Broadening the taxable basis across the GCC and MENA: EY

To increase scope of income tax laws, GCC countries are pursuing tax determinations with significantly broader interpretations of activities that constitute doing business in-country.

  
Broadening the taxable basis across the GCC and MENA: EY
11 November 2015
· Withholding taxes on payments made to foreign companies increased significantly since MENA countries lowered company tax rates to 10 to 15%

· Considerations for the introduction of VAT in the GCC and Egypt discussed at the EY MENA Tax Conference in Houston


Dubai: To increase the scope of income tax laws, GCC countries are pursuing tax determinations with significantly broader interpretations of activities or actions that constitute doing business in-country. New concepts like Virtual Service Permanent Establishment  and dependent agents are being used in Saudi Arabia and Kuwait to determine taxable presence or taxable activities.

Traditionally, a foreign service provider is deemed to have a permanent establishment (PE) when actual presence or activity in-country exceeds a specified number of days as prescribed in the tax law. Under the Virtual Service PE concept, a foreign company may be deemed by the tax authorities to have a PE and liable to tax, merely because the service contract specifies in-country presence or service delivery in country, regardless of the time actually spent in-country. The application of such concepts may broaden the scope of application of the tax laws beyond local and international tax treaty statues.

Sessions on the latest changes and developments in tax laws and tax practices in the GCC and MENA region were held at the biennial EY MENA Tax Conference in Houston for companies in the US and Canada. Initiatives to increase fiscal revenues such as the  the introduction of VAT in the GCC and Egypt were discussed. The conference was attended by senior finance and tax executives from large corporations doing business in the Middle East or looking to invest in the substantial opportunities offered by  the lucrative and fast growing MENA economies.                

Sherif El-Kilany, MENA Tax Leader, EY, says: "US companies that conduct business in MENA need to have a solid understanding of the latest tax developments and positions in MENA. The broad tax law interpretations and use of Virtual PE concepts by tax authorities to  determine taxable presence and taxable activity may not be line with the traditional interpretation of income tax laws and international double tax treaty conventions. In this regard, it is important for tax payers and tax authorities to appreciate technical interpretations of tax laws in the light of accepted international tax practices and conventions."

Broader withholding tax applications across MENA
Broader applications of withholding tax law interpretations are being used by the tax authorities in Iraq, Saudi Arabia and Oman to levy and collect tax at source, before payments are received by foreign contractors and service providers.

"Tax authorities in most countries are well aware that tax collections from the imposition of withholding tax on payments made to foreign companies are frequently easier to impose and collect than looking to foreign companies with little or no in-country presence to file income tax returns and settle tax on income earned locally. The attraction of collecting withholding taxes on gross payments made to foreign companies versus assessing income tax on net taxable profits in terms of tax yields has also increased significantly since MENA countries lowered company tax rates to the current low rates of 10 to 15% that prevail in the GCC region," comments Sherif.

-Ends-

About EY
EY 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 all our accomplishments over the years, reaffirming our position as the largest and most established professional services organization in the region."

© 2015 Ernst & Young.
All Rights Reserved.

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global EY organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.   

 

© Press Release 2015


More From Press Releases