Middle East Tax Newsletter

Welcome to the February edition of our tax newsletter, bringing you news on global and regional tax developments. 

KPMG report: Public consultation document on Pillar One—draft model rules for nexus and revenue sourcing

Following the political agreement reached in October 2021 regarding a two-pillar solution to address the tax challenges arising from the digitalization of the economy by 137 members of the OECD/G20 Inclusive Framework on BEPS, the Organisation for Economic Cooperation and Development (OECD) announced in December 2021 a schedule for public consultations on various aspects of its two-pillar plan to address the tax challenges arising from digitalization and globalization of the economy.

The OECD on 4 February 2022 launched the public consultation by releasing for public comment the first building block of Amount A – Draft Rules for Nexus and Revenue Sourcing.

See the full text of the report here

KPMG report: Top concerns for tax leaders on the path forward for BEPS 2.0

As the global project to modernize international tax rules nears the finish line, over 130 countries have agreed on a final set of proposals for preventing base erosion and profit shifting (BEPS), and tax leaders of international companies have a clearer view of the emerging framework.

Now, as the world’s focus shifts to domestic implementation, many tax leaders will likely have their hands full managing the potential impacts.

See the full text of the report here

Corporate Tax in the UAE

On 31 January 2022, the tax landscape of the region shifted yet again with the United Arab Emirates (UAE), Ministry of Finance (MoF) making the breakthrough announcement that a new federal corporate tax (CT) system will be implemented in the UAE, effective financial years commencing on or after 1 June 2023. Barring Bahrain, the UAE has introduced the lowest corporate income tax rate within the GCC region at a standard rate of 9%.

The UAE CT regime has been designed to incorporate best practices globally and minimize the compliance burden on businesses.

Read our tax flash for detailed review

OECD’s transfer pricing guidelines for multinational enterprises and tax administrations: what this means for Middle East businesses

The Organisation for Economic Cooperation and Development (OECD) released the revised version of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022 on 20 January 2022.

According to the OECD release, the Transfer Pricing Guidelines provide guidance on the application of the “arm’s length principle,” which represents the international consensus on the valuation, for income tax purposes, of cross-border transactions between associated enterprises.

The 2022 edition of the Guidelines consolidates into a single publication the changes to the 2017 edition resulting from:

The report Revised Guidance on the Transactional Profit Split Method issued in 2018, provided guidance on when the transactional profit split method is considered as the most appropriate method to apply to related party transactions. This is becoming increasingly relevant for integrated businesses and it will very likely be a contentious point to be challenged by progressively aggressive Tax authorities as they continue to introduce transfer pricing rules into their local regulations. These challenges are already a reality for the Financial Services and Information Technology sectors in the Middle East.

The report Guidance for Tax Administrations on the Application of the Approach to Hard-to-Value Intangibles issued in 2018, provided further guidance in response to BEPS Action 8 – Hard to Value Intangibles. Whilst this report is intended to promote common practice in the valuation approaches of particularly highly uncertain intangibles, businesses with highly sophisticated intellectual property (in industries such as Technology) should expect an increase in audits and transfer pricing adjustments. With the Economic Substance Rules (ESR) introduced in the Middle East, Tax authorities will most likely rely on these guidelines when performing audits. This may pose challenges for taxpayers from a both transfer pricing and ESR perspective.

The report Transfer Pricing Guidance on Financial Transactions was issued in its final form in 2020 and provided dedicated guidance and examples for transfer pricing aspects of financial transactions. Middle East businesses (such as banks and corporates) that have outdated funds transfer pricing (FTP) policies should align the pricing of financial transactions and central treasury functions with these guidelines.

The consistency changes needed across the rest of the previous OECD Transfer Pricing Guidelines led to the launch of this new consolidated version of the Transfer Pricing Guidelines.

Read our tax flash for detailed review

How the 2022 GCC Unified Customs Tariff will impact your organization from 1 February 2022

From 1st February the “2022 Tariff Nomenclature” has become effective in the GCC, as confirmed by UAE Customs Authorities through Customs Notice 01/2022. The Harmonized System is a standardized numerical method of classifying traded products, used by customs authorities to identify products when assessing duties and taxes and for gathering statistics.

Most product categories are affected by the recent changes to the list, mainly relating to different types of machinery and their parts (Chapters 84 and 85).  In addition, new technologies such as smartphones, vapes and drones received specific subheadings in the updated list. This means that if your business involves any of the above, your product database and customs duties applied to your imports must be revised.

The new changes will also affect companies dealing with agricultural, chemical, wood, textile and metal products. However, if your company deal in cross-border transactions of any type of goods then you must be ready to identify possible impacts to your database. 

Read our customs flash for detailed review

Updated Voluntary Disclosure User Guide on VAT and Excise Tax

The Federal Tax Authority (‘FTA’) has issued an amended Voluntary Disclosure User Guide for VAT and Excise Tax (“VD User Guide”), an update to the version issued in July 2018. 

The updated VD User Guide gives further explanations on requirements and procedures specifically related to the submission of Voluntary Disclosures for active and deregistered Tax Groups, summarized below.

• Tax Group Voluntary Disclosures shall be submitted by the active Group representative member only, or by the last representative member before the Tax Group was deregistered.
• Other Tax Group members can only view submissions made to the FTA by the representative member.
• Voluntary Disclosures can be submitted against submitted VAT returns, acknowledged Voluntary Disclosures, or acknowledged tax assessments. The VD User Guide provides separate procedures on how to access the Voluntary Disclosure form in each of the scenarios above.
• In line with the guidance available previously, an official letter must be prepared and attached for the FTA’s review along with the Voluntary Disclosure form. The letter shall include background facts and a detailed description of the errors disclosed. Such letter shall be prepared regardless of whether the Voluntary Disclosure is submitted by an active or deregistered Tax Group.

Read our tax flash for detailed review.

Oman Tax Authority publishes the Transport Sector Value Added Tax (VAT) Guide

The Oman Tax Authority (‘OTA’) has issued the VAT Guide on Transport Sector in Arabic. The Guide aims to explain the VAT treatment of transactions in this sector. Among others, the Guide clarifies the following:

• VAT treatment of passenger transport services
•  Scope of international transportation of passenger and services related to  international passenger transportation
• VAT treatment of goods transport services
• Scope of international transportation of goods and services related to international goods transportation
• VAT treatment of supply of means of the transport and goods and services related to supply of means of transport

OTA publishes the Associated Persons Guide and Reverse Charge Mechanism Guide

The OTA has issued the VAT Guide on Associated Persons in Arabic which explains the scope of associated or related persons and provide guidelines on the VAT treatment of supply of goods or services by, to or between associated or related persons.

The OTA has also issued the Reverse Charge Mechanism VAT Guide in Arabic to provide an overview of the procedure and compliance obligations for supplies which are subject to VAT under the reverse charge mechanism in Oman.

National Bureau for Revenue (NBR) releases VAT return filing guidelines for tax periods in 2022

The NBR has released VAT return filing manual applicable for tax periods in 2022. The NBR has also released a manual for simplified VAT return filing.

Click here to access the VAT return filing manual

Country by Country (CbC) notification and reporting update

The Ministry of Industry Commerce and Tourism (MoICT) has sent an email to Bahrain companies on their CbC notification and reporting obligations indicating that the filing window will be open until 28 February 2022. Ministerial Order (MO) No. (28) of (2021) concerning the Country by Country (CbC) Reporting issued in early 2021 states that CbC obligations apply for financial years commencing from 1 January 2021 with the first notification due at the end of December 2021, which now appears to be extended to 28 February 2022. However, recent correspondence from the MoICT has stated that they consider the first reporting year to be 2020 (ie the CbC information that needs to be reported by the 28 February 2022 deadline is for the year ending 31 December 2020).

For detailed review read tax alert prepared by KPMG member firm in Bahrain

Will Bahrain introduce Corporate Income Tax (CIT)?

With the United Arab Emirates announcing the introduction of a Corporate Income Tax (CIT) effective mid-2023, there are some questions for Bahrain businesses to consider for a potential introduction of CIT in Bahrain.

In the latest edition of our Tax Insights, KPMG Bahrain tax partner, Mubeen Khadir, has shared his thoughts on various aspects related to a potential introduction of a CIT in Bahrain including key impact areas.

Tax Filing Deadlines

In accordance with Article 29 of the Executive Regulations of the Income Tax Law No. 24 of 2018, all registered Taxpayers should submit their annual corporate income tax returns electronically and proceed with the payment of any resultant income tax within 4 months from the end of the taxable year. In this context, Taxpayers whose year ended 31 December 2021 must submit their 2021 tax returns on or before 30 April 2022.

The Income Tax Return filing deadline for entities with year ended 31 December 2021 is as tabulated below:

Classification of corporates	Year ended	Stipulated tax filing deadline	Request for extension deadline
Foreign/Taxable entities	31 December 2021	30 April 2022	Before 28 February 2022
Qatari/ Resident GCC/ Exempt entities	31 December 2021	30 April 2022	Before 28 February 2022

For detailed information read tax alert prepared by KPMG member firm in Qatar