year

• Companies with an annual turnover not exceeding PKR250m

• Companies not formed as a result of a restructuring involving the splitting up or reorganization of an already-existing business

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Air transport and shipping businessThe gross revenue of nonresidents’ air transportation and shipping businesses is taxed at 3% and 8%, respectively. This income is not subject to any other tax.

A shipping business of a resident person is taxed on the basis of registered tonnage per annum.

Minimum taxAll resident companies and nonresident banking companies are subject to a minimum income tax equal to 1% of gross receipts from sales of goods, services rendered and the execution of contracts, if the actual tax liability is less than the amount of the minimum tax. The excess of the minimum tax over the actual tax liability may be carried forward and used to offset the actual tax liability of the following five tax years.

For certain categories of taxpayers, the rates of minimum tax are as follows.

Taxpayer category Minimum tax as percentage of a taxpayer’s turnover for the year

• Oil marketing companies, oil refineries, Sui Southern Gas Company Limited and Sui Northern Gas Pipelines Limited (with annual turnover exceeding PKR1b)

• Pakistani Airlines

• Poultry industry

• Dealers or distributors of fertilizers

0.5%

• Distributors of pharmaceutical products, consumer goods, including fast-moving consumer goods, fertilizers and cigarettes

• Petroleum agents and distributors registered under the Sales Tax Act, 1990

• Rice mills and dealers

• Flour mills

0.2%

• Motorcycle dealers registered under the Sales Tax Act 1990

0.25%

• In all other cases 1.0%

Alternate corporate taxThe Finance Act 2014 has made applicable, from tax year 2014, an alternate CIT. Where the CIT falls short of 17% of the accounting income (excluding certain incomes and related expenses), the alternative CIT is required to be paid as minimum tax. The difference between the CIT and alternative CIT can be carried forward to set off CIT for a maximum period of 10 years.

Super tax for rehabilitation of temporarily displaced persons The 2015 Finance Act, introduced a super tax for rehabilitation of temporarily displaced persons for the tax year 2015. The super tax of 3% on specified income applies to companies (other than banking companies) having income equal to or more than PKR500 million. The rate applicable to Banking companies is 4% of their income without any threshold of income.


Tax on undistributed reservesThe Finance Act 2015 also introduced tax on undistributed reserves, whereby a tax shall be imposed on every public company (other than a banking company) that derives profits for a tax year but does not distribute cash dividends, or distribute cash dividends to such an extent that its reserves, after such distribution, are in excess of 100% of its paid up capital. The reserves that exceed 100% of paid-up capital shall be treated as income and are liable to be taxed at the rate of 10%.

Advance tax paymentsIn general, advance tax is payable quarterly based on the tax-to-turnover ratio of the latest tax year. However, banking companies must pay advance tax on a monthly basis. If the tax liability is expected to be more or less than the tax charged for the prior tax year, an estimate of tax liability can be filed and advance tax paid in accordance with the estimate, subject to certain conditions. For taxpayers other than banking companies, the due dates for the advance tax payments are 25 September, 25 December, 25 March and 15 June. Banking companies must pay advance tax by the 15th day of each month.

Adjustable quarterly advance tax on capital gains from sale of securities is payable on the capital gain derived during the quarter by the corporate investors at the rate of 2% where the holding period is less than 6 months and 1.5% where the holding period is between 6 and 12 months.

WHTWHT is an interim tax payment that may or may not be the final tax liability. Amounts withheld that are not final taxes are adjustable against the final tax liability of the taxpayer for the relevant year.

WHT to be collected or deducted from applicable payments.

Type of payment RateForeign exchange proceeds from exports of goods

1%

Rent for immovable property 15%Payments for goods including to a non resident having a PE in Pakistan

4% in case of filer (i.e., it files an income tax return) and 6% in case of non-filer

Specified goods 1.50%

Other goodsRecipient being a company 4%Other recipient 4.5%

Import of goodsBy industrial undertaking and companies

5.5% in case of filer and 8% in case of non-filer

By other taxpayers 6% in case of filer and 9% in case of non-filer

Contract payments for construction, assembly and similar projectsBy companies and non resident contractors having PE in Pakistan

7% in case of filer and 10% in case of non-filer

By non resident contractors 6%By other taxpayers 7.5% in case of filer and 10%

in case of non-filerSports persons 10%

Payments for servicesRendered by residentsTransport services 2%Electronic and print media advertising services

1% in case of filer and in case of non-filer:Company 12.5%Other taxpayer 15%

Other servicesBy companies 8% in case of filer and 12%

in case of non-filerBy other taxpayers 10% in case of filer and 15%

in case of non-filerRendered by nonresidents through a PETransport services 2%Other servicesBy companies 8% in case of filer and 12%

in case of non-filerBy other taxpayers 10% in case of filer and 15%

in case of non-filerBrokerage and commissionBrokerage commission 5%Other commission and brokerage 12% in case of filer and 15%

in case of non-filerAdvertisement services by a nonresident person

6% or 10%

In lieu of tax on commission earned by the members of stock exchange

0.01%(e)

Cash withdrawals exceeding PKR50,000

0.3 or 0.6

Brokerage and commissionPurchase of domestic air tickets 5%Purchase of international air tickets above economy classFirst or executive class PKR16,000 per personOthers (excluding economy) PKR12,000 per personDividends 7.5, 10, 12.5, 15, 20, 25%Interest 10, 15, 20%(a)Royalties paid to nonresident persons

15, 20%(b)

Fee for technical services paid to nonresident persons

6, 8, 10, 12, 15%(b)

Branch remittance tax 10%(d)Other payments to nonresidents 20%Collection from distributors, dealers and wholesalers for specified goods

0.1, 0.2, 0.4%(f)

Transfers of immovable property 0.5, 1, 2%(g)


Sales to retailers 0.5%(h)Cable operators at varied rates (i)From IPTV, FM radios, mobile TV, satelliteTV channels and landing rights 20%(j)Dealers, commission agents and arhaits, etc., at varied rates

(k)

(a) The WHT on interest is considered advance payment of tax that may be credited against the eventual tax liability for the year. However, interest received by a nonresident not having a PE in Pakistan, in respect of debt instruments and government securities, including treasury bills and Pakistan Investment Bonds, is a final discharge of tax liability, provided that investments are exclusively made through a special purpose convertible account maintained with a bank in Pakistan. Interest paid on loans and overdrafts to resident banks and Pakistani branches of nonresident banks and financial institutions is not subject to WHT. The rate of tax deducted in respect of payments of interest payable to nonresident persons having no PE in Pakistan is 10% of the gross amount paid. The 17.5% rate applies where the recipient is a non-filer of return of income. The rate is 20% for nonresidents with a PE in Pakistan.

(b) The general rate of withholding is 15%. This tax is considered to be a final tax for nonresident recipients of royalties. However, if royalties are derived with respect to properties or rights effectively connected with a PE of a nonresident, a 20% rate of withholding is imposed. The 20% withholding is available for adjustment against the eventual tax liability.

(c) Fees for technical services do not include consideration for construction, assembly or similar projects of the recipient (such consideration is subject to varying WHT) or consideration that is taxable as salary. The general WHT rate is 15% of the gross amount of payment. The WHT is considered to be a final tax for nonresident recipients. However, if technical services are rendered through a PE in Pakistan, a varying rate applies. The tax deducted is considered to be an advance payment of tax by the nonresident recipient of such technical services fees and is available for adjustment against the eventual tax liability.

(d) Remittance of after-tax profits by a branch of a nonresident petroleum exploration and production company is not taxable.

(e) The 0.01% rate applies to the traded value (sales price) of shares traded on the stock exchange in respect of the commission earned by the members. The 0.01% tax is considered to be advance payment of tax, which is credited against the final tax liability of members of such a stock exchange for the year.

(f) The tax is collected by the manufacturer and commercial importer at the time of sale of the goods in specified sectors. The tax collected is an advance tax for distributors, dealers and wholesalers. The rates of 0.1% and 0.2% applies for sales other than fertilizers to filers and non-filers, respectively, and the rates of 0.7% and 1.4% apply for fertilizer sales to filers and non-filers, respectively.

(g) A person responsible for registering or attesting the transfer of immovable property must collect the tax from the person selling or transferring the property. The tax collected is an advance tax. The 0.5% and 1% rates apply on the sale of property for filers and non-filers, respectively, and the rates of 1% and 2% apply on purchase of property with a value exceeding PKR3m for filers and non-filers, respectively (the 2% rate being applicable from the date specified by the authorities).

(h) The tax is collected by the manufacturer, distributor, dealer, wholesaler or commercial importer at the time of sale of goods to retailers dealing in specified goods. The tax collected is adjustable against the eventual tax liability.

(i) The tax is collected by the Pakistan Electronic Media Regulatory Authority at the time of issuance or renewal of license, depending upon the category of license. The tax collected is adjustable against the eventual tax liability.

(j) The tax is collected on the permission or renewal fee.

(k) The tax is collected by the market committee from dealers, commission agents or arhatis, etc., at the time of issuance or renewal of license. The tax collected is adjustable against eventual tax liability.

DividendsDividends, including remittances of profits by a Pakistani branch to its head office (other than remittances of profits by a Pakistani branch engaged in exploration and production of petroleum), are subject to WHT at the general rate of

12.5%. The WHT is considered as a final discharge of tax liability. A 7.5% rate is imposed on certain dividends distributed by power

generation companies. Intercorporate dividends paid within the group companies entitled to group taxation and group relief are exempt from tax. The 10% rate applies to dividends paid by a mutual fund. The 12.5% rate applies to dividends paid by a stock fund if the dividends receipts are less than capital gains. The 25% rate applies in the case of a dividend received by a company from a collective investment scheme, Real Estate Investment Trust (REIT) scheme or a mutual fund other than a stock fund. The 17.5% rate applies to dividends paid by companies (other than power projects, stock funds, money market funds, income funds, REIT scheme or other funds) if the recipient is a non-filer of return of income. The WHT on dividends is considered a final discharge of the tax liability on such income (except for banks and the 17.5% rate for non-filers).

Capital gainsCapital gains on securities by way of sale of shares of a public company, vouchers of Pakistan Telecommunication Corporation, a Mudaraba certificate, instruments of redeemable capital, debt securities and derivative products are taxable with effect from 1 July 2010. The tax rates are as follows.

No. Period Tax year Rate of tax1 Where holding period of

a security is less than 12 months

2016 15%

2 Where holding period of a security is 12 months or more but less than 24 months

2016 12.5%

3 Where holding period of a security is 24 months or more but less than 4 years

2016 7.5%

4 Where a holding period of a security is more than four Years

2016 0%

Capital gains on other assets (including nonpublic securities) are taxable at the corporate rate of tax. However, only 75% of capital gains derived from transfers of capital assets, excluding immovable properties and assets on which tax depreciation or amortization is claimed, are taxed if the assets were held for more than 12 months.

Depreciable assets, intangibles and stock in trade are taxed as normal business income of the taxpayer.

Effective since 24 April 2012, capital gains on the disposal of listed securities and the tax thereon are computed, determined, collected and deposited on behalf of a taxpayer by the National Clearing Company of Pakistan Limited (NCCPL) as a clearing house licensed by the Securities and Exchange Commission of Pakistan. However, the NCCPL does not collect tax from the following categories of taxpayers:

• A mutual fund

• A banking company, a non-banking finance company and an insurance company


• A Modaraba

• A person registered with the NCCPL as a foreign institutional investor

• A company in respect of debt securities only

• Any other person or class of persons notified by the board

These are required to self-pay their capital gains tax obligation on a quarterly basis at a rate of 1.5% or 2% of the amount of gain, depending on the amount, by filing a statement of advance tax and paying tax within 21 days after the close of each quarter.

Capital gains arising on immovable property held for up to two years, by a person in a tax year, is chargeable to tax at the following rates:

• Immovable property held for up to one year — 10%

• Immovable property held for a period of more than one year but up to two years — 5%

Capital losses can be offset only against capital gains. Capital losses can be carried forward for six years. However, capital losses on securities cannot be carried forward to a succeeding year.

Interest and penaltiesFor a failure to file an income tax return by the due date, a penalty equal to 0.1% of the gross tax payable for each day of defaults is imposed, subject to a minimum of PKR20,000 and a maximum of 50% of the gross tax payable.

In addition, interest and penalties are imposed in the following circumstances:

• Interest at a rate equal to 12% per annum is charged if tax payments, including advance tax payments, are not made or are partially paid.

• For nonpayment or short payment of tax due, a penalty equal to 5% of the amount of tax in default may be levied. For a second default, an additional 25% of the amount of tax in default may be levied and, for third and subsequent defaults, an additional penalty of 50% of the amount of tax in default may be imposed. For any subsequent defaults, an additional penalty equal to 50% of the amount of tax in default is imposed.

• If income is concealed, a penalty equal to the amount of tax evaded or PKR25,000, whichever is higher, is levied in addition to the normal tax payable.

The income tax department is required to pay compensation at the rate of the Karachi Interbank Offered Rate (KIBOR) plus 0.5% per annum on refunds due that have not been paid within three months of the due date; this will be paid from the expiration of the three months until the date on which the refund is paid.

Foreign lossA foreign loss can only be set off against foreign-source income, and the same may be carried forward for a period not exceeding six years.

AdministrationThe tax year commences on 1 July and ends on 30 June. Companies are required to end their fiscal years on 30 June. Special permission is required from the Commissioner of Income Tax to use a different year-end. The Federal Board of Revenue has specified 30 September as the year-end for certain industries, such as sugar, and 31 December as the year-end for insurance companies.

An income tax return must be filed by 30 September of the following year if the company’s year-end is from 1 July to 31 December and by the following 31 December if the year-end is from 1 January through 30 June. Any balance due after deducting advance payments and WHTs must be paid when the tax return is filed.

Determination of business incomeGeneralDetermination of taxable income is generally based on the audited financial statements, subject to certain adjustments. Any income accruing or arising, whether directly or indirectly, through or from a PE or any other business connection in Pakistan, through or from any asset, property or source of income in Pakistan, or through the transfer of a capital asset located in Pakistan, is subject to tax.

Expenses incurred to derive income from business that is subject to tax are allowed as deductions to arrive at taxable income. For branches of foreign companies, allocated head office expenses may be deducted up to an amount calculated by applying the ratio of Pakistani to worldwide turnover.

InventoriesInventory for a tax year is valued at the lower of cost or net realizable value of the inventory on hand at the end of the year. If a particular item of inventory is not readily identifiable, the FIFO or weighted-average methods may be used. The valuation method should be applied consistently from year to year, but the method may be changed with the prior approval of the tax authorities.

ProvisionsGeneral provisions for bad debts are not allowed as deductions from income. However, a charge for specific bad debts may be allowed if the debt is accepted by the income tax officer as irrecoverable.

Non-banking finance companies and the House Building Finance Corporation may claim a deduction equal to 3% of the income from consumer loans for the maintenance of a reserve for bad debts resulting from such loans.


For advances and off-balance sheet items, banking companies are allowed a provision not exceeding 1% of their total advances, and up to 5% of total advances to consumers and SMEs, if a certificate from the external auditor is furnished to the effect that such provisions are based on and are in line with the prudential regulations issued by the SBP. The amount of provision in excess of 1% is allowed to be carried over to succeeding years. Allowances relating to capital expenditure have been introduced.

Tax depreciationDepreciation recorded in the financial statements is not allowed for tax purposes.

Tax depreciation allowances are given on assets such as buildings, plant and machinery, and computers and furniture owned by the company and used for business purposes. A depreciation allowance for a full year is allowed in the year the asset is placed in service, but no depreciation allowance is allowed in the year of disposal of the asset.

Depreciation is calculated using the declining balance method. The following depreciation rates are generally used.

Assets Annual allowance

Buildings 10%

Furniture (including fittings), machinery and plant (not specified otherwise), motor vehicles (all types), ships and technical or professional books

15%

Computer hardware, including printers, monitor and associated items, machinery and equipment used in the manufacture of IT products, aircraft and aero engineering

30%

Below-ground installations (including offshore) of mineral oil enterprises

100%

Offshore platform and production installations of mineral oil enterprises

20%

To promote industrial development in Pakistan, certain other allowances relating to capital expenditure have been introduced.

Initial allowanceAn initial depreciation allowance is available at a rate of 15% for buildings and at a rate of 25% for all other categories of eligible depreciable assets placed in service in Pakistan. The allowance is granted in the tax year in which the assets are used in the taxpayer’s business for the first time or in the tax year in which commercial production begins, whichever is later.

First-year allowancesA first-year depreciation allowance at a rate of 90% is granted for plant machinery and equipment installed by an industrial undertaking established in specified rural and underdeveloped areas. This allowance is granted instead of the initial allowance.

A first-year depreciation allowance at a rate of 90% is granted for plant machinery and equipment installed for generation of

alternate energy. This allowance is available to an industrial undertaking set up anywhere in Pakistan and owned and managed by a company. The allowance is granted instead of the initial allowance.

Amortization of intangiblesAmortization of intangibles is allowed over the normal useful life of intangibles on a straight-line basis. If an intangible does not have an ascertainable useful life or if it is more than 10 years, for purposes of calculating annual amortization, it is considered to be 10 years.

Amortization of expenses incurred before the commencement of businessThe amortization of expenses incurred before the commencement of business is allowed on a straight-line basis at an annual rate of 20%.

Exploration and production of petroleumThe exploration and the production of petroleum are undertaken through an agreement with the Government. Profits and gains of the business constitute a separate class of income, subject to special tax treatment.

Relief for business lossesBusiness losses, other than capital losses and losses arising out of speculative transactions, may be carried forward to offset business profit in subsequent years for a period not exceeding six years. Unabsorbed depreciation may be carried forward indefinitely.

Group of companiesThe Finance Act 2007 introduced the concept of group taxation in Pakistan. Under the ordinance, a group of resident companies comprising holding companies and subsidiaries in a 100%-owned group can file its tax returns as one fiscal unit, subject to the satisfaction of certain conditions.

Alternatively, on the satisfaction of certain conditions, group companies can surrender their assessed losses (excluding capital losses and loss carry-forwards) for the tax year to other group companies.

Miscellaneous mattersForeign exchange controlsIn general, remittances in foreign currency are regulated, and all remittances other than a certain specific few are subject to clearance by the SBP.

Debt-to-equity rulesUnder the thin capitalization rules, if the foreign debt-to-equity ratio of a foreign-controlled company (other than a financial institution or a banking company) exceeds 3:1, interest paid on foreign debt in excess of the 3:1 ratio is not deductible.


The SBP prescribes that borrowers from financial institutions have a debt-to-equity ratio of 60:40. This may be increased for small projects costing up to PKR50m or by special government permission.

Loans and overdrafts to companies (other than banking companies) controlled directly or indirectly by persons resident outside Pakistan and to branches of foreign companies are generally restricted to certain specified percentages of the entities’ paid-up capital, reserves or head office investment in Pakistan. The percentage varies, depending on whether the entities are manufacturing companies, semi-manufacturing companies, trading companies or branches of foreign companies operating in Pakistan. No limits apply, however, to companies exporting at least 50% of their products.

To meet their working capital requirements, foreign controlled companies and branches of foreign companies may contract working capital loans in foreign currency that can be repatriated. The SBP also permits foreign controlled companies to take out additional matching loans and overdrafts in rupees equal to the amount of the loans that may be repatriated. Other loans in rupees are permitted in special circumstances. Certain guarantees issued on behalf of foreign controlled companies are treated as debt for purposes of the company’s borrowing entitlement.

Miscellaneous taxesPakistan imposes stamp duties, social security, sales tax, federal excise duty, capital value tax and customs duties.

Investment incentives• Private sector projects engaged in the generation of electricity

are exempt from tax. However, this exemption is not available to oil field electricity generation plants set up between 22 October 2002 and 30 June 2006.

• Income derived by nonresidents not operating in Pakistan from the foreign currency account scheme held at authorized banks in Pakistan or from certificates of investment issued by investment banks in accordance with the foreign currency account scheme introduced by the SBP is exempt from tax.

• Income derived from instruments of redeemable capital by the National Investment (Unit) Trust of Pakistan or by mutual funds, investment companies or collective investment schemes approved by the Securities and Exchange Commission, is exempt from tax if such enterprises distribute at least 90% of their income to their unit holders.

• Income derived by a collective investment scheme or REIT scheme is exempt from tax if at least 90% of their accounting income for the year, reduced by capital gains, whether realized or unrealized, is distributed to their unit holders, certificate holders or shareholders.

• Income derived from the export of computer software developed in Pakistan, IT services and IT-enabled services is exempt from tax up to 30 June 2016.

• A tax credit of 10% of the amount invested by a company in an industrial undertaking, for purchase of plant and machinery for

the purposes of extension, expansion balancing, modernization and replacement in an industrial undertaking is allowable against the tax payable, provided such plant and machinery is purchased and installed between 1 July 2010 and 30 June 2016. Any unavailed tax credit may be carried forward to the following two years.

• A tax credit equal to 100% of the tax payable on taxable income for a period of five years is granted to a company if the following conditions are satisfied:

• The company is incorporated and industrial undertaking is set up between 1 July 2011 and 30 June 2016.

• The investment is made entirely out of equity.

• A tax credit is given to a company that was set up in Pakistan before 1 July 2011 and invests 100% of any new equity raised in the purchase and installation of plant and machinery for an industrial undertaking. The undertaking may be for the purpose of expansion of the plant and machinery already installed or a new project. The credit is allowed against the tax payable for a period of five years.

• A tax credit equal to 20% of the amount of investment is given to a company that is set up in Pakistan before 1 July 2011 and that makes investment through 100% new equity, in the form of issuance of new shares between 1 July 2011 and 30 June 2016, for the purpose of balancing, modernization and replacement of plant and machinery already installed in an industrial undertaking owned by a company. The tax credit, if not fully adjusted, can be carried forward up to five years.

• A tax credit of 2.5% of tax payable is allowed in a tax year to a taxpayer registered as a manufacturer under the Sales Tax Act, if 90% of the sales were made to persons who are also registered under the act.

• A tax credit is available to a company formed for establishing and operating a new manufacturing unit between 1 July 2015 to 30 June 2018 for a period of 10 years. The tax credit shall be equal to 1% of tax payable of every 50 employees registered with the social security institutions of the Federal or Provincial Government.

• A tax credit of 20% of the tax payable is allowed in the tax year in which a company becomes listed on a registered stock exchange in Pakistan.

• Any income derived by a nonresident from investment in certain exchangeable bonds issued by the Federal Government is exempt from tax.

• Certain industrial sectors are entitled to exemption from or reduction in tariffs on imported plant and machinery, with customs duty ranging from 0% to 5%, no sales tax and WHT on import on fulfillment of certain specified conditions. Full exemption of customs duty and taxes is applicable strictly on import of capital equipment on fulfillment of certain specified conditions.

• Exemption from customs duty is available on import of raw materials used in the production of goods for export. Pharmaceutical raw material and chemicals are also exempt from customs duty.


Tax treatiesPakistan has entered into double tax treaties with the following countries: Austria, Jordan, Saudi Arabia, Azerbaijan, Kazakhstan, Serbia, Bangladesh, Korea (South), Singapore, Balarus, Kuwait, South Africa, Belgium, Lebanon, Sri Lanka, Bosnia and Herzegovina, Libya, Sweden, Canada, Malaysia, Switzerland, China, Malta, Syria, Denmark, Mauritius, Tajikistan, Egypt, Morocco, Thailand, Finland, the Netherlands, Tunisia, France, Nigeria, Turkey, Germany, Norway, Turkmenistan, Hungary, Oman, the UAE, Indonesia, the Philippines, the United Kingdom, Iran, Poland, the United States, Ireland, Portugal, Uzbekistan, Italy, Qatar, Vietnam, Japan, Romania, Yemen, Bahrain, Nepal, Ukraine, Spain and the Kyrgyz Republic.

The domestic tax rates are subject to any adjustment under the special or concessionary provisions of a treaty that override domestic law. If the treaty provides for a different rate or treatment, this will prevail upon the normal provisions.


Qatar’s strength is derived from its oil and gas revenue, which has made it the third-wealthiest country in the world in terms of GDP per capita income, according to the IMF ratings for 2015.

Government policy in recent years has recognized the need to promote greater private investment in core industrial projects. The Government actively promotes ownership by Qatari and other GCC nationals, and has focused its investment activity on areas in which private capital is unavailable or government participation is believed to be in the national interest.

Qatar’s commercial laws limit the range of foreign participation in business activities in the country. As a general rule, a non-Qatari person may engage in commercial, industrial, agricultural and service activities, provided the foreign participation in the capital does not exceed 49% (unless an exemption is granted). Examples of exemptions include contractors engaged in the New Doha Port Project, the Doha Rail, construction projects in the oil and gas sector, and civil projects for governmental authorities.

Additionally, the Ministry of Economy and Commerce may grant approval for foreign investors to hold 100% ownership in a Qatari company.

Only certain areas of land may be held by foreign companies or individuals.

These areas include the West Bay Lagoon, Pearl-Qatar and Lusail developments.

The unit of currency is the Qatari riyal (QAR). The official exchange rate is approximately QAR3.64 to US$1.

Taxes on corporate income and gainsCorporate income taxForeign companies carrying on business activities in Qatar are subject to tax.

The basis for taxation depends on whether a taxpayer is a tax resident or has a PE in Qatar, or is a nonresident with no PE in Qatar.

The tax law includes specific rules for determining tax residency of taxpayers.

Joint ventures are generally taxed as corporate bodies, except for unincorporated joint ventures, which are seen as conduit entities and have no separate legal personality.

For a tax-resident company with Qatari and non-GCC shareholders, tax is assessed on the total profits of the company. The resulting tax liability is apportioned between the Qatari and non-GCC shareholders. The tax liability attributable to the non-GCC shareholders is paid to the Public Revenues and Taxes Department (PRTD). The Qatari

shareholders are exempt from tax; hence, the tax liability attributable to them is normally distributed as dividends.

Foreign investors generally operate in Qatar by adopting one of the following structures:

• Establish a wholly owned branch of a foreign company by obtaining a ministerial decree to carry out a project that facilitates economic development or the performance of a public service

• Establish a LLC with a Qatari partner to engage in commerce, industry, agriculture and services, provided the foreign investor’s share in the capital does not exceed 49% and the company is incorporated in accordance with the Commercial Companies Law

The Qatar tax implications for the previously mentioned investment structures are summarized below:

• The ministerial decree (branch) entity does not require a local equity partner. Business profits of the entity accrue solely to the foreign company and are taxable in full in accordance with the tax rates specified in the ER of Income Tax Law No. 21 of 2009.

Qat

ar


• A local company may be incorporated with a 51% local equity partner; however, the foreign shareholder’s profit entitlement may be varied to be proportionately greater through the Memorandum and Articles of Association. The business profits are subject to tax and the resulting tax liability is allocated between the shareholders. The element of tax relating to the profit distributable to the local shareholder is exempt.

Tax exemption based on nationalityNationals of other GCC states (Bahrain, Kuwait, Oman, Saudi Arabia and the UAE) are treated as Qatari nationals for the purposes of the tax law.

An exemption from Qatari income tax is given at the corporate level to legal persons that are tax resident in Qatar and wholly owned by Qatari or other GCC nationals, and at the individual level to Qatari and other GCC nationals who are tax resident in Qatar, including their share of profits in legal persons.

The qualification for tax exemption requires a determination of the nationality of the ultimate individual shareholders. Legal entities that are tax resident in Qatar and owned by both GCC and non-GCC nationals shall be taxed based on the share of the profits ultimately attributable to the non-Qatari nationals who are not tax resident in Qatar.

Tax exemption based on stock listingLaw No.20 of 2008 previously provided an income tax exemption for non-Qatari investors’ share of profits of Qatari shareholding companies, where the shares are listed on the Qatar Stock Exchange.

However, Law No. 20 of 2008 was annulled and replaced by Law No. 17 of 2014, which provides the following income tax exemptions:

• Profit of entities that have their shares listed on the Qatar Stock Exchange that is attributable to foreign (non-Qatari) investors; profit of investment funds that have their units listed on the Qatar Stock Exchange that is attributable to foreign (non-Qatari) investors; and any gains arising from the sale, transfer or exchange of securities or units in investment funds that are listed on the Qatar Stock Exchange.

• Under the old Law, the PRTD issued a letter to registered auditors in Qatar indicating that this exemption does not extend to companies in which the listed Qatari shareholding companies hold shares. On 12 January 2012, the PRTD issued another letter suspending the implementation of the taxation of companies wholly or partially owned by listed Qatari shareholding companies.

• However, no formal or informal communication has been issued by the PRTD with respect to the applicability of the new law.


Tax exemption based on activityUpon application to the Tax Exemption Committee established within the Ministry of Economy and Finance, an income tax exemption may be given to certain entities based on their activity for a period of up to six years.

In considering the application for tax exemption, the Tax Exemption Committee is guided by the following specific criteria:

• The project should contribute to supporting and developing industry, agriculture, fishery, trade, petroleum, mining, tourism, land reclamation, transportation, or any activities or projects needed by the country that provide social and economic benefits.

• The project should be in line with the objectives of the economic development plan, be approved by the competent government authority and contribute to the overall development of the economy, taking into consideration:

• The volume of investment and location

• Its commercial profitability

• The extent to which the project is integrated with other projects

• The extent to which the project relies on the production factors available in the country

• The impact of the project on the balance of trade and the balance of payments

• The project should introduce modern technology and lead to the creation of employment opportunities for nationals. There is no Qatari or GCC national participation requirement.

Tax exemptions for special economic zones During 2015, Qatar announced the launch of three Special Economic Zones (SEZs).

The first, Ras Bufontas SEZ, is planned for development as an advanced technology and logistics cluster. Accordingly, it will target companies in the logistics, ICT, health care, energy and environment, hi-tech building and global warehousing business sectors.

The second, Al Karaana, is a specialized industries and logistics cluster. It will target businesses in building materials, machinery and fabrications, specialized spillover industries, safety and maintenance, and specialized warehouse and logistics sectors.

Finally, the Um Alhoulis SEZ is to be developed as a light manufacturing zone. It wil be reserved for logistics businesses, maritime industries, downstream metal, plastics and speciality petrochemicals, non-bulk building products, food processing and packaging, and transportation and automotive.

Phase one of Ras Bufontas and Um Alhoulis are due to come onstream in the first half of 2017, while Al Karaana is not due to open until late 2019.

IncentivesIncentives available to businesses operating in the SEZs are outlined in Law No. 34 of 2005, and include the following:

• One hundred percent foreign ownership permissible

• Twenty-year tax exemption, which may be extended

• Customs exemption for the importation of goods into Qatar — however, goods exported from the SEZ to the local Qatar market would be subject to customs duty

• No foreign exchange controls

Other tax exemptionsForeign shipping and aviation companies are generally exempt from Qatari income tax if they enjoy similar reciprocal treatment in the respective foreign countries.

Private organizations that are registered to perform nonprofit activities in Qatar are not subject to taxation in Qatar for their licensed activities. However, this will depend on the facts and circumstances of each particular case. Other activities that are performed and do not fall under the given license are subject to taxation in Qatar.

Rates of corporate income taxIncome is generally subject to tax at a standard rate of 10%.

A minimum rate of 35% is applicable to companies engaged in petroleum operations (or rates ranging from 35% to 55% for agreements that precede the enactment of the tax law). Certain companies engaged in petroleum operations are liable to taxation in accordance with the provisions of the underlying production sharing contract or development and fiscal agreement.

The definition of petroleum operations includes the exploration for petroleum; development of oil fields; drilling; well digging; finishing; revamping; the production, processing and refining of petroleum; and the storage, transport loading and shipping of crude oil and natural gas.

WHTCertain payments made to nonresident entities with respect to activities not connected with a PE in the state shall be subject to a final WHT at the following rates:

• Five percent on royalties and technical fees, including:

• Computer services such as program development, network services and maintenance services

• Engineers’ services in all fields, including mechanical, electrical and civil

• Designs prepared by engineers and consultants

• Maintenance of industrial equipment provided by technical experts

• Consulting services rendered by management consultants

• Legal consultation and external auditing


• Training services in any of the technical fields mentioned in these points

• Seven percent on interest, directors’ fees, brokerage, commissions and other payments in relation to contracts for certain services conducted wholly or partially in Qatar

It is the PRTD’s position that payments for the following services should be subject to WHT at the rate of 7%:

• Advertising and promotion services

• Intermediary services and commercial representatives

• Recruitment services

• Land transportation

• Customs clearance services

• Cleaning services

• Organizing events

• Administration services

Companies or PEs in Qatar that make these payments must deduct tax at source and remit it to the PRTD by the 15th day of the month following the month of payment. The WHT will generally apply to a service provider that performs services in Qatar and is unable to produce a tax card and commercial registration.

Taxation of nonresidents with no PEUnder the regulations to the tax law, tax shall not be withheld on amounts paid to nonresident entities with a PE in Qatar and that have been issued a tax card by the PRTD.

It is worth noting that, under Tax Circular No. 2 of 2011, if the payments are made to nonresident entities that are not registered in the Commercial Register or registered for a contract or project with a period less than a year, then they should be subject to WHT at source.

On the basis of the circular, those nonresident entities that are not registered in the Commercial Register and are determined to have a PE in Qatar are requested to approach the PRTD and claim a refund for the WHT suffered.

Tax administrationTax registrationA taxpayer must register with the PRTD and obtain a tax card within 30 days of commencing a taxable activity in Qatar.

Taxable yearThe taxable year runs from 1 January to 31 December, and a taxpayer must use this accounting period unless approval is obtained to adopt an alternative accounting period. Approval may be granted where the taxpayer belongs to a group of companies that uses a different accounting period or if the nature of its activity requires the use of an accounting period that is different from the taxable year under the tax law.


Annual tax filingCompanies that are tax resident or those with a PE in Qatar are required to file annual income tax returns within four months of the end of the accounting period. The due date may be extended upon submission of an application based on reasonable grounds 30 days prior to the deadline for the tax filing, but the length of the extension may not exceed 4 months after the deadline.

Any taxpayer that carries on an activity in Qatar, including activities that are tax-exempt under Qatar laws, shall submit an income tax return accompanied by a set of audited financial statements if the capital exceeds QAR100,000, the annual taxable income exceeds QAR100,000 or the head office is located outside Qatar.

The income tax return must be certified by an auditor licensed to practice in Qatar. The income tax return and audited financial statements must generally be denominated in QAR. If this requirement is not satisfied, the PRTD may reject the income tax return.

Tax is payable on the due date for filing the income tax return.

The due date for payment of taxes may change if the tax filing date is extended.

Penalties for late tax filing are levied at the rate of QAR100 per day, subject to a maximum of QAR36,000. The penalty for late tax payment is based on 1.5% of the tax due for each month or part thereof for which the tax payment is late up to the amount of tax due.

The new tax administration systemIn September 2014, the Qatar MoF announced the introduction of the new tax administration system (TAS).

TAS introduced an electronic basis for taxpayers to file their annual income tax returns, their monthly WHT returns and their tax card registrations with the PRTD. TAS also provides for the electronic submission of the principal requests to the PRTD, covering processes such as tax objections and appeals, and other routine correspondence.

While the system has now gone live, the PRTD has indicated that it still expects hard copies of documents to be filed with the department until further notice is given. These submissions must agree to the documentation filed electronically under TAS.

All taxpayers are required to register on the new system as soon as possible.

Tax review processThe PRTD may issue tax assessments based on the taxable income as determined in the income tax return. However, the PRTD has the right to disregard the income tax return and to assess the tax on a presumptive basis in cases where it is not possible to make an assessment on the basis of actual income.

The tax law provides for a structured appeals process against tax assessments. The appeals process consists of the following stages:

• Objection to a tax assessment

• Correspondence and negotiations with the PRTD

• Formal appeal to the TAC

• The commencement of a case in the judicial courts

The PRTD may inspect a taxpayer’s books and records, which should be maintained in Qatar for a period of 10 years. The books and records are not required to be maintained in Arabic.

Tax filing for 100% GCC-owned companiesAlthough exempt by virtue of the nationality of its shareholders, 100% GCC-owned companies that are tax resident in Qatar are required to file annual income tax returns and audited financial statements if their capital is QAR2m or more, or if their annual revenue is QAR10m or more.

Outside of these thresholds, the filing of annual income tax returns and audited financial statements can be made on a voluntary basis.

Taxable incomeGross incomeQatar operates a territorial taxing regime; thus, only items of income sourced from within Qatar should fall within the Qatar tax net.

The following are some of the items included in taxable income:

• Bank interest and returns derived outside Qatar from amounts generated from a taxable activity carried out in Qatar

• Commissions due under agency, brokerage or commercial representation agreements accrued outside Qatar in respect of activities carried out in Qatar

• Gross income resulting from an activity carried out in Qatar

• Gross income resulting from contracts wholly or partly performed in Qatar

• Service fee income received by head offices, branches or related companies

• Certain dividend income and capital gains on real estate

• Capital gains on the disposal of shares in companies that are tax resident in Qatar

• Interest on loans acquired in the course of business


Capital gainsCapital gains are aggregated with other income and form part of the gross income subject to tax. However, capital gains derived by natural persons on the disposal of real estate and securities that do not form part of the assets of a taxable activity shall be exempt from Qatari income tax.

In addition, a draft law has recently been approved by the Advisory Council that will provide tax exemption to foreign investors holding shares in companies listed on the Qatar Stock Exchange. It will be legislated into law that foreign investors shall not be subject to Qatari taxation on either capital gains or dividends derived from listed Qatari companies.

DividendsGenerally, dividends are not taxed. Income distributed from profits that have already been subject to Qatari income tax will not be subject to double taxation in the hands of the recipient. Moreover, dividends paid by an entity that enjoys tax exemption under Qatari laws are tax-exempt in the hands of the recipient.

Deductible expensesNormal business expenses are allowable and must be determined under the accrual method of accounting.

Persons carrying on a liberal profession, such as accountants, lawyers and doctors, may choose to deduct 30% of their gross income in lieu of all deductible expenses and costs.

Expenses for entertainment, hospitality, meals, holidays, club subscriptions and client gifts are subject to certain restrictions.

Interest paid by a PE (branch) in Qatar to its overseas head office or other related party outside Qatar may not be tax deductible. Interest payments by a subsidiary company to its parent company or an affiliate are allowable deductions; however, these interest payments are subject to the WHT provisions and should represent arm’s length amounts.

InventoriesInventories must be valued using the guidance under the International Accounting Standards.

Allocation of head office expensesCharges of a general or administrative nature imposed by a head office on its Qatar branch are allowed as deductions, provided they do not exceed 3% of the gross income of the branch minus certain other costs. For banks and insurance companies, the limit is 1%. If a project derives income from both Qatari and foreign sources, the limit is 3% of the total gross income of the branch minus subcontract and certain other costs, revenues from the supply of machinery and equipment, offshore revenues derived from services performed overseas and other income not related to activities in Qatar.

ProvisionsUnder the regulations, general provisions, including provisions for air tickets, bad debts and inventory obsolescence, are not tax deductible. Only when the expenses are actually incurred and supported by documentary evidence, and when certain criteria (where applicable) under the regulations are met, will a taxpayer be allowed a tax deduction.

Tax depreciationThe regulations contain special rules for the computation of depreciation of fixed assets for tax purposes. The resulting tax depreciation may be higher or lower than the depreciation computed for financial accounting purposes, resulting in deferred income taxes.

However, under the regulations to the tax law, expenses are tax deductible if they are actually incurred and supported by documentary evidence, including contracts, receipts and invoices. In the case of depreciation and provisions, this requirement shall be deemed met if the depreciation or provision is registered in the accounts, and only up to the amounts registered in the accounts.

Where the tax depreciation calculated by a taxpayer applying the rates under the regulations is higher than the accounting depreciation, the taxpayer may only claim a tax deduction up to the amount of the accounting depreciation.

In computing tax depreciation, assets are classified into two separate categories: the high-value assets and the other assets.

Depreciation for high-value assets should be calculated on a straight-line basis. The depreciation rates vary from 5% to 50% per annum, depending on the asset classification.

Depreciation for other low-value assets should be calculated on a reducing balance method. The depreciation rates vary from 15% to 33.33%, depending on the asset category.

Given the special rules, it is imperative that fixed assets are classified into the appropriate category to ensure the application of the correct tax depreciation rates and method.

The approval of the Minister of Economy and Finance is required to increase the tax depreciation rates. The increase is normally allowed only for new start-up projects upon application and presentation of appropriate justifications to the Minister.

Relief for lossesTax losses may be carried forward for up to three years. Carry-back of tax losses is not allowed.

Groups of companiesThe tax law does not contain provisions covering groups of companies; separate income tax returns must be filed for each legal entity.


MiscellaneousForeign exchange controlsQatar does not impose foreign exchange controls. Equity capital, loan capital, interest, dividends, branch profits, royalties and management fees can be remitted without restrictions.

Anti-avoidance legislationIf a company carries out a transaction with a related party that was intended to reduce its taxable income, the taxpayer must be able to establish that it was made on an arm’s length basis.

Additionally, the PRTD will look at the substance of the transaction or commercial structure rather than its legal form, particularly where a taxpayer may be structuring transactions, the primary aim of which is to avoid tax.

The PRTD may re-characterize a transaction or alter the tax consequences of any transaction that they have reasonable cause to believe was entered into to avoid or reduce a tax liability.

Transfer pricingTransactions between related parties must be based on an arm’s length principle, and the price of the transaction should be determined based on the comparable uncontrolled price (CUP) method. Where the CUP method is not used, a taxpayer is required to obtain approval from the PRTD for the adoption of an alternative transfer pricing method approved by the OECD.

Thin capitalizationInterest paid to banks and financial institutions relating to amounts borrowed for operations (working capital) in Qatar may normally be deducted when computing the taxable profit of a company. However, interest paid to group or related companies outside of Qatar may be disallowed unless it is proven that the funds were specifically borrowed to finance the working capital needs of operations in Qatar.

Supply and installation contractsProfits from “supply only” contracts, whereby the supply activity is performed outside Qatar, are exempt from tax because the supplier trades “with” but not “in” Qatar. If a contract includes work elements that are performed partially outside and partially in Qatar, and if these activities are clearly distinguished in the contract, the revenues from outside Qatar should not be taxable in Qatar.

Similarly, with respect to an engineering, procurement and construction contract for a project in Qatar, the obligation to perform construction work in Qatar may bring the revenues arising outside Qatar into the Qatari tax net, unless the contract clearly includes a split of revenue between work done in and work done outside Qatar.

Retention of final paymentsAll ministries, government departments, public and semi-public establishments and companies are required to retain the final payment or 3% of the contract value (after deducting the value of supplies and work done abroad), whichever is greater, on payments to temporary branches of foreign entities until they present a no objection letter from the PRTD.

Retention shall not apply on payments to Qatari LLCs and permanent branches (e.g., certain accounting firms and professional engineering offices) with a valid commercial registration and tax card in Qatar. However, the retention shall apply on payments to Qatari temporary branches (i.e., branches whose registration is valid only for the duration of a particular contract) with a valid commercial registration and tax card in Qatar for a specific project or contract of more than one year.

Nonresident entities with no commercial registration or tax card in Qatar and temporary branches registered for a specific project or contract of less than one year shall be subject to WHT instead of retention.

Contract reportingIn addition, establishments, authorities and companies carrying on a trade or business in Qatar are required to give the PRTD details of the companies with which they are doing business as contractors, subcontractors or in any other form. Information to be provided should include the name and address of the company together with the value of the contract. The final payment due to the contractor or subcontractor shall be retained as discussed above.

Personal income taxQatar does not levy personal income tax on salaries and wages earned under a contract of employment.

Customs dutiesSee Appendix 1: Customs duties in the GCC region.

Tax treatiesQatar has entered into several double tax treaties with the following countries and is actively expanding its treaty network. Qatar has effective or in force tax treaties with: Algeria, Armenia, Austria, Azerbaijan, Belarus, Bulgaria, China (mainland), Croatia, Cuba, Cyprus, France, Gambia, Georgia, Greece, Guernsey, Hong Kong SAR, Hungary, India, Indonesia, Ireland, Isle of Man, Italy, Jordan, Jersey, Jordan, Korea (South), Lebanon, Luxembourg, Macedonia, Malaysia, Malta, Mauritius, Mexico, Monaco, Morocco, Nepal, the Netherlands, Norway, Pakistan, Panama, the Philippines, Poland, Portugal, Romania, Russia, Senegal, Serbia, Seychelles, Singapore, Slovenia, Sri Lanka, Sudan, Switzerland, Syria, Tunisia, Turkey, the United Kingdom, Venezuela, Vietnam and Yemen.


Value Added TaxThere is currently no VAT in Qatar. However, implementation of VAT is currently being discussed by the GCC member states, and it is anticipated that a VAT regime will be introduced in the region within the next two years.

Qatar Financial CentreUnder the QFC Tax Law, the local-source taxable income of businesses operating in the QFC is subject to a flat-rate tax of 10%.

Activities that may be carried on at the QFC include the following:

• International banking

• Insurance and reinsurance

• Fund management

• Brokerage and dealer operations

• Treasury management

• Funds administration and pension funds

• Financial advice and back-office operations

• Professional services in the areas of classification and investment grading

• Audit, legal and taxation advisory

• Holding company and headquarter hosting

• Ship brokering and agency services

Companies engaged in captive insurance or reinsurance services are subject to a zero concessionary rate of tax.

Taxable incomeTaxable income should be calculated on the basis of the accounting profit disclosed in the entity’s financial statements, as adjusted for tax purposes. QFC entities may draw up accounts under IFRS, UK GAAP, US GAAP or standards issued by the Accounting and Auditing Organization for Islamic Finance Institutions. An alternative basis of accounting may be applied under certain circumstances.

Transfer pricing guidelinesThe QFC Tax Manual provides guidance on the application of the arm’s length principle to transactions between QFC-registered taxpayers and their related parties.

Basic ruleThe chargeable profits and tax losses must be determined on the basis of arm’s length transactions.

Acceptable transfer pricing methodsThe methods considered in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations may be used. The transfer pricing method used must be supported by documentation substantiating the appropriateness of the selected method.

One-way adjustmentThe QFC Tax Manual provides for a one-way adjustment approach, where a transfer pricing adjustment would only be applied to increase the amount of chargeable profits or to reduce tax losses.

ComparablesThe QFC Tax Manual also provides guidance on the factors to consider when establishing comparability and allows adjustments to comparables to eliminate differences in order to improve comparability.

The guidelines suggest that the cost-plus basis may be an appropriate approach when the activities performed are of relatively low value or low risk to the business as a whole.

Documentation requirementsThe QFC Tax Manual does not state that the taxpayer must file or have transfer pricing documentation completed at the time of filing its tax return. However, the QFCA Tax Department has stated that, where a taxpayer has undertaken a transfer pricing study, properly benchmarked against valid comparables, the existence and presentation of the study to the QFCA Tax Department will be a significant factor in deciding if an enquiry into a return is necessary.

A transfer pricing study is specifically recommended where there is increased risk of scrutiny; for example, when losses are incurred during a particular tax year, or profits appear lower than in previous years or compared with others in the industry.

Burden of proof and maintenance of records for transfer pricing purposesThe burden of proof is on the QFC-registered taxpayer to establish arm’s length compliance. In case of a compensating adjustment claim, the claimant is required to show that the conditions for the claim are satisfied on the basis of:

• Primary accounting records

• Tax adjustment records

• Records of transactions with associated businesses

• Evidence to demonstrate an arm’s length result, including a functional analysis

Rulings and APAsThe QFCA Tax Department has an advance ruling regime and welcomes QFC-registered entities to apply for an APA to obtain certainty on its tax position. The advance ruling is typically applicable for a period of two or three years.


Thin capitalization rulesThe QFC Tax Manual also provides guidance on thin capitalization requirements.

A taxpayer may be thinly capitalized where they have funded their operations with levels of debt that are excessive to their arm’s length borrowing capacity and, as a consequence, are claiming excessive interest deductions. The QFC Tax Manual specifies that the arm’s length capacity of a QFC taxpayer is the amount of debt that it would have required to finance its operations, as a stand-alone entity, from a non-related independent lender.

The debt-to-equity ratio, or gearing, of a QFC-registered entity is regarded as the key ratio in determining whether a QFC-registered entity is thinly capitalized. A thinly capitalized QFC-registered entity will be subject to restrictions on the level of interest that can be claimed as a tax deduction.

Safe harbor to debt-to-equity ratioAs a means of providing certainty for QFC taxpayers and to minimize the cost of undertaking a transfer pricing study or benchmarking exercise for related party loan agreements, the QFC Tax Manual has outlined safe harbor debt-to-equity ratios as follows:

• For a nonfinancial institution — 2:1

• For a financial institution — 4:1

These safe harbor debt-to-equity ratios are non-statutory and non-binding on both the taxpayer or the QFCA Tax Department. It should be noted that the safe harbor ratios relate only to the quantum of the loan, not the interest rate. The safe harbor guidance applies for accounting periods beginning on or after 1 January 2012. The QFCA Tax Department does not consider reopening settled cases agreed on a basis different from the specified ratios.

Other ratios (e.g., debt-to-EBITDA ratio and interest cover) may be relevant and may be used by a taxpayer to support the view that, despite the gearing being higher than the safe harbor debt-to-equity ratio, the entity should not be regarded as being thinly capitalized.

Loss reliefTax losses incurred can be carried forward indefinitely for utilization against future chargeable profits. There are restrictions, however, on the carry-forward of losses where there is a change in ownership or there is a major change in the nature and conduct of the licensed activities of the QFC entity. Tax losses cannot be carried back.

ExemptionsSpecial exemptions are allowed for certain activities to be carried out by QFC entities to ensure that the QFC remains competitive as a base for financial service providers on an international scale. These exempt activities include:

• Registered funds

• Special investment funds

• Special funding companies

• Alternative risk vehicles

• Charities

Qatar Science and Technology ParkBusinesses registered and operating at the Qatar Science and Technology Park (QSTP) are exempt from corporate income tax. However, businesses operating from the QSTP are required to obtain a tax card, apply WHT on applicable transactions, and file CIT returns reporting income and costs arising on their tax-exempt activities.

Activities that may be carried out at the QSTP include:

• R&D of new products

• Technology development and development of new processes

• Low-volume, high-value specialist manufacturing

• Technology-related consulting services, technology training and promotion of academic developments in the technology fields

• Incubating new businesses with advanced learning

Sport and social levyQatari public shareholding companies are subject to a sport and social levy of 2.5% of the annual net profits. The levy is allocated to a fund that supports sport, cultural, social and charitable activities.

New developmentsIntroduction of a new tax return and e-services portal by the QFCAThe Qatar Financial Centre Authority (QFCA) Tax Department recently released a new Qatar Financial Centre (QFC) tax return form to be used for all submissions after 31 January 2015. The updated form requires QFC entities to report more financial information (e.g., selected expenses and balance sheet information) on their tax returns. As with most e-filing systems globally, the new system and form will allow the QFC to accumulate relevant data for benchmarking purposes. Furthermore, the QFCA developed a one-stop e-services portal where all QFC affairs, such as licensing, immigration, compliance, information technology and tax, could be administered and monitored by QFC entities themselves. The QFCA Tax Department has sent invitations to QFC firms to attend a training session on the tax functions of the portal.

The tax portal enables QFC entities to manage most of their tax affairs, including:

• Registering for tax purposes

• Authorizing and de-authorizing a tax agent

• Filing and amending a tax return

• Lodging appeals, requesting extensions, and claiming for mistakes and errors


• Receiving notifications about tax enquiries and assessments

• Paying taxes, penalties and other fees

• Tax refunds

The online tax portal will be used prospectively for 2014 year-ends. The QFCA Tax Department encourages online filing for the upcoming 2014 income tax filing, although manual tax filing submissions will still be accepted. The QFC Tax Department indicated that online submissions will be mandatory from 1 January 2016.

While the portal will serve most of the tax services online, the QFCA Tax Department also indicated that hard-copy letters will continue to be used for responding to tax enquiries, assessments, claim appeals and rulings.

Qatar introduces new wage protection systemOn 18 August 2015, Qatar’s new Wage Protection System (WPS) came into effect. Designed to ensure that workers are paid as per their employment agreement, a key feature of the system is that they must be paid in local currency into a local bank. This may impact international companies who pay Qatar-based workers, such as international assignees, in the employee’s home country.

The WPS came into effect on 3 November 2015, and companies have been required to comply with the WPS law.

Key changesThere are a number of new requirements with the implementation of the WPS. Local and foreign banks operating in Qatar, and the Qatar Central Bank, are in the process of implementing internal processes to deal with reporting between the banks and the labor department on weekly or monthly payroll transfers by companies based in Qatar.

The new requirementsThe requirements are consistent with legislations introduced in other GCC countries, including Kuwait, Saudi Arabia and the UAE. The most fundamental change is the requirement that wages for workers must be paid into a local bank account in Qatar. The following provisions apply under the new system:

• The employer must remit salary payments to the bank account of the employee, which must be with a local bank.

• The pay and other amounts due to the worker must be paid in QAR.

• The wages must be paid:

• At least monthly for workers employed under annual or monthly employment arrangements

• At least every two weeks for all other workers.

Under the new law, a sentence of no more than one month in prison and a fine of not less than QAR2,000 (US$549) and no more than QAR6,000 (US$1,647), or either of these penalties, shall be imposed on any person violating the provisions of the labor law.

The WPS legislation is primarily aimed at protecting workers to ensure they receive their wages weekly, or monthly, in a bank account in Qatar. However, the labor department has insisted that these provisions are followed for all employees and not just workers on annual or monthly employment arrangements.

International companies also will be required to comply.

This requirement could pose challenges to many international companies that pay salaries under an international payroll scheme, with funds being transferred to the account of the employee in their home country.


Saudi Arabia has the world’s largest proven oil reserves. It is the largest producer of crude oil in MENA and is likely to remain so in the foreseeable future. In 2015, the IMF ranked Saudi Arabia the 14th-largest country in terms GDP based on purchasing power parity and the 20th-largest economy in GDP current prices.

Saudi Arabia is pursuing two principal economic goals:

• Economic diversification aimed at reducing the country’s dependence on oil through the development of dedicated economic zones, the manufacturing industry, mining, banking and finance, and agriculture

• Assumption of responsibility by the private sector of the Kingdom’s economic development

The Government welcomes foreign investors, assuring them that Saudi Arabia imposes no restrictions on the entry or repatriation of capital, profits or salaries.

The Government especially encourages foreign investment that transfers technological expertise and provides employment and training opportunities for Saudi nationals.

Saudi Arabia encourages foreign investment and economic reforms.

A LLC is an appropriate form of legal entity available for foreign investors to conduct business in Saudi Arabia. The business community often loosely refers to this form of organization as a joint venture company. The Government encourages foreign investment in LLCs because these arrangements are regarded as more permanent commitments and more likely to lead to the transfer of expertise and technology.

Foreign investors may also operate businesses in the following forms:

• As a branch of a foreign company, either on an ongoing basis under a permanent commercial registration or under a temporary commercial registration to carry out a government contract

• As a professional partnership

• As a JSC

Recently, the Saudi Arabian stock exchange has been opened for investment by qualified foreign investors. Furthermore, a new Saudi companies law has also been announced recently, which will become effective in early 2016 (further details mentioned in the later section).

The unit of currency is the Saudi riyal (SAR). The official exchange rate is approximately SAR3.75 to US$1.

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Corporate taxesCorporate income taxIncome tax is assessed on profits of the following:

• A resident capital company (such as a JSC or LLC) on the non-Saudi shareholders’ share

• A resident non-Saudi natural person who does business in Saudi Arabia

• A nonresident who does business in Saudi Arabia through a PE

• A nonresident who derives income subject to tax from a source in Saudi Arabia

• An entity engaged in the field of natural gas investment

• An entity engaged in the production of oil and hydrocarbonic materials

Nonresident partners in personal companies (that is, general partnerships, joint ventures and limited partnerships) are subject to tax rather than the personal companies themselves.

In respect of companies, for corporate income tax purposes, non-Saudis do not include citizens (nationals) of countries that are members of the GCC countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. The share of profits attributable to interests owned by GCC nationals in a company is subject to Zakat. The share of profits attributable to interests owned by non-GCC nationals and non-GCC entities in a company is subject to income tax.


Rates of corporate income taxCompanies are taxed at 20%.Natural Gas Investment Tax (NGIT) applies to natural or legal persons (including GCC nationals and entities) engaged in natural gas, natural gas liquids and gas condensates investment activities in Saudi Arabia. NGIT does not apply to a company engaged in the production of oil and other hydrocarbons.

The NGIT rates range from 30% to 85% and are determined on the basis of the internal rate of return on cumulative annual cash flows. The NGIT rate includes income tax of 30%. Companies engaged in the production of oil and other hydrocarbons are taxed at 85%.

Capital gainsIn general, capital gains are treated as ordinary income and taxed at the regular CIT rate. Tax on capital gains will be assessed at 20% if there is a disposal of shares by a nonresident in a resident company. The tax on capital gains will be determined as the difference between the cost base of the shares and the higher of the following:

• Contractual sale value

• Market value of share

• Book value of share

Capital gains on sales of shares in a Saudi JSC traded on the Saudi Stock Exchange are exempt from tax if the shares (investments) were acquired after the effective date of the new tax regulations (30 July 2004) and the sale transaction is made in accordance with the Saudi Stock Exchange regulations in the Kingdom. Gains on the disposal of property other than assets used in the business activity are exempt from tax.

Capital gains tax is not applicable on a resident Saudi shareholder.

AdministrationAll persons subject to tax (excluding nonresidents who derive income from a source in Saudi Arabia subject to WHT) are required to register with the Department of Zakat and Income Tax (DZIT) before the end of their first fiscal year or prior to the settlement of first WHT from payments made to nonresident parties. Failure to register with the DZIT results in the imposition of a fine ranging from SAR1,000 to SAR10,000.

A taxable entity that has a PE in Saudi Arabia must file its annual tax declaration with the DZIT based on its accounting books and records within 120 days following the end of the tax year and pay the income tax due with the tax declaration.

If the taxpayer’s total taxable income (before deduction of any expenses) exceeds SAR1m, the tax declaration must be certified as correct by a public accountant licensed to practice in Saudi Arabia to show that the information in the declaration is extracted from the appropriate books and records, and prepared in accordance with the Saudi Arabian tax regulations.

The nonresident partners of a personal company are subject to tax, rather than the personal company itself. However, a personal company is required to file an information declaration within 60 days from the end of the tax year.

Fines for non-submission of tax declarations by the due date may be imposed at 1% of the total revenue, with a maximum fine of SAR20,000. A fine may also be calculated on the basis of percentages of the underpaid tax, which is payable if it exceeds the amount of the fine based on total revenue.

The following are the percentages applied to underpaid tax:

• Five percent of the underpaid tax if the delay is up to 30 days from the due date

• Ten percent of the underpaid tax if the delay is more than 30 and not more than 90 days from the due date


• Twenty percent of the underpaid tax if the delay is more than 90 and not more than 365 days from the due date

• Twenty-five percent of the underpaid tax if the delay is more than 365 days from the due date

An advance payment on account of tax for the year is payable in three installments. A taxpayer is not required to make advance payments in a year if the tax liability for the preceding year was less than SAR2m.

The installments are due by the end of the 6th, 9th and 12th months of the tax year. Each installment of advance payment of tax is calculated in accordance with the following formula: 25% x (A — B)

For the purposes of the calculation, “A” equals the taxpayer’s liability as per the tax declaration for the preceding year and “B” equals tax withheld at source for the taxpayer in the preceding year.

A late fine of 1% for each 30 days of delay is computed after the lapse of 30 days from the due date of tax payment until the time the tax is paid.

In addition to the penalty for late payment of tax, a fraud and evasion fine is imposed at a flat rate of 25% of the difference in tax resulting from misrepresentation or fraud.

DividendsDividends paid to nonresident shareholders are subject to 5% WHT.

Remittance of after-tax profits of branches of foreign companies (including GCC-registered companies) is subject to 5% WHT.

As per DZIT’s clarification, undistributed profit of the company that is attributable to the outgoing shareholder on the date of sale or change in the shareholding will be subject to 5% WHT.

Determination of taxable incomeGeneralThe most acceptable basis to the DZIT for assessing tax liabilities is profit as per the accounting books and records, as adjusted for tax purposes. In certain cases (for example, foreign airlines and foreign freight, and land and marine transport companies operating in Saudi Arabia), tax may be assessed under the “presumptive basis.” Under the presumptive basis, no financial statements are presented, and the tax liability is assessed on deemed profit calculated at rates specified in the tax regulations.

Some of the disallowable expenses are:

• Expenses not connected with the earning of income subject to tax

• Payments or benefits to a shareholder, a partner or their relatives for property and services if they do not represent an arm’s length payment

• Entertainment expenses

• Expenses of a natural person for personal consumption

• Income tax paid in Saudi Arabia or another country

• Financial penalties and fines paid or payable to any party in Saudi Arabia, except those paid for breach of contractual terms and obligations

• Payments of bribes and similar payments, which are considered criminal offenses under the laws of Saudi Arabia, whether paid locally or abroad

• Any contribution to the employee’s social security schemes outside Saudi Arabia

The following expenses paid by the branch to its head office are specifically disallowed:

• Interest (loan charges)

• Royalties or commission

• Indirect allocation of general and administrative expenses

InventoriesInventories should be valued at the lower of cost and market value. Cost should be determined on the weighted-average cost method, or any other method with prior approval from the DZIT.

ProvisionsProvisions for doubtful debts, termination benefits and other similar items are not deductible. Employment termination benefit payments that comply with Saudi Arabian labor laws are deductible.

Tax depreciationDepreciation is calculated for each group of fixed assets by applying the prescribed depreciation rate to the remaining value of each group at the fiscal year-end.

The remaining value for each group at the fiscal year-end is calculated as follows:

The total remaining value of the group at the end of the preceding fiscal year

+Amount equal to 50% of the cost of assets added during the current year and the preceding year

–Amount equal to 50% of the proceeds from assets disposed of during the current year and the preceding year, provided that the balance is not negative


=Remaining value for the group

The tax law specifies the following depreciation rates:

Asset RateLand (non-depreciable) 0%

Fixed buildings 5%

Industrial and agricultural movable buildings 10%

Factories, plant, machinery, computer hardware and application programs (computer software) and equipment, including cars and cargo vehicles

25%

Expenses for geological surveying, drilling, exploration expenses and other preliminary work to extract natural resources and develop their fields

20%

All other tangible and intangible depreciable assets such as furniture, aircraft, ships, trains and goodwill

10%

Assets developed in respect of build-operate-transfer or build- own-operate-transfer contracts may be depreciated over the period of contract or the remaining period of contract.

Cost of repairs or improvements of fixed assets are deductible, but the deductible expense for each year may not exceed 4% of the remaining value of the related asset group at year-end. Excess amounts must be added to the remaining value of the asset group and depreciated.

Interest expensesThe deduction for loan fees (loan interest or commission) is limited to the lower of the following:

• Loan fees incurred during the year

• Taxpayer’s income from loan fees (interest income) plus 50% of the outcome of (a — b) where (a) and (b) represent the following:

a = Taxpayer’s taxable income, excluding income from loan fees

b = Expenses allowable as a deduction under the income tax regulations, excluding loan fee expenses

No deduction will be permitted for the excess loan fees. Banks are excluded from the application of the limitation.

Presumptive basis of taxationIn certain cases (for example, foreign airlines and foreign freight, and land and marine transport companies operating in Saudi Arabia), tax may be assessed under the presumptive basis. Under the presumptive basis, no financial statements are presented, and the tax liability is assessed on deemed profit calculated at rates specified in the tax regulations.

Relief for lossesLosses may be carried forward indefinitely. However, the maximum loss that can be offset against a year’s profit is 25% of the tax adjusted profits for that year. Saudi tax regulations do not provide for the carry-back of losses.

If a change of 50% or more occurs in the underlying ownership

or control of a capital company, no deduction is allowed for the non-Saudi share of the losses incurred before the change in the tax years.

Investment incentivesThe Government encourages industrialization and grants the following incentives to approved industrial projects that include technology transfer:

• Financing assistance — low-cost financing through the SIDF and the PIF

• Industrial facilities — nominal rent on industrial sites and low fees for water and electricity

• Duty exemption — exemption from customs duties for certain imported production equipment and raw materials

• Protective tariffs — tariff protection once the local product achieves an approved standard

• Tax incentive — in certain areas, tax credit to be granted to foreign investors on the basis of their investment, employment and training given to Saudi nationals

The Government provides 10 years’ tax incentives on investment in the following six underdeveloped provinces in Saudi Arabia:

• Hail

• Northern Borders

• Jizan

• Najran

• Abha

• Al-Jouf

The investor will be granted tax credit against the annual tax payable in respect of the following costs incurred on Saudi national employees. The tax credits will be calculated as follows:

a. Fifty percent of the annual cost incurred on the training of Saudi national employees

b. Fifty percent of the annual salaries paid to Saudi national employees, if there is any balance of tax payable after applying (a) above

c. One-time industrial capital investment credit of 15% carried forward for up to 10 years

The project should comply with the following conditions to avail the tax incentive:

• Capital invested in the project should not be less than SAR1m.

• The number of Saudi national employees should not be less than five, and they should be employed as technical or senior administrative staff. The employment contracts signed with the Saudi national employees or trainees should not be less than one year.

Foreign exchangeSaudi Arabia does not impose foreign exchange controls.


Transfer pricingA Saudi company is expected to deal on an arm’s length basis with its affiliated companies.

Certain provisions in respect of measures against tax avoidance empower the DZIT to challenge transactions between related parties. The DZIT has the right to:

• Disregard a transaction that has no tax effect or reclassify a transaction whose form does not reflect its substance

• Allocate income or deductions between related persons or persons under common control as necessary to reflect the income that would have resulted from a transaction between independent persons

Supply and installation contractsProfits from supply only operations by nonresidents to Saudi Arabia are exempt from income tax, as contracts of supply of materials to the Kingdom are not considered to have resulted from an activity in the Kingdom unless they include associated services. The net profits of operations that include supply and associated services, such as erection, maintenance and training, are subject to tax.

The following information is often requested in support of the cost of imported materials and equipment:

• Invoices from the foreign supplier

• Customs clearance document

If the supplying entity is the head office of the Saudi Arabian branch, a certificate from the external auditor of the head office that the cost claimed is equal to the international market value is required.

In general, there are no profit results in the Saudi Arabian books on materials and equipment supplied, because the revenue from the sale of equipment equals the cost based on the sales value declared for customs.

Payments to nonresidentsA Saudi resident entity, including a PE of a nonresident, is required to withhold tax from payments made to nonresidents (including nonresident GCC nationals and entities) with respect to income earned from a source in Saudi Arabia. This rule applies regardless of whether the payer is considered to be a taxpayer under the regulations and whether such payments are treated as a tax-deductible expense in the Saudi resident entity’s tax declaration.

Asset RatePayments against technical or consultancy services to related parties or services for international telephone calls, rental, airline tickets, air or sea freight charges, dividends distributed, returns on loans and insurance or reinsurance premiums

5%

Royalties, payments to the head office or any other related companies for technical or consultancy services, including services for international telephone calls

15%

Management fees 20%

Any other payments 15%

The party withholding the tax must register with the DZIT before the settlement of the first tax payment, deposit the tax withheld with the DZIT within the first 10 days of the month following the month in which the taxable payment is made and issue a certificate to the nonresident party. A late fine of 1% for each 30 days of delay is computed after the lapse of 30 days from the due date for the tax payment until the date the tax is paid. An annual WHT return must be filed within 120 days of the end of the tax year.

SubcontractorsPayments to subcontractors reported by a taxpayer in its tax return are generally subject to close scrutiny by the DZIT.

The taxpayer is expected to withhold tax due on payments to nonresident subcontractors and to deposit it with the DZIT, unless the taxpayer can provide a tax file number or tax clearance certificate as evidence that the subcontractor is settling its own tax liability in the Kingdom.

Contract retentionTax is not required to be withheld from payments to contractors resident in Saudi Arabia. However, a customer that is a government entity is required to retain 10% of the contract value until the contractor furnishes evidence that it has fulfilled its tax and Zakat obligations to the DZIT with respect to the contract.

Other taxesPersonal income taxThere are no income taxes on salaries and wages of employees in Saudi Arabia.

Income tax at the standard rate of 20% is assessed on profit earned in Saudi Arabia by self-employed foreign professionals (i.e., non-GCC nationals) and consultants from their activities conducted in Saudi Arabia.


Social insuranceEmployers must pay a contribution of social insurance to the General Organization of Social Insurance (GOSI).

The contributions are levied on the basic salary, including housing allowance and certain commissions. The total contribution for the pension contributions with respect to Saudi nationals is 18% (shared equally between employer and employee). Pension contributions are not required with respect to non-GCC employees. Contributions for insurance against unemployment are also paid at 2% (shared equally between the employer and Saudi national employee). Employers must pay contributions for occupational hazards insurance at a rate of 2% for both Saudi and non-Saudi employees.

ZakatZakat is a religious levy imposed at 2.5% on the higher of the net assessable funds and net adjusted profits attributable to the Saudi and GCC person’s share in a Saudi Arabian resident capital company.

Net assessable funds comprise capital employed, but not invested, in fixed assets, long-term deductible investments and deferred costs, as adjusted by net results of operations for the year. Complex rules apply to the calculation of Zakat liabilities.

Tax treatiesSaudi Arabia has entered into double tax treaties with Austria, Azerbaijan, Bangladesh, Belarus, China, the Czech Republic, France, Greece, Hungary, India, Italy, Ireland, Japan, Korea (South), Luxembourg, Malaysia, Malta, the Netherlands, Pakistan, Poland, Romania, the Russian Federation, Singapore, South Africa, Spain, Syria, Tunisia, Turkey, Ukraine, the United Kingdom, Uzbekistan and Vietnam. These tax treaties are all in force.

The tax treaties with Azerbaijan and Hungary are effective from 1 January 2016.

Implementation of tax treaty provisions on payments subject to WHTThe DZIT issued Circular No. 5068/16/1434 dated 8 June 2013 advising certain amendments in the procedure of claiming tax treaty benefits as provided in the previous DZIT’s Circular No. 3227/19 dated 9.6.1431H (corresponding to 22 May 2010).

Based on the DZIT’s Circular, a Saudi Arabian entity making a taxable payment to a nonresident entity can apply the provisions of effective tax treaties if it complies with the following requirements:

a. Reporting of all payments to nonresident parties (including payments that are not subject to WHT and subject to reduced WHT rates as per the provisions of the relevant tax treaty) in the monthly WHT return (on a prescribed format)

b. Submission of a formal request for application of tax treaty provisions, including a tax residency certificate issued by the tax authority in the country where the beneficiary is residing confirming that the beneficiary is resident in that country in accordance with the provisions of Article 4 of the treaty and that the amount paid is subject to tax in that country (on a prescribed format)

c. Submission of an undertaking from the Saudi entity that it would bear and pay any tax or fine due on nonresident payees because of a misstatement of submitted information, computation error or misinterpretation of the provisions of a tax treaty (on a prescribed format)

The circular also mentions that Saudi Arabian entities who cannot comply with these requirements may follow the procedure provided in Circular No. 3227/19 (i.e., pay WHT at the rates prescribed under Saudi tax regulations and claim the refund of overpaid taxes on the basis of provisions of tax treaties).

Circular 3227/19 requires that tax is withheld on all taxable payments to nonresidents at the rates required under Saudi tax regulations (without recourse to the double tax treaty). To benefit from a reduced WHT rate or exemption, the Saudi Arabian resident taxpayer (that is, the withholder) must submit a request for refund of overpaid tax to the DZIT, together with supporting documents (for example, the tax residency certificate of the nonresident in a prescribed format).

To benefit from the reduced rates under the tax treaties, additional conditions may be required (for example, the recipient must be the beneficial owner of the related income). Readers should obtain detailed information regarding the treaties before engaging in transactions.

Recent developmentsMinisterial Resolution (MR) No. 1776MR No. 1776, effective from 18.05.1435H (corresponding to 19 March 2014), amends or clarifies certain articles of the bylaws to the Saudi Arabian income tax law.

Article 5 (1) of the bylaws — loan fees and interest on interbank depositsLoan fees on interbank deposits paid to a nonresident bank will be exempt from Saudi WHT if the deposits remain with the Saudi resident borrower bank for a maximum period of 90 days. The resident borrower bank will be required to submit an annual statement attested by the Saudi Arabian Monetary Agency (SAMA) listing the names of the nonresident lending banks, their addresses, the period of lending and the amount of loan fees paid.

Article 10 of the bylawsParagraph 10 (b) — loan fees paid to head office of foreign bank. Loan fees paid by the Saudi branches of foreign banks to their head offices will now be a deductible expense for tax purposes.


Paragraph 11 — transfer pricing rules

The DZIT will issue rules for determining the fair value or arm’s length value of related party transactions in accordance with agreed international standards.

Article 16 of the bylawsParagraph (1) — estimated income of airlines and shipping companies

The tax base of branches of foreign airlines, land transportation companies and sea freight companies will be 5% of the total income realized from operations in Saudi Arabia. Total income derived in the Kingdom will be the gross revenues from passenger ticket sales, passenger excess baggage, freight, courier and any other income generated from journeys originating in Saudi Arabia and ending in the final destination, even if the journey stops in transit stations and regardless of the place of sale or issuance of the tickets.

Paragraph (2) — estimated income of small businesses

Small businesses with limited income that do not maintain accounting records, may be taxed on a deemed profit basis according to the nature of their activities as stipulated in Article 16 Paragraph 4 instead of the fixed rate of 15%.

Paragraph (7) (e) — liability for the settlement of taxes on disposal of shares

The buyer and the seller are jointly liable for the settlement of any taxes due on the disposal of shares. The company has been excluded from this responsibility.

Article 58 of the bylaws — department’s right to informationParagraph 1

Every natural or legal person is obliged to fulfill the requirements of Article 61 of the Saudi Arabian tax law, whether such person is a tax and Zakat payer or not.

In addition, every natural or legal person is obliged to provide any information that may be requested by the DZIT in connection with the application of the tax law or a tax treaty to which Saudi Arabia is party to.

Paragraph 2

The DZIT may seek assistance from concerned executive authorities to oblige a natural or a legal person to provide the information required by the DZIT under Article 61 of the Saudi Arabian tax law.

Article 59 (5) of the bylaws — tax auditIn case of noncooperation by the taxpayer during the field audit, the DZIT may coordinate with the concerned executive authorities to oblige the taxpayer to cooperate and provide the required information. The DZIT can also retain the documents if it believes that these may be destroyed or tampered with by the taxpayer.

Article 63 (1) of the bylaws — WHT rate on technical services and international telecommunication services paid to nonresident related partiesPayments against technical and consulting services and international telecommunication services to the nonresident head office or a nonresident related party will be subject to 15% WHT. The same payments to nonrelated parties will be subject to 5% WHT.

Effective dateMR No. 1776 effective from 19 March 2014) will be applicable on all cases where an assessment has not been finalized, including those under appeal .

The MoF was requested to reconsider the retroactive application of MR 1776 in respect of the imposition of 15% WHT on payment of technical services to affiliated entities.

The MoF rejected the request and reiterated that MR 1776 was issued to clarify certain provisions of bylaws and, as such, it does not make any amendments in the bylaws.

Subjecting the escrow account to Zakat in a short fiscal period• In case of a closed JSC, the Preliminary Appeal Committee

(PAC) upheld the DZIT assessment of Zakat on funds (contributed capital) held in an escrow account. The DZIT’s treatment was based on the grounds that the funds held in an escrow account are considered to be in the company’s possession.

• The DZIT and the PAC ignored the fact that regulations do not allow use of the funds held in an escrow account until legal formalities of formation of a CJSC are completed.

WHT on dividends by JSCsThe DZIT recently issued a circular on withholding of taxes for payments of dividends to non resident shareholders and owners. The DZIT emphasized that all JSCs to settle WHTs on dividends (5% as per the law) distributed to non residents, whether it was paid directly to the non resident or transferred to the local bank account of the non resident. The DZIT argued that transferring dividends to local bank accounts for the benefit of the non resident owner or shareholder is considered as if it was paid directly to the beneficiary; therefore, it is subject to WHT stated under the domestic tax law.

Offset Program• The Saudi Arabian Government has entered into offset

agreements with France and the United Kingdom.

• Under the Offset Program, the foreign contractor should comply with the following main conditions:

• The contract value should be more than US$400m.


• Based on the contract value, 40% has to be spent in Saudi Arabia in respect of the transfer of the technology.

• At least 50% of the shares should be held by Saudi nationals or Saudi companies.

• The purpose of this program is to put an obligation on the foreign contractor to contribute in the economic development of Saudi Arabia through the transfer of technology.

• An agreement with the US Government is under discussion.

Draft Zakat regulations• The Shoura Council has formed a committee to restudy the draft

Zakat regulations.

• The regulations will be finalized once the entrusted review committee completes its deliberations and they are approved by the Shoura Council and Council of Ministers.

Wage protection system• The Ministry of Labor has published the Wage

Protection System (WPS), under which it is mandatory for a certain category of employees (who meet the number of employees criteria) to pay employee salaries through a Saudi bank. Furthermore, every month, the bank is required to sign off the payroll after payment, which will be then submitted to the Ministry of Labor (all electronically).

• Noncompliance to these rules results in suspension of ministry’s services such as the renewal of Iqamas’ visas.

• The regulation has been implemented in stages. Currently, companies having 100 employees or more are required to comply with this requirement.

Accounting developmentsSOCPA — accounting developments• The SOCPA Board has agreed to apply the IFRS, after they

are approved, in one go.

• This is a change in the earlier strategy of applying IFRS on a piecemeal basis.

• The earliest date for application shall be on financial statements of listed entities prepared for financial periods commencing on 1 January 2017.

• For other entities, the earliest date for application shall be on financial statements prepared for financial periods commencing on 1 January 2018.

Saudi Arabia General Investment Authority developments• The Saudi Arabia General Investment Authority (SAGIA) issued

the following new licensing requirements:

• An unconditional and irrevocable bank guarantee of 2% of the financial limit specified for each targeted activity should be submitted to SAGIA.

• The bank guarantee will be revoked upon the liquidation of the company.

• Bank guarantees should be issued in the name of SAGIA.

• SAGIA has recently introduced a fast-track application process for foreign investors looking to invest in Saudi Arabia. Eligible applicants will benefit from a faster and simpler application process with the launch of the new fast-track service. The fast-track application process guarantees application decisions within five working days after receiving all the required documentation by SAGIA.

Insurance against unemployment• The Council of Ministers approved the Insurance Law

Against Unemployment for Saudi Nationals (SANID Scheme) issued via the Royal Decree No. (18/M) dated 12.3.1435H (corresponding to 13 January 2014).

• SANID aims at bridging the gap between the previous employment and the opportunity of getting a new job to those who have lost their previous position for reasons beyond their control.

• SANID covers Saudi employees working in the private sector who are covered under GOSI’s regulations.

• Participating in SANID has been compulsory since 1 September 2014 to all Saudi employees below 59 years of age who are subject to GOSI without distinction of sex. However, SANID is not applicable to employees aged 60 or over.

• The rate of contributions for SANID shall be fixed at 2% of the monthly GOSI contributory wage paid equally by the employer and the employee (1% each), which shall be paid together with the monthly GOSI contributions.

• SANID contributions have been applicable since September 2014.

Land taxesThe Cabinet has recently approved the decision to impose land tax on the undeveloped urban land designated for residential or commercial use. The annual tax will be at 2.5% of the land value.

Such a tax has been introduced to address the shortage of housing by encouraging development of unused land. The implementation of this decision is expected to be effective in six months’ time.


New Companies LawRecently, the Ministry of Commerce and Industrial (MOCI) announced that the new Saudi Companies Law (NCL) shall come into force in early 2016.

The NCL is expected to have a significant impact on investors, their relationships, current investments and future business transactions.

The salient features of the NCL are as follows:

Provisions relating to LLCs• One shareholder may now establish a LLC, while previously,

the law required a minimum of two shareholders.

• The statutory reserve that needs to be put aside each year by the company is no longer needed once the reserve has reached 30% of the share capital. This is reduced from the previous requirement of 50% of the share capital.

• Shareholders, in certain circumstances, shall no longer be liable if the company’s accumulated losses exceed 50% of the company’s share capital. Instead, if the general manager or board does not call a shareholders meeting, or the shareholders do not resolve to continue the company or dissolve it, the company shall dissolve by operation of law.

• If the number of shareholders in a LLC exceeds 50, the company should be converted to a JSC within one year. Otherwise, the company shall be considered dissolved under the NCL, unless the increase in shareholders was as a result of an inheritance or provisions of a will.

• When incorporating and amending articles of association, publication on the MOCI’s website will be sufficient instead of publication in the official gazette or a local newspaper.

Provisions relating to JSCs• The number of shareholders required for a closed JSC has

been reduced from five to two shareholders. However, the Government, public juristic persons, companies that are totally owned by the Government and companies with capital of not less than SAR5m (approximately US$1.3m) may incorporate a one-person JSC, with full authority of the shareholders assemblies, including the foundation assembly.

• The minimum capital required for JSCs has been reduced from SAR2m (US$533,362) to SAR500,000 (US$133,340).

• The statutory reserve that needs to be put aside each year by the company is no longer needed once the reserve reaches 30% of the share capital. This is reduced from the previous requirement of 50% of the share capital.

• The minimum number of members of boards of directors is 3, with a maximum of 11. In addition, owning a specified minimum number of shares of the relevant company will no longer be required.

• JSC general meetings may be convened by using new technology, and new meetings are permitted to be held one hour after the previous inquorate meeting.

• JSCs may issue sukuks, preference shares and other debt instruments.

• JSCs are allowed to purchase or mortgage their shares.

• An Audit Committee is required to be established to monitor the company business.

• Combining the position of the chairman and any other executive position in the company is prohibited.

• In all cases the remuneration paid to a director shall not exceed SAR500,000.

• If the company’s accumulated losses exceed 50% (previously 75%) of the company’s share capital, and the general manager or board does not call the shareholders to meet, or the shareholders do not resolve to continue the company or dissolve it, the company shall dissolve by operation of law.

• The par value of the share is SAR10 (US$2.67), previously SAR50 (US$13.33).

• The first financial year should not be less than 6 months and not more than 18 months.

• The external certified auditor can be appointed for a continuous period of five years. Reappointment may be made after two years from the end of the five years.

Other provisions• The NCL has expressly addressed the position of a holding

company that can be established in the form of a LLC or a JSC as long as, among other things, the company identifies itself as a holding company by including ”holding” in its name.

• In-kind contributions to capital in a LLC or JSC will need to be valued by a certified evaluator.

• The partnership and the branch of the foreign company should prepare financial statements in accordance with the accounting standards and audited by a licensed external auditor.

Foreign direct investment into listed sharesThe Capital Markets Authority, Saudi Arabia (CMA) issued Rules for Qualified Foreign Financial Institutions Investment in Listed Shares (effective since 1 June 2015) and the relevant FAQs. The purpose of these rules is to set out the procedures, requirements, conditions and obligations of a qualified foreign investor (QFI) and its clients for investments in listed shares in Saudi Arabia. The rules are issued pursuant to the Council of Ministers’ resolution permitting the CMA to allow the foreign financial institutions to trade in the shares listed on the Saudi Stock Exchange (SSE). These rules shall not apply to citizens of the GCC (including Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE).


The existing swap arrangements framework provides non resident foreigners with economic benefits only, rather than the legal ownership of the underlying shares. QFI framework enables the QFIs to hold legal ownership of the listed shares. The QFI must obtain a registration with the CMA and then trade in the shares of listed companies through authorized persons. The rules also provide for investments limits; that is, the maximum cap that a QFI or its clients can hold in any issuer whose shares are listed.

Certain key conditions are as follows:

• The QFI must be a financial institution that has a legal personality falling within banks, brokerage and securities firms, fund managers and insurance companies.

• The financial institution must be licensed or otherwise subject to regulatory oversight by a regulatory authority and incorporated in jurisdiction that applies standards equivalent to those of the CMA or acceptable to it. The CMA is to publish these jurisdictions shortly.

• The QFI must have assets under management of SAR18.75 billion (US$5b) or more. The CMA may reduce the minimum amount to SR11.25 billion (US$3b).

• The QFI or any of its affiliates must have been engaged in securities activities and investment for a minimum of five years.

Tax authorities apply virtual PE concept to impute a PEDuring 2015, the DZIT has applied the virtual PE concept to attribute a PE to a nonresident provider of services.

Applying the virtual PE concept, the DZIT ruled that services performed abroad will create a PE if these services are performed for the benefit of a project in Saudi Arabia, the duration of which is more than 6 months or 183 days.

The DZIT application of the concept of a Virtual Service PE may result in the denial of WHT relief claimed by nonresidents under the applicable double tax treaties of the Kingdom.

The DZIT’s new approach is not in line with the Saudi income tax law and the PE concept outlined in the double tax treaties concluded by the Kingdom, nor with the OECD and the UN Model Conventions. Nevertheless, it is likely to affect most multinational enterprises that have concluded, or plan to conclude, service arrangements with customers in the Kingdom. Taxpayers should carefully consider the matter in advance, taking into account the wording of tax indemnity clauses and other provisions of service agreements.


Syria has been moving from an economic system that was dominated by the state toward a market economy. This move has been characterized by policies encouraging private and joint public-private ventures, and by the relaxation of trading and currency regulations. The trend has been helped by an increase in oil production and a growth in agricultural output.

Investment in Syria is governed by Investment Law No. 8, which was issued in 2007. The new law is considered the most important investment legislation since Syria recognized the key roles of its private sector and of the Arab and foreign investments in the growth of its economy. This law provides for many incentives and customs duties exemptions. The authority that is responsible for licensing the qualifying projects is the Supreme Council for Investment (SCI).

Foreign firms wishing to establish branches require permission of the Ministry of Economy and Trade.

The unit of currency is the Syrian pound (SYP). Due to the current circumstances in Syria, the currency has weakened. During 2015, the official exchange rate was approximately SYP276 to US$1.

Corporate taxesCorporate income taxSyrian income tax is imposed on the net profits of corporate entities from activities within Syria, including the profits of a Syrian branch of a foreign company. Income arising from sources or activities outside Syria is not taxable.

Rates of corporate income taxThere are flat rates of tax that apply to different types of Syrian companies as follows:

• Private and joint venture (between private and public sectors), JSC and LLCs whose headquarters are located in Syria are subject to corporate income tax at a flat rate of 22%. An additional municipality surcharge tax of 4% to 10% is levied on the corporate income tax due.

• JSCs that issue more than 50% of their shares in their initial public offering are subject to corporate income tax at a flat rate of 14%, An additional municipality surcharge tax is levied on the corporate income tax due.

• Private banks, which must be formed as JSCs, are subject to corporate income tax at a flat rate of 25%.

• Private insurance companies, which must be formed as JSCs, are subject to corporate income tax at a flat rate of 25% exclusive of the municipality surcharge tax. If these companies issue more than 50% of their shares in their initial public offering, they are subject to corporate income tax at a flat rate of 15%.

• Foreign exchange broker companies are subject to corporate income tax at a flat rate of 25% inclusive of the municipality surcharge tax.

• The public economic departments, the Syrian Petroleum Company and the Syrian Gas Company are subject to corporate income tax at a flat rate of 28%.

• The international hotel industry is subject to income tax, wages and salary tax as follows:

• Income tax — 2.5%

• Wages and salary tax — 0.5%

If the income tax rates for a company or business have not been specified, they are subject to income tax at the progressive rates shown in the following table.

Syria


Taxable income

From (SYP) To (SYP) Rate

Profit range 1 50,000 Exempted

Profit range 50,001 200,000 10%

Profit range 200,001 500,000 15%

Profit range 500,001 1,000,000 20%

Profit range 1,000,001 3,000,000 24%

Profit range 3,000,001 – 28%

There are municipal administrative levies, ranging from 4% in Damascus City to 10% in other areas.

It is possible for small companies and businesses to pay tax on a deemed profit basis. The profit level is normally fixed by the tax department for a three-year period.

Capital gainsCapital gains on the sale of assets by companies are treated as business profits and taxed at the progressive rates.

AdministrationThe Gregorian calendar year is generally used for tax purposes, but a taxpayer may request permission from the MoF to use a different year-end.

The accounting records, which must be kept in Arabic, must be complete and must reflect the actual results of the entity.

JSCs and LLCs must file tax returns by the end of May following the tax year to which they relate. Other entities must file their tax returns by the end of March. An extension of these deadlines of up to 60 days may be allowed in exceptional circumstances.

Tax must be paid within 30 days of the submission of the tax return. Taxes due as a result of an additional assessment must be paid within one month of the end of the month in which the assessment was issued.

A taxpayer has 30 days in which they can dispute an appeal raised by the tax department. If no such objection is made, the assessment is considered as agreed upon by the taxpayer.

Appeals are initially made to the Tax Imposition Committee.

If the taxpayer is not satisfied with the decision of this committee, the case may be taken to the Revision Committee, whose decision is final.

The tax department does not usually carry out audits of the taxpayer’s accounts and records, but bases its assessment on a detailed examination of the tax return and its supporting schedules.

Penalties are imposed on those who do not file income tax returns when required to do so. The penalty is calculated by the tax department at 20% of the assessed tax, and it may be reduced to 10% if the return is then filed within 15 days of the tax department’s notification. Penalties are also imposed on taxpayers who do not maintain adequate accounting records at 50% of the tax calculated on the highest profit level over the previous five years.


A fine of 5% of the tax due is imposed if financial statements are not filed with the tax return; this is increased to 10% after one month of delay.

The right of the Government to claim additional tax due ceases after five years from the date of the original tax filing deadline.

The General Commission for Tax and Fees has issued a circulation No. 446/3, which imposed a penalty on the rebuilding contribution in case of the delay of the submission of certain taxes.

DividendsDividends are not taxable. Tax is assessed on the share of profits attributable to the foreign shareholder based on audited financial statements, as adjusted for tax purposes.

Foreign tax reliefA foreign taxpayer in Syria will need to seek relief in their home country from taxation imposed in both Syria and the home country on the same profits.

Determination of trading incomeGeneralMost normal business expenses are deductible in arriving at net profits subject to tax. Such expenditure must be supported by adequate documentary evidence in original form.

Tax returns should be prepared in the form specified by the MoF and must be accompanied by audited financial statements and supporting schedules that provide supplementary information, normally in great detail. The financial statements of most taxpayers must be audited by a Syrian licensed auditor.

InventoriesInventories are normally valued at cost, although there are no specific regulations on this.

ProvisionsThe statutory reserve may be claimed as a tax deduction. However, provisions in general, including provisions for doubtful debts, are not deductible. An exception is made in the case of employee terminal indemnity provisions.

Tax depreciationSyrian income tax law does not specify any depreciation rates; the law grants the tax assessor the right to determine whether the rates used are in line with the normal rates applicable for the same industry under the same working conditions. The following rates are normally acceptable:

Assets RateMachinery and equipment 10%

Furniture and fixtures 15%

Hand tools 20%

Vehicles 25%

Higher rates of depreciation may be claimed if it can be proved that the assets are subjected to exceptional use. Pre-operating expenses may be amortized over five years.

The depreciation of buildings and the amortization of intangible assets may not be deducted.

Allocation of head office expensesBranches of foreign companies are subject to nonresident tax; accordingly, no overheads are acceptable.

Nonresident taxNonresident tax is imposed on certain types of income of foreign companies, regardless of whether they have a branch in Syria or not.

For contracts signed on or after 1 January 2005, if a clear split exists between the value of pure supply and services, income tax is imposed at a rate of 5% on the total value of onshore services. This rate is increased to 7% if the services are provided to oil and gas companies. Wages and salaries tax is imposed at a rate of 2% of the total value of onshore services. However, this rate is increased to 3% if the services are provided to oil and gas companies. In the absence of a clear split between the value of services and supplies, income tax is imposed at a rate of 3% on the total value of the contract, and wages and salaries tax is imposed at a rate of 1% on the total value of the contract.

These taxes must be withheld by the payer and remitted to the tax authorities by the 15th day of the month following the month of the contract payment.


Relief for lossesLosses may be carried forward and deducted from subsequent profits for a maximum of five years, as long as there is no cessation of activity. Losses may not be carried back.

Losses incurred on the disposal of capital assets are not allowed as deductions from income.

Group of companiesEntities with more than one activity must aggregate the income from all activities in one tax return.

Miscellaneous mattersForeign exchange controlsForeign exchange is heavily regulated in Syria. However, the Syrian Government has started to relax many of the restrictions. Legislative Decree No. 54 for the year 2013 sets out the regulations for dealing with foreign exchange and the Syrian Pound.

Transfer pricingTax regulations do not include provisions relating to transfer pricing. In practice, international market prices are considered the appropriate standard for transactions between related parties. The tax administration may require a taxpayer to justify charges between related parties that differ from prices determined at arm’s length basis.

InterestThe finance costs of a project are deductible. Interest that is paid to a company’s overseas head office or other related party is not deductible on the grounds that it represents profit.

WHTWHT is imposed on income derived by Syrian individuals or entities from contracting, construction work and services, and supply work that is performed with or for the benefit of the Syrian public, joint ventures (involving the private and public sectors), the private and cooperative sectors and foreign companies.

Income tax at a rate of 1% is imposed on the total invoice value of purchases of food materials which are exempt from wages and salaries taxes.

Income tax at a rate of 2% is imposed on the total invoice value of purchases of materials which are exempt from wages and salaries taxes.

Payments for supplies and services by public sector establishments are also exempt from this WHT.

Income tax is imposed at a rate of 3% on the total value of construction works (turnkey projects) and on the value of contracts without a clear split between services and supply. Wages and salaries tax is imposed at a rate of 1% on the total value of turnkey projects and on the total value of contracts without a clear split between services and supply. Income tax at a rate of 5% is imposed on the total value of services. However, this rate is increased to 7% if the services are provided to oil and gas companies. Wages and salaries tax is imposed at a rate of 2%. However, this rate is increased to 3% if the services are provided to oil and gas companies.

These taxes must be withheld by the payer and remitted to the tax authorities by the 15th day of the month following the month of the payment. Both the payer and payee are collectively responsible for the payment of the tax due.


Other taxesPersonal income taxTax is imposed on salaries and wages paid for services performed in Syria. It is not relevant where payment is made or whether the individual is a Syrian or an expatriate. Taxable salary includes the value of most benefits, including basic salary, bonuses, overtime, allowances and foreign benefits.

Tax is calculated at progressive rates of 5% to 22% for individuals. Foreign employees working in Syria are subject to the same rules and rates as those applied to Syrian employees. This does not apply to companies subject to nonresident tax or WHT.

Miscellaneous taxesThere are social security and several special taxes, stamp duties and municipal taxes in Syria, such as:

• Income from movable capital assets — tax is charged at a flat rate of 7.5% on income from bonds and shares, and, regarding loans, 80% of the interest from investment certificates and savings account deposits shall be exempted from the tax on income from movable capital.

• Royalties are subject to nonresident tax at a rate of 7% on the total amount of royalties.

• Interest received by a Syrian resident is taxed at a rate of 7.5% in addition to a municipal administrative tax of 10%.

• Rental income from real property is taxed at various rates from 14% to 60%, as determined by the tax department.

• Property registration fees are taxed at 10% of the property’s value on transfer, as estimated by the MoF. This is paid by the purchaser of the property.

• Consumption taxes of 3% to 30% are levied on luxury goods and services, including high-class hotel and restaurant bills.

• Stamp duty on contracts is levied on contracts, instruments and documents as follows:

• Percentage basis — from 0.1% to 3%

• Lump-sum basis — from SYP10,000 to SYP50,000

• Five percent rebuilding tax on direct and indirect taxes, except CIT, and a SYP50 war effort stamp and SYP25 Martyr stamp are imposed on specific documents.

Customs dutiesCustoms duties are based on a basic duty plus a unified tax surcharge. The CIF value of raw materials and foodstuffs is usually calculated at the promotions rate, while luxury goods are calculated at the rate applicable in the relevant neighboring country.

Duty rates are progressive and range from 1% to 100%, depending on the Government’s view of the necessity of a product.

Tax treatiesSyria is a signatory of the tax treaty of the Arab Economic Union Council, which allows for the avoidance of double taxation in most areas.

Syria has entered into double tax treaties with Algeria, Armenia, Bahrain, Belarus, Bulgaria, China, Croatia, Cyprus, Egypt, France, Germany, India, Indonesia, Iran, Italy, Jordan, North Korea, Kuwait, Lebanon, Libya, Malaysia, Malta, Morocco, Oman, Pakistan, Poland, Qatar, Romania, the Russian Federation, Saudi Arabia, Slovakia, Sudan, Tunisia, Turkey, Ukraine, the UAE and Yemen.

In addition, Syria has entered into limited tax treaties for sea and air transportation with Cyprus, France, Greece, Italy and the Netherlands.


Investment incentivesInvestment Law No. 8 of 2007A new investment Law No. 8 issued in 2007 abolished the Investment Law No. 10 of 1991. The main points dealt with in the new law relate to:

• Permission to import all materials and requirements necessary for running a licensed project, irrespective of the rules relating to importation, country of origin and hard currency regulations

• Exemption from customs duties on imported material for machines and equipment used in the production and means of transport

• Any additional facilities granted by the Higher Council for Investment

• Permission for non-Syrian investors to obtain work permits during the operation of the project

• Permission to repatriate funds and profit after paying the income tax due on the project

• Repatriation of 50% of wages and salaries for expatriates and citizens of Arab and foreign countries working for the project, and 100% of end-of-service indemnity after paying wages and salaries tax due on them

Furthermore, Decree No. 186 of 1985 exempts tourism projects from income tax for seven years, starting from the commencement of operations.

Real Estate Development Law No. 15 of 2008Real Estate Development Law No. 15 of 2008 was established to encourage investment in real estate and attract Arab and foreign investment to participate in real estate development. The following incentives are granted under this law:

• Temporary admission for all mechanisms and equipment that are necessary for the implementation of the projects during the project’s life

• Import of all the necessary materials and advice for the implementation of the projects


The UAE is located on the southern coast of the Arabian Gulf and is a federation of seven emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah and Fujairah. The country has achieved considerable growth and development since its formation in 1971, due to its liberal economic policies.

UAE’s dynamic economic environment, as well as the economic diversification strategy, has been made possible due to the massive investment in infrastructure, comprising efficient road networks, excellent telecommunications facilities and links with the outside world through first-class ports, both sea and air, that are continually being upgraded.

In Dubai, hotels, office blocks, shopping malls and entertainment complexes are being developed on a massive scale, putting the Dubai property market on the world map. The trigger for much of this expansion was the emirate‘s decision to allow non-nationals to purchase freehold property in property developments such as Nakheel‘s development of the Palm, Jumeirah, which is a residential project in Dubai.

The new Commercial Companies Law (Federal Law No. 2 of 2015 — New CCL) recently came into force and replaced the previous Federal Law No.8 of 1984. The New CCL incorporates a number of changes relevant to doing business in the UAE; however, several implementing regulations and decrees are yet to be enacted, and its effect on any previously issued implementing decrees remains to be seen. The New CCL establishes several types of business organizations and addresses, among other matters, minimum capital levels, UAE national equity ownership requirements, the number of directors and shareholders, and other topics relating to the management and administration of businesses.

Under the New CCL, foreign ownership of onshore companies is restricted to a maximum of 49% in most cases, while 100% foreign ownership is permissible within a FTZ. Branches of foreign companies may be registered in the UAE; however, a local service agent is required in most cases (excluding those registered within a FTZ).

Ministerial Decree No. 194 of 2004 allows other GCC nationals to own 100% of the shares in a UAE LLC.

The unit of currency is the Emirati dirham (AED). The official exchange rate is approximately AED3.67 to US$1.

Taxes on corporate income and gainsAlthough there is currently no federal UAE taxation, each of the individual emirates has issued CIT decrees that theoretically apply to all businesses established in the UAE. However, in practice, these laws have not been uniformly applied. Taxes are currently imposed at the emirate level only on companies with actual oil and gas production in the UAE under specific government concession agreements, and on branches of foreign banks under specific tax decrees, regulations or fixed agreements with the rulers of the emirates in which the branches operate.

Note that this is merely how the practice has evolved in the UAE and at the level of the individual emirates. There is no general exemption in the emirates’ tax decree. Anyone investing in the emirates should be aware of the risk that the tax decree may be more generally applied in the relevant emirate in the future, and of the remote risk that it may be applied retroactively, and be mindful of the potential introduction of federal (UAE) level taxation in the medium to long-term.

The income tax decrees that have been enacted in each emirate provide for tax to be imposed on the taxable income of all bodies corporate, wherever incorporated, and their branches that carry on trade or business at any time during the taxable year through a PE in the relevant emirate. Bodies corporate

UAE


are taxed if they carry on trade or business directly in the emirate or indirectly through the agency of another body corporate.

Abu DhabiAccording to the Abu Dhabi Income Tax Decree, all corporate entities carrying out trade or business in Abu Dhabi are taxable. In practice, tax is imposed as follows:

1. Corporate taxes are payable by companies with actual production of oil and gas at rates specified in the relevant concession agreement. Oil companies also pay royalties on production.

2. Branches of foreign banks are assessed a fee at the rate of 20% on annual fees income. The fees income of banks shall be calculated by reference to their audited financial statements.

In principle, the Abu Dhabi Income Tax Decree of 1965 (as amended by Abu Dhabi Income Tax Decree Number (4) of 1972) applies to every chargeable person who conducts trade or business, including the rendering of any services in Abu Dhabi, and states that it shall be subject to tax at a sliding scale of rates up to a maximum of 55%.

A “chargeable person” means a body corporate wherever incorporated, or each and every branch thereof, carrying on trade or business at any time during an income tax year through a PE situated in the emirate, whether directly or through the agency of another body corporate (and not entitled under an agreement with the ruler to an exemption from liability to income tax). Two or more of these branches shall each be treated as separate

chargeable persons. The fact that a body corporate has a secondary body corporate carrying on trade or business through a PE in the emirate shall not in itself constitute that parent body corporate as a chargeable person.

“Carrying on trade or business” means:

• Selling goods or rights of such goods in the emirate

• Operating any manufacturing, industrial or commercial enterprise in the emirate

• Letting any property located in the emirate

• Rendering services in the emirate (excluding the mere purchasing of goods or rights of such goods in the emirate)

The tax charged on a sliding scale in Abu Dhabi shall be reduced by the credit aggregate of oil dealt with in that fiscal year, so long as the total of all reductions granted to all chargeable persons in that fiscal year shall not exceed the credit aggregate of oil dealt with in that fiscal year.

Taxable income is computed after the deduction of all costs and expenses incurred by a chargeable person earning such income. Deductible costs and expenses include acquisition cost of goods, the expenses of operating the business, allowances for depreciation, obsolescence and exhaustion of both tangible and intangible assets, and losses sustained by the chargeable person in connection with the business.


DubaiThe Dubai Income Tax Decree, in principle, applies to all companies carrying on trade or business in Dubai requiring them to pay tax on their earnings. The rates of tax apply on a sliding scale up to a maximum of 55%. In practice, however, only:

• Oil and gas companies that have actual production in the emirate pay tax at rates specified in the relevant concession agreement. Oil companies also pay royalties on production.

• Branches of foreign banks pay tax at a flat rate of 20% on annual profits. The taxable income of banks is calculated by reference to their audited financial statements.

The Dubai Income Tax Ordinance of 1969 and the Dubai Income Tax Decree (and its amendment in 1970) specify that an organization that conducts trade or business in Dubai shall be subject to taxation.

A “chargeable person” means a body corporate, wherever incorporated, or each and every branch thereof carrying on trade or business at any time during an income tax year through a PE situated in the emirate, whether directly or through the agency of another body corporate (and not entitled under an agreement with the ruler to an exemption from liability to income tax). Two or more of these branches shall each be treated as separate chargeable persons. The fact that a body corporate has a secondary body corporate carrying on trade or business through a PE in the emirate shall not in itself constitute that parent body corporate as a chargeable person.






The tax charged on a sliding scale in Dubai shall be reduced by the credit aggregate of oil dealt with in that fiscal year, so long as the total of all reductions granted to all chargeable persons in that fiscal year shall not exceed the credit aggregate of oil dealt with in that fiscal year.

Taxable income is computed after the deduction of all costs and expenses incurred by a chargeable person earning such income. Deductible costs and expenses include acquisition costs of goods, the expenses of operating the business, allowances for depreciation, obsolescence and exhaustion of both tangible and intangible assets, and losses sustained by the chargeable person in connection with the business.

SharjahIn principle, all corporate entities carrying out trade or business in Sharjah are taxable under the Sharjah Income Tax Decree.

In practice, however, tax is imposed as follows:

• Oil and gas companies with actual production in Sharjah pay tax at rates specified in the relevant concession agreement. Oil companies also pay royalties on production.

• Branches of foreign banks pay tax at a flat rate of 20% on annual profits. The taxable income of banks is calculated by reference to their audited financial statements.

The Sharjah Income Tax Decree 1968 (and its amendments) specifies that there shall be tax imposed upon the taxable income of every chargeable person for each income tax year ending after the date of this decree at the applicable rate.

A “chargeable person” means a body corporate wherever incorporated, or each and every branch thereof, carrying on trade or business of any type during an income tax year through a PE situated in the emirate, whether directly or through the agency of another body corporate (and not entitled under an agreement with the ruler to an exemption from liability to income tax). Two or more of these branches shall each be treated as separate chargeable persons. The fact that a body corporate has a secondary body corporate carrying on trade or business through a PE in the emirate shall not in itself constitute that parent body corporate as a chargeable person.







Investment incentivesMost of the emirates have FTZs that offer tax and business incentives. The incentives usually include tax exemptions at the emirate level for a guaranteed period, the possibility of 100% foreign ownership, absence of customs duty within the FTZs and a “one-stop shop” for administrative services. The FTZs include, but are not limited to, the Dubai Airport FTZ (DAFZ), Dubai International Financial Centre (DIFC), Dubai Internet City (DIC), Dubai Media City (DMC), Dubai Multi Commodities Center (DMCC) and Jebel Ali Free Zone (JAFZ). Over 20 FTZs are located in the emirate of Dubai alone.

Other mattersForeign exchange controlsNo foreign exchange controls are imposed by either the Federal Government of the UAE or the individual emirates.

WHTThere are no WHTs in the UAE at present.

Other taxesPersonal income taxThere is currently no personal taxation in the UAE.

Capital gainsThere is no capital gains tax in the UAE. For tax-paying entities, capital gains are taxed as part of business profits.

VATThere is currently no VAT in the UAE. Although the introduction of VAT in the GCC is currently under discussion, timing of its implementation is neither clear nor officially confirmed.

Social securityThe UAE does not impose social security taxes on expatriates. UAE and other GCC-national employees contribute to retirement and pension funds in accordance with specific regulations.

Municipal tax and property taxMunicipal taxes are imposed on hotel services and cinema shows. Service charge percentages vary among the emirates. A service charge of 5% to 10% is charged on food purchased in restaurants. Hotels charge a 10% to 15% service charge per night on room rates. These charges are usually included in the customer’s bill, which the municipality will collect from restaurants and hotels. Individuals living and working in Dubai, for example, pay a 10% service charge on food purchased in most restaurants. Hotels also charge an additional 15% service charge on the services they provide.


In most of the emirates, municipality or housing fees are payable by tenants based on annual rent from commercial and residential premises, generally at a rate of 10% on commercial property and 5% on residential premises. We understand these charges are not considered a tax as such, but more of a fee based on annual rent. Please note that the application of this fee is not consistently applied across the emirates. There are also different modes of collection, i.e., it may be collected at the same time or included in the license fees, renewal of the license or through the utilities billing system.

Specifically in regard to Abu Dhabi, there are municipality or housing fees payable by landlords based on the annual rental income of commercial premises. We understand that the municipality fees in Abu Dhabi are assessed at a rate of 5% to 10%, and are payable by the landlord upon obtaining or renewing the business license.

Sale or purchase feeIn Dubai, a sale registration fee of 2% of the value of the sale is imposed on the seller, payable to the Dubai Land Department.

A purchase registration fee of 2% of the value of the sale is payable by the buyer of the property. However, a lower rate of 0.125% may apply at the discretion of the Dubai Land Department for “qualifying” internal reorganizations. The rate can differ in other emirates.

Customs dutyPlease refer to the Appendix 1 on “Customs duties in the GCC region.”

The UAE is a member of the GCC, together with Bahrain, Kuwait, Oman, Qatar and Saudi Arabia. Under the GCC Customs Law, most foreign imports are subject to customs duty of 5% of the CIF invoice value of the imported goods, except tobacco and alcohol (which generally attract higher rates), and the items on the exemption list (which generally attract lower or zero rates). This import duty is levied at the first point of entry to the GCC. No export duty is imposed on goods leaving the GCC.

Goods should generally not incur customs duty on import into a UAE free zone, and there is no export duty applied on goods removed from a UAE free zone. However, if the goods leave the free zone for a destination within the GCC, customs duty will be levied on the import at the first point of entry into the GCC.

Dubai free zone customs duty considerationDubai free zones are customs controlled areas, where any goods entering or leaving a free zone must be declared to the Dubai Customs Authority (Dubai Customs). The whereabouts of any goods brought into a Dubai free zone should be traceable from entry to exit.

If a Dubai free zone entity is subject to a customs audit, it will be requested to demonstrate the whereabouts of any goods it has imported into its free zone. Any “missing goods” may be considered to have entered mainland UAE, with customs duty reassessments and penalties as possible consequences. Furthermore, due to an interesting point of view taken by Dubai Customs, any of these consequences may stretch to historical periods exceeding the formal statute of limitations (five years).

These requirements are generally well understood by businesses operating in fenced free zones, such as the Jebel Ali Free Zone. However, businesses often fail to realize that these requirements also apply in unfenced and more service-orientated free zones such as the DIFC, the DMCC, and the Dubai Creative Clusters Authority (DCCA) (Dubai Media and Technology Free zone was rebranded to DCCA and is commonly known as TECOM).

Historically, these free zone customs compliance rules may not have been sufficiently highlighted by relevant authorities to entities established in those free zones, especially those located in unfenced free zones. Consequently, it is common for businesses to be unfamiliar with the customs obligations within the Dubai free zones, including unfenced free zones. However this is irrespective of the fact that these businesses are required and expected to comply with the relevant free zone regulations.

Update on introduction of VAT and CITOn 18 August 2015, the UAE’s MoF released an official statement addressing the progress it has made with respect to the VAT proposal by the GCC and the potential UAE CIT introduction.


VAT in the UAEThe MoF announcement provides official confirmation that the UAE MoF has been conducting studies in relation to the implementation of VAT along with its fellow GCC member states. It also confirms the following:

• The GCC member states have agreed to implement VAT simultaneously.

• The draft UAE VAT law remains under negotiation due to the absence of a final agreement between the respective GCC member states over elements of the GCC VAT framework, including a unified VAT rate and harmonized exemptions.

• The UAE will make an immediate announcement once a final agreement on the content of the UAE VAT law has been reached.

• Businesses will be given approximately 18 months from the date of this announcement to prepare for the implementation.

This announcement appears consistent with the initial expectation that the UAE will not implement VAT on its own, and that the eventual UAE VAT regime will fall under a common GCC VAT framework agreement.

Given the reported lack of agreement among the GCC member states over VAT rates and exemptions, an official announcement as to the actual implementation date is unlikely to be made prior to 2016.

CIT in the UAEIn addition to the information in relation to the GCC VAT implementation, the announcement provides a brief update on the UAE’s progress with respect to CT. It confirms that a draft UAE CT law is being studied in relation to the eventual CT regime to be implemented. The MoF confirms that it will make an announcement once the law has been finalized, and that businesses will be given no less than 12 months from the date of this announcement to prepare for the implementation and before being required to fulfil their UAE CT obligations.

Tax treatiesThe UAE has approximately 67 tax treaties currently in force, including with Albania, Algeria, Armenia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Bosnia and Herzegovina, Brunei, Bulgaria, Canada, China, Cyprus, the Czech Republic, Egypt, Estonia, Finland, France, Georgia, Germany, Hungary, India, Indonesia, Ireland, Italy, Japan, Kazakhstan, Korea (South), Latvia, Lebanon, Lithuania, Luxembourg, Malaysia, Malta, Mauritius, Mexico, Montenegro, Morocco, Mozambique, the Netherlands, New Zealand, Pakistan, Panama, the Philippines, Poland, Portugal, Romania, the Russian Federation (limited), Serbia, Seychelles, Singapore, Slovenia, Spain, Sri Lanka, Sudan, Switzerland, Syria, Tajikistan, Thailand, Tunisia, Turkey, Turkmenistan, Ukraine, Venezuela, Vietnam and Yemen.

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Page 1

UAE's treaties with other countries

Treaties in force

Treaties in various stages of negotiation renegotiation, signature, ratification, translation or entry into force

Limited application


In addition, treaties with the following jurisdictions are in various stages of negotiation, renegotiation, signature, ratification, translation or entry into force: Andorra, Argentina, Barbados, Benin, Belize, the Comoro Islands, Croatia, Ecuador, Ethiopia, Fiji, Greece, Guernsey, Guinea, Hong Kong SAR, Jersey, Jordan, Kenya, Kyrgyzstan, Libya, Liechtenstein, Macedonia, Malawi, Mauritania, Moldova, Nigeria, Palestine, Peru, Senegal, Slovak Republic, Uganda, Uruguay, Uzbekistan and the UK.

Work and residence permits and self-employmentNon-GCC foreign nationals wishing to take up employment in the UAE need labor permits, which are issued by the Ministry of Labor, and residence permits, which are issued by the Immigration Department. The FTZs in the UAE operate in a slightly different way, but the requirements are similar. Until a residence permit is issued, a foreign national may not obtain a driving license, sign a residential lease or open a local bank account.

Family members of a foreign national normally are sponsored by the foreign national. However, to sponsor dependents, there is a minimum salary requirement of AED4,000 (approximately US$1,090) per month.

The application process for obtaining an employment visa is completed by the sponsoring company. The company submits an application form including, but not limited to, the following documents:

• Copy of the employee’s passport

• Copy of the trade license of the sponsoring company

• Letter of guarantee of employment from the sponsor

• Legalized educational certificates of the employee

After all of the documents are submitted, it takes approximately four to six weeks for the issuance of the employment visa and residence permit. This may vary depending on the jurisdiction (i.e., mainland or one of the FTZs). Foreign nationals may not commence employment until their application and other papers are approved and accepted.

Foreign nationals may change employers after completing two years of their initial contract subject to certain conditions. Earlier changes in employment may be permissible, depending on the specific circumstances.

Consultation with an advisor is generally required for those wishing to establish a business or to set up a foreign subsidiary in the UAE. This procedure requires case-by-case analysis and advice.



Customs duty exemptions and reliefsTariff exemptions Certain goods are exempt from customs duty in accordance with the schedule of exempt items applicable under the GCC Customs Law. Exemptions include:

• Basic foodstuffs

• Imports for diplomatic and consular missions

• Imports for military and internal security forces

• Imports for civilian airlines and helicopters

• Personal effects and used household items

• Accompanied passenger luggage and gifts

• Goods required for charitable societies

• Ships and other vessels for the transport of passenger and floating platforms

Exemptions may also be available for imports for use in industrial activities in accordance with guidelines established by the GCC Customs Secretariat. The exemptions cover the following:

• Plant and equipment

• Spare parts

• Raw materials

Temporary importsGoods may be imported into the GCC Customs Union on a temporary basis without the imposition of customs duty. A time limit of six months has been set for temporary imports.

GCC Customs TariffThe GCC Customs Union has a Unified GCC Customs Tariff under which goods are imported identified by an eight-digit Harmonized System Code. Under the Unified GCC Customs Tariff, most foreign imports are subject to customs duty of 5% of the CIF value, except tobacco, alcohol and other items on an exemption list. There are exceptions to this in Saudi Arabia with higher rates of customs duty on certain goods. There is no customs duty on the export of both foreign and national products from the GCC.

Appe

ndix

Customs duty in the GCC

1

The GCC Customs UnionThe six GCC member states (Saudi Arabia, Kuwait, Bahrain, Oman, Qatar and the UAE) are part of the GCC Customs Union. Each member state has adopted the GCC Customs Law, which unifies customs procedures across the GCC customs administrations. All GCC member states have legislated the GCC Customs Law. However, its practical implementation is not completely consistent across each of the member states.

The GCC Customs Union is based on the principle of a single entry point upon which customs duty on foreign imported goods is collected; therefore, goods moving between the GCC member states should not be subject to customs duty (subject to documentation requirements and time limits). Goods considered to be of GCC origin for customs duty purposes are treated as “national products,” and should also not be subject to customs duty when moved within the GCC member states.


However, this period is generally renewable, to a maximum of three years. The importer must submit a deposit equal to the amount of customs duty that would be due if the goods in question were imported permanently. This deposit can generally be in the form of cash or a bank guarantee. This amount will be refunded by the respective customs authority upon the export of the goods from the GCC Customs Union, subject to an inspection by the customs authority to ensure that the same goods cleared under the temporary import are being exported and that the goods have not been subject to transformation during the temporary import period.

Personal effects and household itemsPersonal effects and used household items brought into any GCC member state by GCC nationals residing abroad, and foreigners arriving for the first time to take up residence, are exempted from customs duties. In addition, personal effects and gifts in the possession of passengers may be exempted from customs duty, provided that such goods are not of a commercial nature.

Greater Arab Free Trade AgreementThe GCC member states are also signatories to the Greater Arab Free Trade Agreement (GAFTA), which came into full effect on 1 January 2005, covering 17 Arab states out of the 22 Arab League countries, including Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Syria, Sudan, Tunisia, the UAE and Yemen. GAFTA maintains that goods originating from GAFTA member countries may receive preferential treatment from a customs duty perspective when imported into another GAFTA member country. The provisions in GAFTA state that, in order to treat a good as originating from a GAFTA member country, the good must meet the rules of origin as determined by the council, and the value added as a result of production in a GAFTA country must not be less than 40% of the value of the finished good.

Some GAFTA member countries are not currently applying GAFTA preferential treatment: for example, Iraq, where the customs duty regime has been suspended and a rebuilding Iraq levy of 5% is applied on most imports regardless of their origin; Yemen, which has not yet applied any GAFTA rules to its customs duty regime; and Algeria, which has produced a negative list of items specifically excluded from GAFTA preferential treatment. However, all of the GCC member states currently honor GAFTA.

GCC–Singapore Free Trade Agreement The GCC–Singapore Free Trade Agreement (GSFTA) is an FTA between the GCC member states and Singapore that came into effect on 1 September 2013. The agreement ensures the staggered implementation of customs duty-free concessions for 99% of domestic Singaporean goods entering the GCC.

For GCC-origin goods imported into Singapore, the benefits are limited due to the fact that most imports into Singapore are already customs duty-free regardless of the origin of the goods being imported, apart from beer, stout, samsu and medicated samsu, which are unlikely to be produced in the GCC.

The procedural requirements for claiming preferential customs duty treatment have not yet been finalized in the GCC. Exporters in Singapore whose goods meet the rules of origin requirements

of the GSFTA can choose to apply for a Preferential Certificate of Origin in Singapore. However, they are currently likely to face a rejection of the Preferential Certificate of Origin when claiming preferential tariff rates within the GCC member states, with practical implementation in the GCC not expected until 2016.

European Free Trade Area–GCC Free Trade AgreementThe European Free Trade Area–GCC Free Trade Agreement (EFTA–GCC FTA) is an FTA between the GCC member states and the EFTA member states (Switzerland, Norway, Iceland and Liechtenstein) entered into force on 1 July 2014. The FTA allows for the implementation of customs duty-free concessions on a high proportion of EFTA origin goods imported into the GCC member states and GCC origin goods imported into the EFTA member states with immediate effect, with further goods becoming duty-free over a transitional period of five years.

Similar to the GSFTA, there have been delays in achieving practical implementation of the FTA in the GCC member states. On 4 October 2014, EFTA released an alert stating that the GCC member states had informed it that the EFTA-GCC FTA is currently not being applied by their local authorities. The alert advised that this issue is being monitored and every effort is being made to solve the problem. There has been no further communication, and practical implementation is not expected until 2016.

US free trade agreements with Bahrain and OmanIn addition to the above FTAs, the individual GCC member states of Bahrain and Oman each have respective FTAs with the United States.

Free zones and special economic zones in the GCC There are an increasing number of free zones in the GCC, particularly in the UAE. Free zones are generally seen as foreign territories for customs duty purposes (i.e., they are not considered within the scope of the GCC Customs Union). Therefore, goods manufactured within a free zone are not considered as GCC national products for GCC customs duty purposes. Goods (both raw materials and finished goods) should not incur customs duty on import into a free zone, and there is no export duty applied on goods removed from a free zone. However, if goods leave a free zone for a destination within the GCC member states, customs duty will be levied on the import at the first point of entry into the GCC Customs Union.

In addition to free zones, there is an increasing number of special economic zones. The distinction from a customs duty perspective is that goods manufactured in a special economic zone may be considered to be national products for GCC customs purposes, unlike goods manufactured in a free zone.


EY has more than 19,000 Tax professionals around the world who help clients with their business and tax affairs. Complementing this extensive network, EY’s long-established international tax desk system gives clients ready access in their home countries to direct, timely and coordinated foreign tax expertise.

EY has long recognized that the complexity of modern taxation matters makes it a subject in itself. In MENA, prior to starting operations, particular emphasis must be given to strategic planning to ensure that tax exposures are managed appropriately. Such planning is always predicated on the business imperatives of the taxpayer’s operations in the MENA region, and takes into account the tax effect in the taxpayer’s home country, transfer pricing implications, impact of tax treaties, evaluating the tax effects of major business decisions, etc.

Our key Tax Services have been explained below.

Tax complianceData gathering, compilation and generation of tax returns for individuals engaged in business, as well as for partnerships, joint ventures and other entities, subject to tax or Zakat. Tax compliance is not prospective, and does not include tax controversy resolution or tax accrual and provision preparation or review.

We provide clients with services relating to registration of taxable entities with taxation authorities. In addition, we prepare, review and advise on the tax returns prior to their submission, identify critical issues relating to tax that may have a significant impact on our clients’ operations, and assist in responding to the enquiries raised by the tax authorities and in finalizing their assessments. Tax compliance works together with, and complements, the firm’s tax consulting practice of day-to-day advice to corporate taxpayers, whether routine or highly technical.

Tax consulting and controversyEY’s tax consulting works with clients to produce robust, commercial and practical tax planning based on the business needs of the client. Prospective tax planning includes the provision of day-to-day advice to corporate taxpayers, whether routine or highly technical. In addition, we can advise on tax position available under tax treaties, i.e., agreements regarding the avoidance of double taxation between countries.

International tax servicesOur International Tax Services (ITS) Team is experienced in working with global multidisciplinary teams to manage operational changes and transactions. In particular, we regularly advise on the following:

• Tax structuring — choice of appropriate structure (holding, financing and operating) is extremely important from a commercial as well as regulatory perspective. The type of structure chosen will have an impact on tax compliance obligations and management requirements.

• Profit repatriation — foreign-sourced dividends, interest and royalties often suffer a WHT in the country of source. This may push up the overall effective tax rate considerably at the group level and requires careful anticipation and management.

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Services provided by EY in MENA

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• International acquisitions — depending upon commercial objectives, acquisitions could be structured as a share purchase or asset purchase. The regulatory environment across MENA for overseas acquisitions often enables leveraged buyouts and debt financing in a commercially efficient manner.

• Any deal structuring should closely align with the actual developments of the OECD relating to BEPS. Consequently, structuring of outbound investment from MENA needs to be closely monitored.

Our professionals are experienced in advising on the tax aspects of international expansion plans of MENA-based businesses.

Key structuring issues relevant when businesses expand internationally:

• Holding structures

• Financing strategies

• Intellectual property management

• Transfer pricing, including head office expense allocation

Tax compliance and reporting requirements We work with our clients to develop tailored tax strategies that address tax risks and seek out opportunities for operational efficiencies. Then, we support in the actual implementation.

Personal tax servicesEY’s Personal Tax Services (PTS) Practice offers tax-related domestic and cross-border planning and compliance assistance to business-connected individuals and their associated entities. In addition, in today’s global environment, cross-border services help meet the ever-growing needs of internationally positioned clients. Our experienced people with in-depth knowledge help you to manage your requirements on a global basis effectively, whether you require our planning or compliance services.

In particular, services we provide to family businesses and their owners include:

• Advice on succession and inheritance planning and governance

• Personal tax and other wealth management services

• Tax planning related to investment decisions, nationally and internationally

• Tax due diligence on mergers and acquisitions

• Family office services

• Investments and assets protection

• Assistance in selecting the service providers required for establishing and maintaining the operating structure

Transfer pricingTransfer pricing is a term used to describe all aspects of intercompany pricing arrangements between related business entities, including transfers of intellectual property, transfers of tangible goods, services and loans, and other financing transactions.

Intercompany transactions across borders are growing rapidly and are becoming much more complex. Compliance with the differing requirements of multiple overlapping tax jurisdictions is a complicated and time-consuming task, which also brings with it increasing tax planning and management requirements. At the same time, tax authorities from each country are imposing stricter penalties, new documentation requirements, information exchange, and increased audit and inspection activity. In addition, there is a growth in the number of tax authorities adding to the list of countries with official transfer pricing rules, which further complicates transfer pricing issues and audit, with each country adding their own particular requirements. Following in the footsteps of other nations, tax authorities across MENA have in recent years adopted their own assessment procedures with respect to transfer pricing practices and, increasingly, we are seeing the enactment of specific transfer pricing regulations on a country-by-country basis.

We are also seeing the introduction of specific anti-avoidance measures providing tax authorities with the powers to overturn transactions, structures and business arrangements that lack commercial substance and economic reality.

Specific transfer pricing rules have been enacted by three countries in the region (Egypt, Oman and Qatar), with Egypt being at the forefront through its adoption of the Transfer Pricing Guidelines as noted under the OECD Guidelines. Other countries in the region are expected to follow suit.

To manage compliance risks in the current changing transfer pricing landscape in MENA, businesses should:

• Review transfer pricing documentation requirements in all MENA jurisdictions

• Consider whether an APA is a better option than defensive documentation

• Respond to a tax authority transfer pricing audit or enquiry taking into account the specific tax practice considerations applicable in the relevant jurisdiction

• Continually update and manage worldwide transfer pricing policies and procedures in line with the latest changes


Operating model effectivenessChief financial officers and tax directors of multinationals operate in an environment of intense scrutiny and challenge. Transactions, intercompany pricing, supply chains, structuring and funding are increasingly under the spotlight. More than ever, operating model effectiveness (OME) that supports the business strategy can help maintain competitive advantage and give value to shareholders. Our multidisciplinary OME teams work with you on supply chain design, business restructuring, systems implications, transfer pricing, direct and indirect tax, customs and accounting. We can help you build and implement the structure that makes sense for your business and improve your processes. Our people have expertise in tax law, tax authorities and business economics. We deploy those skills to build the proactive, pragmatic and integrated strategies that address the tax risk of today’s businesses and help your business achieve its potential. That’s how EY makes a difference.

Human capitalOur globally Integrated Performance and Reward Professionals help you design compensation programs and equity incentives that really engage your key people. We help you meet your executive tax compliance obligations, stay on top of regulatory change, manage your global talent effectively and improve your function’s strategic alignment.

Zakat consulting servicesProspective Zakat planning and structuring of transactions to manage Zakat implications includes the provision of day-to-day advice to corporate taxpayers, whether routine or highly technical.

Tax consulting comprises the entire cycle, from overall account management to helping businesses understand the impact of legislative changes and plan accordingly. It also includes practice and procedure groups that assist corporate taxpayers undergoing tax audits initiated by federal, state, local or other taxing authorities, and the review and preparation of financial statement tax accounts.

We undertake, on behalf of clients, registration with the DZIT in the Kingdom of Saudi Arabia. In addition, we assist in the preparation, review and advise on Zakat returns prior to their submission, assist clients in the preparation of provisional and final Zakat declarations, including detailed schedules required in support thereof, and calculate the amount of Zakat due.

We also advise clients on accounting records and reporting requirements consistent with legal requirements in line with Zakat regulations.

Indirect taxesCustoms duty is generally imposed in the region, and FTZs are effectively customs-bonded warehouse regimes in which customs duty compliance requirements must be strictly adhered to. Our professionals provide details of indirect taxes levied in each of the countries within the region and assist on planning for international trade. The rules that govern international trade in the region are complex, but allow great scope to plan. From import and export process design and systems implementations to a better understanding of various customs regimes and FTA’s, our clients find that investing in international trade planning is an outstanding value proposition.

The rationale is compelling: the rules and regulations around the world that govern international trade come from the same authorities — for example, the WTO — and from the same multinational treaties and conventions.

This means that the insights we have and the solutions we build have potentially wide application. The power our global business has to create real and lasting value for our clients, anywhere they need it, is enormous. Our global EY customs and international trade services bring our experienced people and knowledge from around the world to our clients.

VAT is likely to be adopted by all countries in the region within the medium to long term. The challenges in implementing a VAT regime are daunting, and the demands made of businesses in the initial rollout of the VAT regime cannot be underestimated. Our regional indirect tax professionals are assisting clients cope with the first wave of VAT implementations, and to develop strategies to migrate existing accounting systems and practices to manage the new compliance challenges.


Claim for refund of European VAT incurred in 2015As we approach the year end, it is appropriate to consider whether your business has incurred VAT in Europe during 2015.

If your answer is “yes,” then you may be able to recover the VAT cost by applying for a refund, provided your business is established or resident in a MENA country.

The deadline for submitting applications for expenses incurred in 2015 for most of the European Union (EU) countries is 30 June 2016. Yet, it is appropriate to now start collecting the necessary documents to support your claim and help you to comply with the requirements of the respective EU country.

For example, your business might have incurred EU VAT at trade fairs and conferences for meals and accommodation; travel, transportation and fuel costs; business entertainment, marketing and advertising costs; professional services, telecommunication, printing materials and stationery; and training. VAT rates vary, but averages around 20% across the EU. If you are entitled to recover the EU VAT, you may seek a refund and benefit from a reduction in your costs related to the above noted activities. Yet, the EU countries apply strict requirements before allowing you a refund. Thus, a successful claim requires a good understanding of the local

requirements and the administrative procedures applicable in each EU country. In many cases, the EU tax administrations require various documents supporting the claim, and rejections often result from missing documents and noncompliance with formal requirements.

EY can help you:

• Ascertain whether your business is entitled to a VAT refund in the relevant EU member state

• Identify VAT incurred in Europe and its eligibility for refund

• Determine if you have sufficient documentation to support a VAT reclaim

• Apply for a tax certificate from the domestic MENA tax authorities

• Review your activities to identify any European VAT compliance issues

• Assist you to file VAT refund application in the local language, where necessary

• Communicate with the relevant European tax authorities to facilitate the claim


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Directory of EY MENA offices and key Tax contacts

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BahrainManamaIvan Zoricic [email protected]

P.O. Box 140, 15th floor The Tower Bahrain Commercial Complex Manama, Kingdom of Bahrain Tel: +973 5354 55

EgyptCairoSherif El-Kilany [email protected]

Ahmed El Sayed [email protected]

Hossam Nasr [email protected]

Ring Road, Zone #10A, Rama Tower P.O. Box 20, Kattameya Cairo 11936, Egypt Tel: +202 2726 0260

Iraq

BaghdadAli Samara [email protected]

Al Harthia District, Block 609, Street 3 Villa 23, Al-Ameerat Street, Al-Mansour Baghdad, Iraq Tel: +964 1543 0357

JordanAmmanAli Samara [email protected]

Jacob Rabie [email protected]

300 King Abdulla street, 1118 Amman 1118, P.O. Box 1140 Jordan Tel: +962 6580 0777

Kuwait

SafatAlok Chugh [email protected]

18–21st Floor, Baitak Tower, P.O. Box 74 Safat Square, Ahmed Al Jabber Street Safat 13001, Kuwait Tel: +965 2295 5000

Lebanon

BeirutRamzi Ackawi [email protected]

Commerce & Finance Bldg., 1st Floor, Kantari P.O. Box: 11–1639, St Charles City Centre Omar Daouk Street, Beirut 1107–2090, Lebanon Tel: +961 1760 800

Libya

TripoliGerry Slater [email protected]

Bashir Al-lbrahimi Street Yaser Arafat Square Tripoli 91873, Libya Tel: +218 2133 4413 0

OmanMuscatAhmed Amor Al-Esry [email protected]

3rd & 4th Floor, EY Building Al Qurum, Opposite CCC, P.O. Box 1750, Ruwi Qurum Muscat 112, Sultanate of Oman Tel: +968 2455 9559

PalestineRamallahSaed Abdallah [email protected]

Al Ersal Street, Second Floor Al-Salam Building, P.O. Box: 1373 Ramallah 1373, Palestinian Authority Tel: +972 2240 1011

PakistanKarachiSalman Haq [email protected]

Mustafa Khandwala [email protected]


EY, 601 Progressive Plaza, Beaumont Road Karachi-75530, Pakistan Tel: +922 1356 81965

IslamabadSyed Tairq Jamil [email protected]

EY, 3rd Floor, Eagle Plaza, 75-west Fazal-ul-Haq Road, Blue Area Islamabad-44000, Pakistan Tel: +925 1287 0290

LahoreMuhammad Awais [email protected]

EY, Mall View Building, 4 Bank Square, Lahore-54000 Pakistan Tel: +924 2372 11531

QatarDohaFinbarr Sexton [email protected]

Paul Karamanoukian [email protected]

Marcel Kerkvliet [email protected]

P.O. Box 164 24nd Floor, Burj Al Gassar Onaiza, West Bay, Doha State of Qatar, Arabian Gulf Tel: +974 4457 4111

Saudi ArabiaAl KhobarNaveed Jeddy [email protected]

Farhan Zubair [email protected]

Flour Building — 4th floor, Jufali Tower P.O. Box 3795 AlKhobar 31952 Saudi Arabia Tel: +966 3849 9500

JeddahCraig McAree [email protected]

Irfan Alladin [email protected]

Mohammed Desin [email protected]

13th Floor, King’s Road Tower King Abdulaziz Road, P.O. Box 1994 Jeddah 21441, Saudi Arabia Tel: +966 2221 8400

RiyadhAsim Sheikh [email protected]

Ahmed Abdullah [email protected]

Franz-Josef Epping [email protected]

Imran Iqbal [email protected]

Nitesh Jain [email protected]

Vladimir Gidirim [email protected]

Al Faisaliah Office Tower, Level 6 King Fahad Road, Olaya, Riyadh 11461 Saudi Arabia Tel: +966 1273 4740

SyriaDamascusAbdulkader Husrieh [email protected]

P.O. Box 30595, Villat Sharqieh — Mezzeh 5 Shaee Street, Damascus, Syria Tel: +963 9442 2740

UAEAbu DhabiTobias Lintvelt [email protected]

Nation Tower 2 Corniche, Abu Dhabi P.O. Box 136 United Arab Emirates. Tel: +971 2 417 440050 621 0184

DubaiTobias Lintvelt [email protected]

Stijn Janssen [email protected]

Alexander Tharyan [email protected]

Alexey Kondrashov [email protected]

Michelle Kotze [email protected]

Guy Taylor [email protected]

P.O. Box 9267, 28th Floor Al Saqr Business Tower, Sheikh Zayed Road Dubai, United Arab Emirates Tel: +971 4 332 4000


EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

The MENA practice of EY has been operating in the region since 1923. For over 90 years, we have grown to over 5,000 people united across 20 offices and 15 countries, sharing the same values and an unwavering commitment to quality. As an organization, we continue to develop outstanding leaders who deliver exceptional services to our clients and who contribute to our communities. We are proud of our accomplishments over the years, reaffirming our position as the largest and most established professional services organization in the region.

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

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