Tax-friendly MENA policies boost businesses

Tax authorities across Middle East and North Africa are implementing investment and taxpayer-friendly tax measures to promote a competitive, business-friendly tax environment to encourage tax compliance, say tax practitioners and specialists participating in the Ernst & Young MENA Tax Conference in Dubai.

At present, MENA companies benefit from low tax rates, investment incentives and extensive tax treaty arrangements, but are also expected to ensure full and correct tax compliance with the tax laws and regulations.

The conference will focus on the current dynamic tax environment in MENA with presentations by experienced tax professionals from EY. The event will include panel discussions with senior tax and finance executives from leading companies to gain a broad perspective of important tax developments and critical emerging tax issues. The conference will also address evolving fiscal and tax policies and considered the key challenges faced by taxpayers in various MENA countries.

Sherif El-Kilany, EY MENA Tax Leader, said: “Foreign direct investments are seeing a resurgence across MENA, especially in the GCC. The regional markets offer critical mass, higher purchasing power as well as some of the largest infrastructure and government investment programs.

“All these factors make the GCC and the overall MENA region very attractive for investment and doing business. The economic incentives are enhanced by the business-friendly tax environment that continues to attract the best companies to establish themselves and do business here.”

The key theme at the event will include the increasing focus on transfer pricing (TP) and thin capitalization rules as well as withholding tax for non-residents. The conference also considered the importance of correct tax law interpretation and the effective use of tax treaty arrangements to achieve the best tax outcomes.

Withholding tax in Saudi Arabia, Kuwait and Oman

Withholding tax compliance is being stringently enforced in several MENA countries. For Saudi-listed companies, an authorized person acting as broker or agent for non-resident investors is required to deduct 5% WHT on dividends paid to these investors. In Kuwait, 15% withholding tax (WHT) on dividends need to be paid by companies listed on the Kuwait Stock Exchange. Oman has seen an increasing enforcement of withholding tax compliance by foreign companies and service providers with no permanent establishment in Oman.

Availing double tax treaty relief

As of January31, 2014, Saudi Arabia has 29 effective double tax treaties with a further 22 treaties in process. In Qatar, 57 tax treaties are currently in force and 34 tax treaties have been ratified and await implementation. In Saudi the tax authorities now allow taxpayers to settle withholding tax based on the rates provided in tax treaties, if such payments are supported by prescribed documents. In Qatar, taxpayers may apply for pre-approval to avail tax treaty withholding tax rates.

In both Saudi Arabia and Qatar, taxpayers may also use the pay and claim system to avail tax treaty relief. However, it is important to ensure that all the required information and documentation is carefully prepared and submitted with the refund application so that long refund delays are avoided.

“The need for effective management of taxes in these emerging and dynamic markets to avoid unnecessary costs and risks and maximize opportunities is the primary concern for corporations. Effective controls, robust processes, standardized procedures and the use of appropriate technology can all help to improve accuracy and reduce risks.

“By identifying trends and anticipating changes in policy, legislation and enforcement, businesses can plan for adverse impacts, take proactive steps to adapt to changes and even engage with policymakers to contribute their perspective to the legislative process. Companies today are beginning to take this opportunity to get ahead of the curve on tax changes very seriously,” concludes Sherif.