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  • With a New VAT, is the UAE Still the "Place to Be"?

    Commensurate with its Gulf Cooperation Council (GCC) obligations, the United Arab Emirates (UAE) will fully-implement the Federal-level imposition of a Value Added Tax (VAT) of 5% on most goods and services, and associated registration and reporting requirements, along with Excise Taxes on certain goods (50% on "fizzy drinks" & 100% on energy drinks and tobacco products), effective January 1, 2018.

    Some industries are exempt from responsibility for VAT by statute, such as certain transportation services and basic healthcare providers.  Real estate transactions within the first three years (thus far) of the law's enforcement are also exempt from VAT in the UAE.

    Companies doing business in any of the Emirates who are not in an exempted industry and whose turnover exceeds the statutory threshold (AED 375,000 over a period of 12 months) were required to register for VAT by December 4, 2017, or face a penalty.  In future, companies whose turnover does not yet exceed the statutory threshold will have to become compliant within one month of achieveing such turnover during a 12 month period.  Companies who are not yet required to register and report for VAT may apply to do so voluntarily, provided their 12 month turnover exceeds AED 175,500.  If a company anticipates exceeding the mandatory threshold in the future, then voluntary registration may be advisable so that a future 30 day deadline will not present potential difficulties.

    Initial estimates are that approximately 350,000 companies will have registered for VAT in the UAE by the statutorily stipulated date.  An exact figure is not yet available.

    Reporting/ filing of returns will be performed on a quarterly basis.  This may precipitate retaining Registered Tax Agents (and, JHI recommends that reporting companies retain such professional services). 

    Naturally, being a new law, regulations, clarifications and other factors affecting implementation of and compliance with the new laws (UAE Federal Laws 7, 8 & 13 of 2017) remain subject to change at this stage.  The UAE Ministry of Finance provides this page to provide basic information, timely updates and a starting point for researching and tracking the new tax regime:

    https://www.mof.gov.ae/En/budget/Pages/VATQuestions.aspx 

    One issue that begs for near-term clarification is the question of taxability of Free Zone entities. At the time of this writing, the responsibility for actual payment of VAT by entities established in Free Zones, including "Financial Free Zones" (such as the Dubai International Financial Centre, or DIFC; or, the Abu Dhabi Global Market, or ADGM), remains somewhat unclear.  For example, following current guidance from the Federal Tax Authority (FTA), the agency with primary responsibility for the enforcement of VAT, such entities should be registered for VAT if their turnover exceeds the mandatory threshold. On the other hand, by Emiri decree (issued under a recent Constitutional provision), a 50 Year Tax Holiday has been established for the ADGM (measured from the effective date of the underlying law).

    The UAE Cabinet has not yet issued its decision identifying any "Designated Zone" (wherein established entities may receive at least some partial or limited form of exemption from VAT) as the law empowers it to do, and the issue of responsibility for payment by companies in Financial Free Zones involves something of a Constitutional question. However, as stated above, it is hoped that additional clarifications may be issued by the relevant authorities in the near future.  It is also worth noting that the FTA's determinations/ decisions can be challenged through the courts, provided there is a credible legal basis for such a challenge.

    Being a brand new area of law, such gray areas are to be expected.  The drafters of the new laws concerning VAT certainly seem to have expected this, as certain mechanisms - such as the ability to challenge FTA policy decisions in court - are built into the new tax regime to ensure transparency and fairness (important factors in any healthy business environment) as and when important issues are sorted.

    Thinking more globally, one wonders what this may do to the famously business-friendly reputation the UAE has enjoyed for decades.  After all, "the (tax-free) UAE is the Place to Be" in the Gulf region.  JHI believes that the imposition of the VAT, in and of itself, will not severly impact the UAE's positive business environment. 

    The imposition of VAT is a GCC-wide program, agreed upon by the member states.  The level of tax will be 5% across the board, and goods and services exempt from the tax will be similar almost to the point of being mirrored from jurisdiction to jurisdiction.  Compliance steps and associated costs should be roughly equal in each of the member states.  And, the timing of full VAT implementation in the member states should coincide (the Kingdom of Saudi Arabia, for example, is also introducing its new VAT in January of 2018).  So, this should not significantly reduce the attractiveness of the UAE for investors, nor does it seem likely to impact the UAE's role as a gateway into the other GCC economies (such as Saudi Arabia - the largest economy in the GCC).

    As a GCC member state, the UAE has agreed, and is obligated, to impose VAT. With recent fluctuations in the price of oil and the recent military build-up, in addition to the maintenance of basic services, additional revenues are needed to keep the national debt at a sustainable level.

    The broadening of the UAE's economy in recent years has provided an opportune situation wherein the imposition of VAT (as opposed to other taxes and/ or fees) makes sense.  On paper, it seems the best available method of helping to keep the UAE's fiscal ship steady.  Although it will contribute an additional layer of expense onto the costs of living and doing business in the UAE, the UAE enforces no other tax and the compliance costs associated with the UAE's regulatory environment are among the least burdensome in the world.  As to the pre-VAT cost of living and doing business in the UAE (such as real estate, some services and many goods), much of this is due to high demand brought about by a decades-long strong international interest in participating in the UAE market.

    Further, the UAE, with a low-cost regulatory environment and a mere 5% VAT, seems poised to remain the gateway to one of the fastest growing regional economies in the world.  JHI believes that for businesses who view the GCC as an attractive area for investment, the UAE will continue to flourish as a "starting-off" or set-up point for such investment, and at a time when the economies of the GCC may be poised for potentially explosive growth during a revolutionary time of profound reforms throughout the region, particularly in Kingdom of Saudi Arabia.

    JHI will continue to monitor the situation, and track legal developments concerning the implementation of the VAT, in the UAE and throughout the GCC.

    Jason Huf, Principal, JHI, Law Firm, NYC, KSA, Jeddah, Saudi Arabia, UAE, VAT, Excise, Tax, Finance, International, Middle East, Law, Legal   (Mr. Huf gratefully acknowledges the contributions to this brief note by his good friend Sreekumar Radikrishnan of Goodwins Law Corporation's Abu Dhabi office. Mr. Huf calls Prof. Radhakrishnan his "top Go-To guy" in the UAE - especially on new tax matters:  http://www.goodwinslaw.ae/about-us/our-team/sreekumar-radhakrishnan

    This website and its contents - taken in whole or in part - are a law firm advertisement.  As with all other entries in the blog section of JHI's website, this article is intended to contribute to public discussion and is published for and distributed to a rather general audience.  This article is not legal advice and should not be mistaken for such.

    In the event legal advice is needed on the subject of VAT in the UAE, Mr. Huf & JHI will be happy to introduce and refer any such client to Prof. Radhakrishnan & Goodwins for his personal attention.

    Finally, Mr. Huf also wishes to make clear that any opinions expressed herein are solely those of Jason Huf & JHI.)

  • Big Firm Resources Without the Massive Overhead

    By R. Jason Huf

    Some of you may have obtained entry to the "Monastery" (as I've taken to calling my office) as and when business has required. However, for most of those reading this, I realize that I'm letting you in on a little secret: the advertised address of JHI's NYC HQ office is just a mail stop associated with a shared space & services operation on the 6th floor of good old 11 Broadway.  To maintain my strict "No Pop-Ins" Policy, the exact location of the Firm Headquarters Office/ Monastery's actual physical presence is kept confidential, and that confidence is only breached when necessary.

    Being able to advertise the mail stop as the office address, and the convenience of renting conference room space by the hour on the 6th floor, both enable me to concentrate on my work with minimal interruption.  In addition to this "buffer", availing myself of the shared services when certain tasks need to be performed rather efficiently assists me with keeping costs down, which in turn contributes to my ability to maintaining hourly rates that are very competitive.

    The World is Yours (As an old boss of mine used to say, "This is not the Fish Market"; but, with our competitive rates and innovative price structures, there may not be much need for you to bargain when seeking high-quality, world-class International Legal Services that your company can afford)


    Perhaps most fundamentally to those of you (still) reading this piece, JHI can make available to your company the seamless provision of professional services spanning just about the entire legal prism, without having to figure massive overhead costs into our hourly rates (or more innovative billing arrangements). The outfit that runs the 6th floor operation only caters to attorneys, and many of these attorneys elect to house their firms and solo practices in physical office space on the site. Irrespective of the level of their arrangement, all who participate in some form or another are listed in a directory and, over time, some of us get to know each other reasonably well.

    These attorneys practice in virtually every area of the law, and possess a variety of experience levels. In short, I have at my fingertips a storehouse of legal minds to draw upon, from commercial real estate specialists, to business litigators, to tax professionals - even a very smart fellow who focuses on energy trading. And, like myself, they tend to maintain a relatively unburdensome level of overhead costs, which in turn, permits them to be reasonable with their fees as well.

    A few people still tend to think of my practice as rather narrow, until I dispell them of that illusion - JHI is a Commercial, Corporate, Energy & Banking law firm and we perform a wide range of services for clients hailing from a broad variety of industries.  We just happen to have extensive experience in the Middle East, which may occassionally give rise to some folks instinctively thinking of JHI as a boutique servicing a particular "specialty" area.  However, JHI's capabilities are even broader than I previously reasoned:

    Between the NYC HQ, our Jeddah, Saudi Arabia Office, additional reources in the UAE (Abu Dhabi & Dubai) and access to Singapore and various major cities in India, JHI as a Brand is known as a capable provider of professional services in the Middle East and South Asia, ranging from company formation to arbitration, for those who have invested - or are looking to invest - in those regions in the world.

    What JHI is not (yet) necessarily known for is our ability to assist businesses based in the Middle East and elsewhere with their expansion into the US "mega-market". Whether you are an individual foreign investor entering through the EB-5 Visa process, or a family-owned conglomerate of businesses looking to invest in US real estate, or a publicly traded company in Riyadh entering a joint venture, or a participant in the new US public-private partnerships designed to reform the nation's infrastructure, JHI is well-placed to help get you started as well as protect your US-side business interests down the road.

    We have access to an entire network of intellectual assets encompassing a variety of practice areas ordinarily comanded only by big law firms, without having to factor "big firm" overhead into our fees. So, when investing from West to East, or East to West, consider the cost-effective but powerful option of contacting JHI for your legal needs.

    Feel the difference and put our NYC HQ and affiliated Community of Attorneys to work for you in concert with our Jeddah office and/ or resources in the UAE, India & Singapore (wherever you're from!) as we help you and your company Explore the Boundaries of Your Business.

     – Jason Huf
    Wednesday, August 8, 2017
    New York, NY

  • Drinking Tea with Jackie Robinson: My Meeting with Living History

    by R. Jason Huf
     
    Jokes about snakes in the road aside, I have always considered being an attorney to be a great honor and privilege.  I practice law, and the law is the ultimate guardian of equality and fair play.  I cannot imagine wanting to do anything else for a living.

    Some of the really great aspects of being a lawyer, especially one with my particular practice areas, are the things I learn and the people I meet.


        Meet Renad! 

    KSA, Saudi, Lady, women, female, law, legal, lawyer, NYC, renad, amjad, Jeddah, USA, Huf   


    Just last year, young Miss Renad T. Amjad became only the third lady in the entire history of the Kingdom of Saudi Arabia to officially register as a Female Trainee Lawyer with the Saudi Ministry of Justice.

    You can imagine how deeply honored I was when Renad asked to meet with me in New York.  She is a fascinating, intelligent, courageous and cheerful young lady who, after being one of those to break a Concrete Ceiling, has a bright future ahead of her.  In my line of work, this was akin to meeting Jackie Robinson, and was one of the great thrills of my career.

    (I should note here that, being modest and outwardly humble, Renad is not entirely comfortable with the comparison to Jackie Robinson, citing her lack of experience as a lawyer thus far.  I will also note here that as she becomes more experienced as a lawyer, she will get used to it - because she's stuck with it.)

    That's on a personal note.  Professionally, Renad is a living, breathing demonstration of the fact that change is coming to Saudi Arabia. 

    Such change may be incremental, but incremental does not mean insignificant.  Just look this young lady in the eye and tell her that her accomplishments are "insignificant".  I dare you.

    There are those who advocate for a faster pace of reforms in Saudi Arabia on the subject of women's rights, and more generally.  However, I strongly believe that King Abdullah has been shrewd in his implementation of incremental, but meaningful, reform.  A broader, faster-paced program of reform would risk destabilizing the Kingdom, which would, in turn, risk destabilizing the region and threaten to send economic shock waves throughout the world.

    Saudi Arabia may be insular, but it's not isolated.  Just as events there impact the global economy, international economic activity - including and especially trade - has had an impact on the Kingdom.  And, it shall continue to do so.

    I have never been one to liberally laud Middle Eastern rulers, but King Abdullah knows his people and is familiar with the different elements in his country with whom he exercises power.  To maintain stability, his people need to enjoy greater freedom and feel a larger sense of "ownership" of their lives and their country.  But, to move too quickly in that direction would innately threaten such stability.  It is a difficult balance beam to walk successfully.

    The subject matters and pace of reforms in Saudi Arabia have been thoughtful, and ably executed, thus far.  We will see how things progress from here.

    For now, I think I will just enjoy drinking tea with Jackie Robinson.

    - Jason Huf
    New York, NY, USA
    May 15, 2014