It’s been a tough time lately for the UAE when it comes to taxes.
First, an excise tax was applied to carbonated drinks at a rate of 50% and to energy drinks and tobacco at 100%. Then comes a 5% VAT imposed on goods and services.
These new taxations were met with great concerns by people in the emirate.
But the worst was UAE’s inclusion among 17 countries designated by the EU as non-compliant with global tax jurisdictions.
The good news now is that the EU on Tuesday removed the UAE and seven other jurisdictions from its list of “non-cooperative jurisdictions for tax purposes,” following what it described as “commitments made at a high political level to remedy EU concerns.”
Fighting tax evasion
The UAE has welcomed the decision by the European Union while reiterating its commitment to combating international tax evasion.
“The European Union’s decision reaffirms the UAE’s full and solid commitment to transparency in tax procedures,” Younis Al Khoori, undersecretary of the UAE’s Ministry of Finance, was quoted as saying.
“The decision reflects the meticulous local and international efforts made by all stakeholders in the Emirates since the beginning of 2017 to cooperate with our European counterparts and adhere to the EU’s standards and requirements regarding the exchange of tax information.”
Al Khoori emphasized that the UAE will continue to cooperate its international counterparts, including the EU, to implement international standards for combating tax evasion, avoiding double taxation and exchanging information for tax purposes.
What will the UAE do with cases of VAT evasion?
The UAE will close down a business for 72 hours and impose a severe financial penalty for value added tax evasion, according to media reports quoting tax consultants at an event by the Ministry of Finance (MoF) last year.
“Audits will generally be conducted only after five days advance notice, except where fraud is suspected,” MoF officials reportedly said according to consultancy firm EY’s tax update.
“Where fraud is suspected a business may be closed down for 72 hours and penalties of up to 500 percent may be applied on top of the primary VAT owing.”
Since the UAE seems to be keen to punish tax evaders, why was it included in the EU’s list of non compliant countries in the first place?
Is UAE really a tax shelter?
The Council of the European Union had placed the UAE and 16 other territories on a list of con-cooperative jurisdictions for tax purposes in early December.
The Financial Times quotes officials late last year as saying that Dubai and the smaller emirates have thrived as tax havens.
“Thousands of companies are registered in the UAE’s free zones, benefiting from extensive tax breaks and lax residency rules that make it easier to escape international financial scrutiny,” it said.
The British publication quoted Jason Collins, Head of Tax at Pinsent Masons, an international law firm, as saying: “There is a risk that money will move to places like Dubai. This has been the fear since Switzerland began to clean up its act.”
It clarified that Dubai offered an increasingly complex array of offshore facilities, including free trade zones, a low-tax environment, multiple secrecy facilities and lax enforcement, according to the Tax Justice Network.
Meanwhile, EU Ambassador Patrizio Fondi said in an email to Reuters on December 6, 2017 that the UAE “does not apply the BEPS (Base Erosion and Profit Sharing) minimum standards and did not commit to addressing these issues by Dec. 31, 2018.”
“BEPS refers to an agreement signed by some OECD member countries to tackle tax avoidance strategies that allow multinational companies to shift profits artificially to low or no-tax locations,” as defined by Reuters.
The recent statement issued by the finance minister said that the sole outstanding issue was the implementation of the BEPS Minimum Standard, which the government has committed to finalise by October 2018 and ratify by March 2019 – giving the federal structure in the country sufficient time to allow ratification across the seven Emirates.