Middle East, South Asia and Caspian Tax Summit - 2023

• Increasing focus on technology and data. Many revenue authorities potentially ‘leapfrogging’ OECD countries with an easier path that does not involve legacy systems.
• Satisfying requirements on substance in Europe and elsewhere are critical for tax planning of the future.
• US Climate Change incentives-based policies through the Inflation Reduction Act and the EU response, designed to shape global industry in the future.
• New transparency requirements for large MNEs with a presence in the EU and also now Australia.
• Post-Covid issues on ensuring tax compliance on a mobile workforce.
• MESAC region ‘big tax policy’ future focus on expanding tax base and increasing tax to GDP ratio.

• Main driver for speed of change globally and in the region is that the traditional corporate tax does not fit the need of the new digital reality.
• Electronic invoicing and use of AI will continue to be applied by tax authorities to gather more data and increase compliance. In this context, taxpayers need to ensure that they are aware of what data has been shared and understand how tax authorities will interpret this data.
• The role of tax professionals has changed significantly – there is a shift from understanding and advising on purely regulation to understand and advise on processes and data.
• BEPS 2.0 is here to stay, Taxpayers in the region are not yet prepared for much of the envisaged changes.
• Despite a global minimum Tax of 15%, there will still be tax competition between countries, the tax incentives of the future could, however, be more ESG driven.

Key developments:

• Saudi tax authority (ZATCA) has issued zakat rules for investment funds.
• Sukuk and bonds, as well as employee housing loans, can be deducted from zakat base provided certain conditions are met.
• TP regulations are now applicable to 100% of zakat payers.
• ZATCA clarified the concept of Service PE and defined the criteria for taxation in KSA. 
• A successful appeal case against a ZATCA ruling often depends on detailed analysis and supporting documents in the drafted appeal.
• SOCPA changes to auditors’ independence rules limit tax services a firm can provide to an audit client. Tax service fees can no longer exceed 70% of audit fees. These changes are expected to push taxpayers to separate audit and tax service providers.
• Five Special Economic Zones (SEZs) in KSA, where companies are eligible for preferential tax treatment (CIT, VAT, WHT, customs , ETC.).
• The tax regime for Regional Headquarters (RHQ) Program is under codification. Income earned by RHQ from prescribed activities will be granted tax relief. Interested MNCs should move quickly to ensure compliance with RHQ policy by 2024.
• Mandatory E-invoicing in KSA is currently in Phase 2 (integration) and is being rolled out in waves based on annual taxable revenue. Taxpayer is advised to plan their e-invoicing step-by-step and consider between in-house and third-party solutions.

• The proper management of tax data is essential for businesses to comply with tax regulations. The use of digital solutions and automated processes has made it easier to collect, store, and analyze data, but it also presents new challenges for businesses.
• With the increasing amount of data being generated by businesses, it is becoming increasingly important to have a robust data management strategy. This includes having a system for storing and managing data, as well as ensuring the accuracy and completeness of the data.
• Tax technology is an important aspect of digital transformation of the tax function. It enables businesses to automate tax processes, reduce errors, increase efficiency and provide better data management for tax compliance. Meanwhile, implementation of any technology should be based on proper processes and supported by relevant people.
• Taxpayers and the revenue authorities in the region have a great opportunity to implement tech solutions with an easier path that does not involve legacy systems.
• Emerging technologies, such as generative AI, could become a great supporter to the tax departments, if used appropriately.

• There is a focus on transfer pricing compliance in the Middle East region.
• MNEs could perform a thorough value chain analysis to ensure that profit allocation along that value chain is aligned with the economic efforts.
• Even with the Global Minimum Tax coming into play from 2024, the ‘arm’s length’ principle will still play an important role.
• A robust Transfer Pricing policy is a key element when venturing into new markets.

• The VAT landscape continues to evolve in the GCC since its introduction in the UAE and KSA in 2018. In recent years Bahrain and Oman have also implemented VAT and Qatar is expected to follow suit next year. Over the past few years there have been significant legislative changes in each of these jurisdictions, as VAT Law evolves to address potential gaps, new business models or changing fiscal policy. Accordingly, it is important that businesses and taxpayers keep up to date with these changes to ensure they are compliant and to prevent any unexpected outcomes.
• The tax authorities in the region have also continued to evolve over the past few years. In this regard there have been  significant developments in systems and processes as well as increased use of technology to interact with taxpayers and to conduct audits. Several tax authorities have also increased their capacity, headcount and capability which has been notable particularly in the UAE and KSA where there has been an increased level of audit activity as we approach the 5 to 6 year statute of limitations.
• Looking forward we could likely expect to see the further roll out of e-invoicing in KSA, while the UAE, Oman, and Bahrain tax authorities are likely to be preparing for the potential implementation of e-invoicing. Businesses will need to be ready for these potential changes as significant upgrades to current systems and processes, as well as data management may be needed to meet the new requirements.