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ZATCA SAUDI ARABIA INTRODUCES NEW ZAKAT & TAX LAW

In the ever-evolving realm of fiscal policies, Saudi Arabia is gearing up for groundbreaking changes with the proposed New Tax Law and amendments to the Zakat and Tax Procedures Law. At the forefront of this transformation, we navigate through the intricacies of these proposals, shedding light on what businesses and individuals need to know. Riyadh: The proposed New Tax Law marks a pivotal shift in Saudi Arabia's taxation paradigm. From redefined tax categories to nuanced adjustments in tax rates, this legislation sets the stage for a comprehensive fiscal overhaul. Businesses and individuals must brace themselves for a recalibrated tax landscape.I. Unpacking the Zakat and Tax Procedures LawA closer look at the proposed amendments to the Zakat and Tax Procedures Law reveals a meticulous effort to streamline existing processes. Delving into the intricate details, we explore the implications of these changes on businesses and individuals, comparing them against the current regulatory framework. The government vision is a catalyst of change. The Proposed New Tax Law and Zakat and Tax Procedures Law bring significant advancements to the tax system, with key updates outlined below:Introduction of New Definitions: The tax law now includes new definitions such as Preferential Tax Regime, Corresponding Adjustments, Hybrid Instruments, and more.Unified WHT Rate for Services: The withholding tax (WHT) rate for services is streamlined to a flat 10%, ensuring simplicity and consistency.Clarity on Tax Exemption for Employment Income: The proposed new tax law explicitly states that there is no tax on income from employment for natural persons.Reduction in Statute of Limitations: The statute of limitation period is reduced from 5 years to 3 years, enhancing efficiency in tax-related matters.Penalties for Delayed Zakat Payments: A penalty is introduced for delays in paying due Zakat for the first time, emphasizing the importance of timely compliance.Additional Penalty for ZATCA Amendments: In case of amendments made by ZATCA, an extra penalty is imposed on top of the delay penalty, reinforcing the significance of adherence to regulations.Increased Penalty for Tax and Zakat Evasion: The penalty for tax and Zakat evasion sees an increase, ranging from 100% to 300% of the due Zakat or Tax. This underscores the severity of non-compliance.These updates signify a comprehensive restructuring of the tax framework, promoting clarity, efficiency, and strict adherence to regulations. It is essential for businesses and individuals to stay informed and adapt to these changes for seamless compliance.II. Key highlights of the amended lawThe proposed Zakat and Tax Procedures Law introduces key provisions that reshape the landscape of tax procedures. Noteworthy among these provisions are:1. ZATCA's Assessment Authority: ZATCA holds the authority to issue assessments on a deemed basis if the return is not filed within the statutory period. However, this issuance should not occur before 60 days from the statutory filing date, with exceptions defined by the by-law.2. Limitation on Assessment Period: ZATCA is restricted from carrying out assessments for Zakat or Tax periods after three (3) years from the end of the calendar year in which the statutory filing period expired. This period may extend to ten (10) years in specific cases, including failure to file the return, acts of Tax evasion, or written agreement by the taxpayer.3. Fines for Non-Payment and Unlawful Refund: Non-payment (totally or partially) of Due Zakat or Tax within the prescribed period, along with unlawful refund, incurs fines, including:A fine of two percent (2%) of the unpaid or unlawfully refunded Zakat or Tax for each month or part thereof, not exceeding fifty percent (50%) of the unpaid amount. The fine starts from the day following the period specified by regulations for payment.An additional fine of one percent (1%) for every month or part thereof if Due Zakat or Tax is amended by ZATCA after 30 days from the amendment notification.4. Penalty for Evasion: The penalty for engaging in or aiding tax evasion ranges from one hundred percent (100%) to three hundred percent (300%) of the due Zakat or Tax. This underscores the severity of involvement in any act of evasion.5. Transfer Pricing Considerations: The law hints at the importance of transfer pricing, suggesting a need for businesses to carefully evaluate and document their intercompany transactions to align with regulations and avoid potential penalties.These provisions underscore the stringent measures in place to ensure timely compliance, discourage evasion, and maintain the integrity of the tax system. Businesses and taxpayers must be well-versed in these regulations to navigate the evolving tax landscape effectively. Zakat and Tax Procedures Law ImpactsImpact on Businesses: Winning over challengesAs the proposed laws ripple through the business sector, companies face a landscape of new challenges and opportunities. Strategic insights for proactive adaptation must be sought by businesses. Impact on Individuals: Shaping Personal FinanceIndividuals, too, are not exempt from the sweeping changes. This segment articulates the adjustments individuals must make to align with the proposed tax alterations. From modified tax obligations to potential shifts in personal financial strategies, clarity is provided for navigating the new fiscal terrain.Public Discourse: Voices and PerspectivesPublic opinion plays a crucial role in shaping the acceptance of these changes. We delve into the ongoing public discourse, capturing sentiments, debates, and discussions surrounding the proposed tax laws. Identifying challenges is only half the battle. Addressing concerns head-on is vital for the seamless implementation of the proposed tax laws.Implementation Roadmap: Phased and PragmaticA detailed timeline of implementation is critical for preparedness as the implementation of the Roadmap is challenging whereby amidst uncertainty, strategic navigation is paramount for individuals and businesses is needed. A pragmatic guidance emphasizing consultation avenues and support available structures is necessary.In ConclusionSpeculating on future amendments and adjustments, this section paints a picture of the evolving fiscal landscape in Saudi Arabia. Anticipated changes and potential shifts provide a glimpse into the nation's fiscal future.The proposed tax laws in Saudi Arabia usher in a new era of fiscal responsibility. From businesses adapting their models to individuals recalibrating their financial strategies, the changes are profound. This article serves as a beacon through uncharted waters, ensuring businesses and individuals are well-prepared for the impending fiscal transformation.We highly recommend Tax and Zakat payers to provide their feedback regarding the new proposed amendments by accessing the Government of Saudi Arabia “Istitlaa portal”ALKETBI TOUCHOur team has excelled in providing accurate advice and supported individuals and businesses in the UAE and in the GCC to go through the legal reforms as imposed by the legislators. Should you believe that you need any clarifications and you have a business expanding to Saudi Arabia, we will happy to assist, let us know.

THE UAE LEGISLATOR ISSUES A REVISED FEDERAL TRUST LAW

The legislative update marks the repeal of the previous law, No. 19 of 2020, which governed trusts. The newly enacted law, published in the official gazette, is now in effect.Dubai: On September 25, 2023, a significant legal development unfolded in the United Arab Emirates as His Highness the President, Sheikh Mohammad Bin Zayed Al Nahyan, issued Federal Decree-Law No. 31 of 2023 concerning trusts. Continuity of Existing RegulationsAll provisions from prior regulations and decisions related to trusts remain valid, provided they do not conflict with the stipulations of the new law.Amendments for Clarity and PracticalityThe updated law incorporates amendments to existing provisions, aiming to enhance clarity and address practical shortcomings identified in the previous law. A notable addition is the introduction of a regulatory framework for the administration of trusts at the Emirate level, streamlining the governance of trusts across different Emirates.Trust Registration ProcessThe new law mandates a trust registration process before the competent government authority in each Emirate. A “validity certificate” must be issued along with an “incorporation certificate” once the Trust is established. Trusts gain legal personality upon completion of the preliminary registration, with subsequent amendments requiring registration for legal effect. Recognition and Independence of TrustsThe law explicitly recognizes trusts in all the Emirates, irrespective of the location of trust assets. It reaffirms the separate legal personality of trusts, with the trust holding legal title to the conveyed assets.Roles of Settlor and Trust ProtectorSpecificity is added regarding the roles of the settlor and trust protector, including the court's role in matters concerning their powers. The express terms of the registered trust instrument are highlighted as binding rules.Trustee's Duties and LiabilitiesAdditional details are provided on the duties and obligations of trustees, along with specifics on their liabilities concerning these duties.IN CONCLUSION To sum up the UAE has showed a commitment to onshore alternatives: The issuance of the new law underscores the UAE government's commitment to providing an onshore alternative to existing trust laws in financial free zones. This aligns with ongoing efforts to support businesses and bolster the overall economy of the UAE. As the legal landscape constantly evolves in the UAE, remaining vigilant is key. ALKETBI TOUCH: Our team has excelled in assisting and offering expertise to navigate the intricate family business and private wealth sector in the UAE ensuring clients receive tailored advice for their unique requirements. We will be happy to respond to your queries. Let us know

THE NEW SAUDI CIVIL TRANSACTIONS LAW & ITS IMPACT ON CONTRACTS

The new Saudi Civil Transactions law has impacted the guarantees in the Banking Sector. Riyadh: The Civil Transactions Law (Law) was enacted on 19 June 2023, by Royal Decree M/191 and was published in the official gazette. It is set to be effective within 180 days from its publication date which is around 15 December 2023. The Law has included 7 chapters and 720 articles and is considered one of the most important issuance of laws in the KSA. This Law is actually considered as a cornerstone in the history of the Kingdom, as previously the Islamic Law was set in force as derived from the principles of the Holy Qur’an and was to be followed in all the contracts. Therefore this shift to the new Law, will have a large impact on contractual relationships and is tightly linked to the Kingdom Vision 2030. The legislator aimed to attract vital investment while the kingdom is also displaying out its Regional Headquarters Programme (RHQ) which directly enhances the governance of the daily transactions to the level of international standards and practices and provides supportive materials to the treaties and agreements to which the Kingdom is a party. The main concepts of the New Law: 1. Binding force of contracts The Law affirms the fundamental components of a legally binding contract, acknowledges that the contract is a legal obligation of the parties and that the contracting parties are obligated to fulfill all duties set forth in the contract. This is comparable to other Middle Eastern states with civil codes that acknowledge that parties to a contract are obligated by the terms of that contract. This is subject to the Law's mandatory exceptions, which are briefly discussed below. The Law also acknowledges that the parties must carry out the responsibilities in a way that is consistent with the terms of the contract and the criteria of good faith. According to the legislation, the contract must also address the conditions imposed under the Law, customs, and justice in accordance with the nature of the obligation. It must also commit the contracting party to its contents. The law requires that the other party be contacted as soon as possible to begin negotiations if general unexpected and extraordinary circumstances take place that make it difficult, though not impossible, for the parties to carry out their obligations under the contract. If an agreement cannot be reached within an appropriate span of time, the court may, under the circumstances and after weighing the interests of the two parties, appropriately limit the exhaustive obligation. This is an essential right that cannot be waived by the parties, and any provision of the contract that does so will be deemed void and of no force or effect. 2. Contract interpretation The Law addresses the situation if there is an ambiguity and that there is room for interpreting the contract, which is consistent with civil codes in other Middle Eastern jurisdictions. The idea behind this concept is that if the contract's text is straightforward, it is not permitted to stray from it. Therefore, when the language is clear, the parties will be held to the terms of their contracts. Nonetheless, if there is room for interpretation, the common intent of the contracting parties must be taken into account rather than just the literal meaning of the terms, taking into account the nature of the dealing and the trust and integrity that must exist between the contracting parties in accordance with customs. As a result, pre-contractual contact may be used to ascertain the parties' shared intentions in an effort to clear up any uncertainty. This viewpoint is consistent with other Middle Eastern civil codes, and the Law's provision may assist the parties in resolving questions of contract interpretation when the text of the agreement is ambiguous and subject to different readings. 3. Compensation The Law contains significant provisions about the procedures for awarding damages where one party is delayed or in default. The Law gives grounds for the parties to reach an agreement and fix compensation in advance by including such language in the contract, which is consistent with civil codes in other jurisdictions. Therefore, the Law also covers liquidated damages as a type of remedy, as is usual in building and engineering contracts. If the creditor has not experienced a loss, the negotiated compensation was exaggerated, or the initial obligation was partially fulfilled, these liquidated damages may not be called for or may be reduced. As a result, KSA has adopted a stance comparable to that of Qatar and Kuwait, which provides the court or tribunal the right to lower previously agreed-upon compensation provided certain conditions are met. The Law makes it obvious that this is a mandatory clause, and as such, the contract's provisions are inapplicable. Last but not least, the Law lays forth the criteria for recovering damages and compensation, and this must be the remuneration that would have typically been anticipated at the time of the contract. It's noteworthy to observe that "loss of profit" isn't explicitly mentioned as something that can be recovered. It is unclear how the courts or tribunals adjudicating contract breach issues will apply this rule on the recovery of damages. 4. Construction contracts The Law covers work performance in extensive detail. Subcontracting, termination, and modifications to the design and quantity are all included in this. For customers in the engineering and construction industries, it will be important to carefully analyze how these clauses relate to the parties' work contracts. 5. The Law’s impact Contracts that were signed before December 16, 2023 are consistently subject to the Law's retroactive application. To the extent that it does not conflict with such contracts, taking into consideration their nature and the circumstances and exceptions for each of them, this includes the responsibilities of both parties for clauses that are covered by the Law, including risk allocation. The only exception will be in cases where a party can convincingly show that applying the Law will go against a principle of Sharia'a. Given that the Law and Sharia'a are at odds in the areas in question, the burden of proof in such situations will be on the party requesting reliance on Sharia'a to show why it should be implemented. All provisions that conflict with the Law shall be repealed following the Date the law became Effective. Contracts entered into after 16 December 2023 will therefore be governed by the Law rather than Sharia'a, including any subsequent disputes. When the Law is unable to address a particular clause in a contract or when more clarification is required, the final chapter of the Law's 41 defined Sharia'a maxims takes precedence. The foundation for any Sharia'a application required to fill in any gaps is provided by these 41 maxims. These maxims include: in contracts, certainty is not removed by doubt; freedom from liability is presumed; customs are regarded as part of a contract; ignorance is not a defense for non-compliance; an individual's rights are not removed by necessity; and intention and meaning are given precedence over text and formation. The Law's implementation represents a much-welcomed regulatory change in the Kingdom. It will go some way toward removing doubt and rumors about the creation of contracts and how significant legal risks will be handled in Saudi Arabia. Investors seeking to conduct business in the KSA could benefit from efficiency, familiarity, and increased comfort as a result of the codification of these significant legal concerns. ALKETBI TOUCH: ALKETBI team frequently provides legal assistance and advice on contracts and agreements as per the laws of the GCC, if in doubt or require help

UAE MINISTRY OF JUSTICE LAUNCHES ONLINE POWER OF ATTORNEY

UAE is considered as a major player in the economy of the GCC area and it has been considered as the pioneer in developing a very efficient e-services justice and legal services system for its citizens and ex-pats. Dubai: As Part of its continuous enhancement of the qualities of the legal system in the UAE, the Ministry of Justice (MOJ) launches Phase 2 of Digital Power of Attorney Issuance Service. In a Power of Attorney, one person grants another person the authority to act on their behalf in situations involving real estate, banking, legal matters, and other matters for a variety of reasons, including absence from the country, growing age, or inability to manage one's responsibilities in those areas, among others. Power of attorney in UAE has been made accessible for authorization via video call. If the individual is outside the UAE, it could be done remotely through video conference by presenting the officer his ID on call. The Ministry of Justice has introduced an electronic Power of Attorney Issuance service on its digital platform, www.moj.gov.ae, in an effort to increase the attractiveness of the UAE in business processing. This service encourages UAE nationals to pursue employment in the private sector and improves the ease of conducting business in the nation. Since the start of 2023, statistics show a 33% rise in the ratio of private notaries to public notaries. As part of Phase 2 - The MOJ Digital Power of Attorney Issuance includes eight categories of Power of Attorneys (POA) issuance to include: (i) Attorneys representation (ii) Powers attributed to lawyers in legal cases (iii) Real Estate (iv) Rental Dispute (v) Licensing (vi) Vehicles (vii) Stocks /Equities and (viii) Company Management. The MOJ has aligned this launch along with the UAE government's vision of creating a paperless future, saving time and resources. In simple terms, it is possible for customers to create digitally ratified POA documents using the system in less than 10 minutes without having to go to a notary public's office. They can also securely store these documents using a blockchain system and a digital wallet, share them with others, and submit them to the relevant authorities. During the COVID-19 epidemic-related closure period, the public notaries associated with Dubai Courts have developed an online method that may make the execution of Powers of Attorney easier. The current notarization procedure is as follows: Step 1: Applicant has to send an email requesting notarization and attaching essential documents. The information that requires to be in the email are: 1. Applicant’s Name 2. Applicant’s Phone Number 3. Applicant’s Address 4. Documents to be notarized (should be signed) 5. Emirates ID 6. Any other essential documents Step 2: The POA assigned to the transaction will review the documents. Step 3: When transaction is approved, the representative will contact the applicant for verification of their eligibility and confirming the transaction, and the documents will be submitted for notarization. Step 4: After the identification process, the applicant has to follow the payment accordingly. Step 5: The notary will complete the transaction and print the notarized documents after payment. These documents will be forwarded to the applicant’s address through a Dubai Courts approved courier. Step 6: The applicant will receive the notarized documents within 2 business days. It is to be noted that Originals are no longer provided to the applicant by courier. All paperwork is completed as electronically issued documents and emailed to the applicants. ALKETBI TOUCH: Our team frequently provides legal assistance and advice on all regulations, and UAE legal procedures in the event you need to have a deeper understanding and chat about related matters, let us know.

How Much Does It Cost to Set Up a Holding Company in the DIFC?

Setting up a holding company in the DIFC can provide numerous benefits for investors seeking efficient asset and investment management. With a strong investor ecosystem and significant family wealth in the GCC region, establishing a robust corporate structure is essential. A holding company consolidates investments, such as shares in other companies or properties, under one entity for easier management and reporting. While holding companies primarily focus on managing existing assets, they may not engage in trade or services. The DIFC, known as a leading financial hub for business, fintech, and lifestyle, offers an advantageous environment for holding companies. DIFC holding companies have the flexibility to hold assets within the UAE, the GCC, or globally, including real estate and shares in other companies. Several reasons make setting up a holding company in the DIFC appealing: Regulatory Framework: The DIFC provides a legal framework that supports cross-border activities and allows for 100% foreign ownership. There are no restrictions on capital repatriation, and foreign individuals can be employed without limitations. Tax Advantages: Holding companies in the DIFC enjoy tax benefits such as zero tax on profits, capital, or assets for 50 years. Personal income is also exempt from taxes. Regulatory Confidence: The DIFC has a highly regarded, independent regulator and operates with an independent, English-speaking, common-law judicial system. It follows a risk-based regulatory approach separate from the UAE civil courts. Ecosystem: The DIFC houses a concentration of international financial institutions and plays a prominent role in deal-making within the region. It offers world-class professional services and serves as the leading fund domicile in the area. Strategic Location: The DIFC's strategic location allows GCC management offices, holding companies, and family offices to be closer to the assets they own or manage. The UAE's central role in global trade between Asia, Africa, and the West positions it well to leverage emerging market potential. Registrar of Companies (DIFC ROC): The ROC assists in establishing the legal structure of the DIFC holding company, typically a Private Company Limited by Shares. The costs are as follows: Application for reserving a name (2 working days): US$ 800 Application for Incorporation of a Private Company Limited by Shares (5 working days): US$ 8,000 Commercial License on Incorporation (5 working days): US$ 12,000 (annual fee) Data Protection: Registering a new entity in the DIFC requires a data protection notification. The costs are as follows: • Registration: US$ 500 • Annual renewal: US$ 250 • Office Spaces: Every DIFC-registered entity must lease a physical office. The prices vary depending on the space and building chosen. Here are some indicative rates: • DIFC Business Centre – starting from a one-desk office at US$ 27,000 • DIFC Fitted Offices – starting from US$ 55 per square foot • Other buildings – starting from US$ 32,000 per annum • Visas: The number of visas you can apply for depends on your business type and the size of the leased premises. The visa costs are as follows: • Establishment Card Application: US$ 630 • PSA Deposit: US$ 682 • Visas (per visa): starting from US$ 1,500 • PSA Deposit (per visa): US$ 682 Establishing a holding company in the DIFC incurs various costs, but the advantages and opportunities provided by the DIFC's robust framework and financial ecosystem make it an attractive option for investors seeking effective asset consolidation and management.

Fines to be imposed on Companies for Non-Compliance to Emiratisation requirements from July 1st

The penalties under the amended scheme will now be imposed 'semi-annually' The fines are not new. It is the process of implementing the Emiratisation scheme that has been revised. What has changed? The annual goal of increasing emiratisation rates by 2% has been divided into two parts, with 1% required in the first half of the year and the remaining 1% required in the second half. In accordance with the UAE Government's directives, this measure ensures that the Emiratisation drive continues year-round. After the implementation of the Emiratisation targets last year, private companies with at least 50 employees must employ at least 3% Emiratis by July 1, 2023, and 4% by the end of the same year. Companies that fail to hire 1% of Emiratis will be fined Dh7,000 for each unhired Emirati on a semi-annual basis rather than annually.

Who qualifies as a Public benefit entity that are exempted from Corporate Tax?

The Ministry of Finance has announced a new Cabinet decision that has exempted 'qualified public benefit entities' from corporate tax.Entities qualifying as Public Benefit Entity can avail this exemption for financial years starting on or after 1 June 2023.To qualify for UAE Corporate Tax exemption under the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses, entities must comply with all local, state, and federal laws and notify the Ministry of Finance of any changes that may affect their status as Qualifying Public Benefit Entities.These entities must also comply with Article (9) of the Corporate Tax Law, which states:a) An Entity that is established and operated for the following should be exempted:Exclusively for religious, charitable, scientific, artistic, cultural, athletic, educational, healthcare, environmental, humanitarian, animal protection or other similar purposes.A professional entity, chamber of commerce, or a similar entity operated exclusively for the promotion of social welfare or public benefit.b) It does not conduct Business Activity, except for such activities that directly relate to or are fulfilling the purpose for which the entity was established.c) Its income or assets are used exclusively for purpose for which it was established, or for the payment of any associated necessary and reasonable expenditure incurred.d) No part of its income or assets is payable to, or otherwise available, for the personal benefit of anyone that is not itself a Qualifying Public Benefit Entity, Government Entity or Government Controlled Entity. It is important to note that Public benefit entities should register with the Federal Tax Authority and obtain a registration number for corporate tax in order to get the exemption from Corporate Tax.

Corporate Tax Updates

Small Business Relief for businesses with revenue less than AED 3 million. No penalty for voluntary disclosures related to unintentional tax errors Who is eligible for Corporate Tax relief? • Taxable persons who are residents are eligible for Small Business Relief if their revenue for the current and previous tax periods is less than AED 3 million per tax period. • The AED3 million revenue threshold will apply to two tax periods beginning on 1 June 2023 and will continue to apply only to tax periods ending on or before 31 December 2026. • Small Business Relief is not automatic; therefore, a taxpayer who qualifies for this Relief must elect for its application and meet all other conditions. Who is excluded from Small Business Relief eligibility? • An eligible Free Zone Person • A Constituent Company of a Multinational Enterprises Group (MNE Groups) with operations in more than one country and consolidated group revenues exceeding 3.15 billion AED. Any artificial separation of Business or business activity to meet the AED 3 Million thresholds and to take advantage of the Small Business Relief, would be considered an arrangement to obtain a Corporate Tax advantage. No penalty on voluntary disclosures related to unintentional tax errors rules the Federal Court This decision distinguishes between an "unintentional error in calculating the tax" and a "voluntary disclosure of errors in the tax return or assessment," the Court ruling grants taxpayers a more lenient approach to amending their tax returns. According to Cabinet Decision No. 40/2017, taxpayers who submit incorrect tax returns or assessments are subject to penalties. By treating certain voluntary disclosures as an inadvertent error correction, the court effectively eliminates the legal basis for imposing such penalties.

What are the new reporting obligations for e-commerce transactions and tax revenues in the UAE?

The UAE Ministry of State for Financial Affairs has issued a Ministerial Decision No. 26 of 2023 to improve control and oversight on e-commerce transactions and the corresponding tax revenues. The decision requires taxpayers whose e-commerce taxable suppliers exceed AED 100 million within a 12-month period to report their transactions Emirate-wise. This reporting obligation allows the tax authorities to enforce VAT compliance obligations more effectively and better allocate tax revenue generated from e-commerce sales between the various emirates. The decision specifies criteria and conditions for electronic service supplies made through an electronic commerce medium, such as goods listed or advertised on an Electronic Commerce medium, goods ordered through an electronic commerce medium, goods delivered to a location specified by the customer, and services provided to the customer with minimal or no human intervention. The UAE Tax Authority has recently issued a VAT Public Clarification VATP033, which outlines amendments to Article 72 of the UAE VAT Executive Regulations, clarifies what is meant by an Electronic Commerce Medium, and describes how e-commerce transactions should be split into Emirate-wise reporting for VAT return purposes. The Public Clarification includes a broad range of concepts, such as stores in the Metaverse, online marketplaces, smart kiosks, robotic devices, and stores on social media platforms. The Public Clarification also clarifies that regarding VAT liability, where the Electronic Commerce Medium operates as an undisclosed agent, the supplier shall be regarded as supplying the goods or services to the Electronic Commerce Medium. This reporting obligation will take effect on 1 July 2023 or the first tax period following the calendar year in which the AED 100 million threshold was exceeded, and taxpayers expecting to fall within its ambit must inform the UAE Tax Authority by 15 March 2023.

What is the VARA Framework, and what are its main components?

The VARA Framework is a set of regulations that govern the activities related to virtual assets and virtual asset service providers (VASPs) operating in Dubai. VARA is the entity in charge of regulating, supervising and overseeing Virtual Assets and related activities in all zones across the Emirate of Dubai (including Special Development Zones and Free Zones but excluding the DIFC). The Regulations cover 7 licensed virtual asset activities Advisory services, Broker-Dealer services, Custody services, Exchange services, Lending and Borrowing services, Payments and Remittances services, Management and Investment services VASPs are required to comply with these regulations: • Compulsory Rulebooks which all VASPs must comply with; • Activity Specific Rulebooks which VASPs must comply with to the extent related to the activity which it is licensed to carry on; and • The Virtual Asset Issuance Rulebook Exempt Entities Exempt Entities will not be subject to the licensing requirements under VARA and includes those entities which have notified VARA and obtained confirmation of its Exempt Entity status in the form of a NOC confirmation prior to undertaking any Virtual Asset activities in Dubai. Professional Exemption Duly registered practicing lawyers, accountants and other professionally licensed business consultants carrying on Virtual Asset Activities related to their respective professions. Fines and Penalties For Violation of Compliance and Risk Management Rulebook, Market Conduct Rulebook, or Directives related to Market Offences: Return of the profits gained or losses avoided; a fine up to AED 20,000,000 for an individual; fine up to AED 50,000,000 or 15% annual revenue of any VASP; a fine of 300% of the profits gained or losses avoided. For Violation of the rules in all other Rulebooks: A fine up to AED 8,000,000 for an individual or a fine up to AED 20,000,000 or 5% annual revenue for a VASP; or 200% of the profits gained or losses avoided.

New Commercial Agency Law is a welcoming change for both the Principal and Agent.

It shall come into effect from 15th June 2023. Who can practice Commercial agency? • UAE Citizens • Companies fully owned by UAE Citizens • PJSC or Companies Owned by PJSC Exception to this is: An International Company may be allowed even if it is not owned by nationals for products that are owned by such company, under the conditions prescribed by the Council of Ministers Term of the Contract: A Contract has to be for a minimum term of five years if the agent is establishing showrooms or buildings, commodity stores or maintenance or repair facilities, unless the parties agree otherwise. Termination of agency contract: The New Law provided for the first time, unilateral termination of an agency contract by either parties, or non-renewal of the contract by serving notice as prescribed in the law, unless the parties agree otherwise This termination can be challenged by either of the parties. Agreements that are in force at the time of issuance of the New Law cannot apply termination clause except after the lapse of two years from 16th June 2023. The timeframe for the application of such provisions is extended to 10 years, in case of same agent for more than 10 years or when agency has invested more than 100 million dirhams Resorting to Arbitration: the Agent and the Principal can resort to Arbitration in accordance with Contract. This Arbitration will take place within UAE, unless the parties agrees otherwise. Parties whose dispute is being heard by the Committee or Court before this Law was published cannot resort to Arbitration.

What are the obligations of employers in case of Work injuries or illness?

Ministerial Resolution No. (657) of 2022 on Rules and Guidelines to Deal with Work injuries and Occupational Diseases has been issued Who does this resolution apply to? It applies to establishments with 50 or more employees. What are the obligations of the Employer?• Monitor work injuries and occupational diseases • Record of workers performing high-risk or hazardous jobs for a period of 5 years after termination of service• Conduct hands-on training for workers engaged in high-risk activities• Provide necessary preventive tools• Conduct and record periodic health examinations of workers involved in high-risk activities• Report work injuries and occupational diseases within the company• Investigate the reasons behind work injuries and occupational diseases and take necessary actions to protect other employees from them• To treat and compensate an injured worker for any work-related illness or injury Compensation for work injury or occupational disease • The value of the work injury compensation is calculated based on the worker's most recent basic salary. The worker receives compensation after the release of the medical report indicating the percentage of impairment within a maximum of 10 days. • If injury or illness results in the worker’s death, the compensation is paid to workers legal heirs in accordance with the laws of UAE, or in accordance with what the person decides before passing away. • If a worker sustains a partial disability as a result of an occupational illness, or injury, the worker will be compensated with a portion of the value of permanent complete disability, in accordance with the percentages outlined in the Cabinet Resolution No. 33 of 2022. • A specialized medical committee will decide whether there is a complete or partial disability, and the amount of compensation due to the worker in the event of a permanent complete disability is equal to the amount due in the event of death. • Before the injured or ill worker receives all benefits, the employer shall not end the working relationship and cancel the contract. • All rights will be safeguarded in accordance with the report provided by the relevant committee if the employee decides to terminate the employment agreement prior to the release of the medical report. • Amount of compensation due to the worker in case of permanent total disability shall be equal to the amount due in the event of his death Minimum and maximum compensation: Not less than AED 18,000 and not more than AED 200,000 equals Reporting the injury The ministry offers a number of ways to report any occupational ailment or accident, including calling the call centre at (600) 590-000, visiting businessmen service centres, or through the ministry's smart applications.

UAE to implement federal level virtual asset regulations on 15th January 2023

The UAR cabinet has issues a new legislation governing virtual assess, which establishes the state’s first federal regulatory structure for the industryThe Cabinet has approved an order that puts a new legislation for virtual assets and virtual asset service providers into effect, adding another layer of control to the UAE's virtual asset sector. The new rule is scheduled to go into effect on January 15, 2023, and will serve as the primary supervisory framework for virtual assets in the UAE.The framework is intended to protect investors while also supervising the industry, and providing with a tool to respond to the anticipated hazards posed to virtual asset investors.The rule would also assist the state in creating a favorable investment, financial, and economic environment so that foreign businesses and institutions operating in the virtual asset sector can provide services in the emirates.Prior to federal regulation, many regulatory measures for virtual assets were implemented in certain sections of the UAE, such as the financial free zones Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC). Dubai has also just developed its own virtual asset regime and Dubai's Virtual Asset Regulatory Authority (VARA).The interaction between regional authorities and the UAE's Securities and Commodities Authority, the central regulatory body, is one of the new regime's most important features.The Federal Regulation clarified that the "local licensing authorities" would still hold some authority in terms of licensing and the businesses vying for their license approval would have to decide additionally need an SCA license to operate in the Emirates.The Federal Regulation has also clarified that businesses who have sought for or hold a license from a 'local licensing authority’ such as ADGM or DIFC may not need to also get a license from SCA.In addition to licensing restrictions and new liabilities and compliance requirements, the Federal Regulation includes penalties for rule violations. They range from a warning and suspension of virtual asset listing or trading to license revocation and a fine of up to AED10 million (US$2.7 million).

What are the “Red flags” Insurance companies should be aware of to avoid Anti-Money Laundering Risks?

This Guidance applies to all insurance and re-insurance companies, agents, and brokers that are licensed and supervised by the CBUAE. The guidance also provides them a timeline of one month to comply with the new requirements. What are the various risk factors insurance companies should keep in mind? The Guidance has provided various Low Risk and High-Risk examples for each of these factors• Product Related Risk Factors• Service and Transaction Related• Distribution Channel and Intermediary Risk Factors• Customer Related Risk Factors• Geographic Risk Factors What are the “Red Flags” that the insurance companies should be aware of? 1. The choice of an insurance product does not reflect a customer’s known needs2. Early surrender of an insurance product is taken at a cost to the customer.3. Surrender of an insurance product is initiated with the refund directed to a third party.4. Customer exhibits no concern for the investment performance and exhibits significant concern for its early surrender terms.5. Customer purchases insurance products using unusual payment methods, such as cash or cash equivalents and requests to purchase a large-sum policy by paying off premium all at once.6. Customer demonstrates reluctance to provide identifying information when purchasing an insurance product.7. Customer borrows the maximum amount available from their insurance product shortly after purchase.8. The customer purchases an insurance product without concern for the coverage or benefits, or the customer only cares about the procedures for the policy loan, cancellation of insurance policy, or changing beneficiary when purchasing an insurance policy that has a high cash value or requires a high lump-sum premium payment.9. The customer purchases insurance products with high cash value successively over a short period of time, and the insurance products purchased do not appear to be commensurate with the customer’s status and income or are unrelated to the nature of the customer’s business.10. The customer cannot reasonably explain the source of payment of funds. In addition, the transactions do not appear to be commensurate with the customer’s status and income or are unrelated to the nature of the customer’s business. What are the requirements for insurance companies to mitigate the risk? 1. Adopt a Risk Based approach and conduct Enterprise Risk Assessment2. Perform Customer Due Diligence3. Conduct and regular risk assessments to cover all transactions, reporting any suspicious transaction to the UAE’s Financial Intelligence Unit using the “goAML” portal.4. All LFIs in the UAE should understand their Anti-Money Laundering (“AML”) responsibilities and have a sanctions compliance program as well as employ Risk Management Officers that will screen the transactions and assist with mitigating the related risks

Are employers mandated to provide health insurance to their employees?

There are currently only two Emirates that mandate employer-provided health insurance coverage; Dubai and Abu Dhabi. In Abu Dhabi, the Law No (23) of 2005 Concerning Health Insurance in the Emirate of Abu Dhabi and the Implementing Regulation (the "ADHIL") makes it mandatory for employers in the Emirate of Abu Dhabi to provide health insurance coverage to all of their employees and corresponding family members. This is provided in Article 5 of the ADHIL. In Dubai, the main legislation controlling obligatory health insurance in the Emirate of Dubai is Law No 11 of 2013 Concerning Health Insurance in the Emirate of Dubai, often known as the Dubai Health Insurance Law No 11 of 2013 (DHIL). The sponsors of visas are required by Article 11 of the DHIL to provide health insurance coverage for sponsored persons. Who should the health insurance cover? Employees and their dependents Penalties for Non-compliance:AED500 per employee Exceptions from the insurance agreement Insurance companies can abstain from providing the payments for your treatments based on many cases that can occur, here are a few of them: • Injuries’ during intoxication (drugs- alcohol) • Injuries during a natural disaster (earthquakes) • Work-related injuries • Any treatment not prescribed by a doctor • Injuries from criminal acts • Pandemics-related treatments • HIV patients and all other excluded illnesses

Criteria for determining tax residence introduces in the UAE

The Cabinet Resolution No.85 of 2022 (the Resolution) establishes specific residency requirements that must be met before an individual (Natural person or Legal Entity) is deemed a tax resident. Individuals are tax residents if their regular or principal place of residence is in the UAE and the center of their financial and personal interests is in the UAE or if they have been physically present in the UAE for 183 days or more in 12 months. Individuals will also be considered tax-resident if they have been physically present in the UAE for 90 days or more in 12 months and are a UAE citizen, UAE resident, or Gulf Cooperation Council national with a permanent place of residence in the UAE, or a UAE business owner.

New Emiratisation requires emiratis to be employed by Private companies in UAE

The Ministry of Human Resource and Emiratisation has issued a new resolution with the objective to increase the participation of Emiratis in the Private Sector in UAE. This Resolution is a part of the federal governments agenda that empower the Emiratis to work in the private sector. The latest resolution by the MOHRE is a further effort to improve Emiratization in the private sector in the UAE. According to the Ministry Companies should hire at least One Emirati National for every 50 skilled workers in a company. The MOHRE has clarified that the mandatory target of 2% of skilled roles to be preserved for Emiratis is to be met by the Companies by December 31, 2022. Companies are required to subsequently increase the number of employees by 2% with each passing year till 2026 i.e., at least 10% of the employees have to be Emirati nationals by 2026. Any Emirati national employed by the company should have a valid work permit and should be paid a minimum of Dhs.4000 which is a minimum required wages to be paid to skilled workers. If the Companies fail to comply with this requirement, they will be fined Dhs 72,000(6,000 per month x 12) in January 2023. The fine of 6,000 per month shall be increased by Dhs 1000 with each passing year, so the companies that fail to comply in 2024 will be fined Dhs 84,000, in 2025- Dhs 96,000 and in 2026 Dhs 108,000. Only the private sector companies that have less than 50 employees are exempted from this mandatory requirement. If any company provides false information to MOHRE it will be fined DHs 20,000 per national for which it provides false information.

UAE President issues new law on regulation and development of the industry

A key enabler for the industrial sector and increasing investment attractiveness of uae for both local and foreign investors. The Federal Decree-Law No. 25 of 2022 takes effect in January 2023 and applies to all industrial activities in the country, including those in free, economic, and specialized zones. The Law makes it easier for entrepreneurs, SMEs and advanced technology companies to obtain industrial licenses in UAE. It creates incentives for the industrial sector, while supporting national strategic objectives as well as UAEs Bilateral and Multilateral Agreements. In collaboration with federal and local authorities, it strives to be a key facilitator for the industrial sector and elevate investment benefits for both local and foreign investors to boost UAEs GDP. This strategy aims to unify industrial standards based on the highest standards of efficiency and production, which enhances access to Global markets and raises the competitiveness of UAE-manufactured products.

Emirates of Dubai fostering digital asset innovation in a “measured, responsible and transparent way by Introducing a New Crypto Token Regime

Emirates of Dubai fostering digital asset innovation in a “measured, responsible and transparent way by Introducing a New Crypto Token Regime Dubai Financial Services Authority ushers in the Crypto Token Regime from 1st November 2022 with a “balanced approach” in developing the framework further which is in alignment with best practices and standards adopted by international standard-setters”The new "Crypto Token Regime" came into force on 1 November 2022, with two major changes to the DIFC Consultation Paper: 1) DFSA will publish an initial list of "pre-recognized" list of crypto tokens that will be immediately available to firms with appropriate permissions in conducting financial services in or from the Dubai International Financial Centre ("DIFC"). 2) Non-Fungible Tokens and utility Tokens will remain outside the purview of financial services regulation, to be brought within the remit of the DFSA's anti-money laundering and counter-terrorist financing ("AML") regime. This comes as a sigh of relief for authorized firms already engaging in Crypto Token activities. They will have a six-month transitional period, in which they can continue those activities while seeking to obtain an appropriate license variation. It is further important to note that the regime also addresses various risks related to Consumer Protection, Financial Resources for the Service Providers as well as Market integrity. Keeping the risks of digital assets in mind only DFSA-approved crypto tokens that meet certain requirements can be used in the DIFC. The DFSA will publish an initial list of recognized crypto tokens on its website. The Crypto Token Regime is a big step in developing regulatory frameworks for digital assets and builds on its previous investment Token regulations in the Emirates. The DFSA has also recognized the ever-evolving nature of crypto Assets in its media release, We should therefore expect the Crypto Token Regime in Dubai and UAE to evolve with best practices and international standards to strike a balance between encouraging innovation and Consumer protection

The UAE Ministry of finance announced amendments to Excise Tax Law

The law has been amended in some places to benefit the business sector, make it easier for taxable people to fulfill their obligations, reduce tax avoidance, and address other existing issues regarding the application of excise tax. The Federal Decree-Law No. 19 of 2022 on the Amendment of Some Provisions of the Federal Decree-Law No. 7 of 2017 on Excise Tax includes the following new amendments: 1. Person importing excise goods for purposes other than conducting business will be exempted from tax registration, remaining liable to pay the relevant excise tax on the import. An additional amendment to the same Article requires that the application for exemption from tax registration be submitted before the import activity and not when the tax is due. 2. A new Clause has been added confirming that any person who receives an amount as tax or issues an invoice reflecting tax, must settle such amount to the Federal Tax Authority (FTA), and the amount be treated with the same treatment determined for due tax. Therefore, a person subject to tax shall pay the amounts he receives as tax to the FTA, even in cases where the tax was applied by mistake or evasion.

Unemployment Insurance in UAE: A positive move to social security & talent safety.

The new Federal Labour Law 13 of 2022 marks the UAE's first move toward maintaining social security for job seekers and the unemployed. The law applies to both private and public sector employees. It excludes only Investors, Domestic workers, Temporary contract workers under 18 years old, and retirees who receive pensions and join new employment. This law has been implemented to safeguard regular income for a limited period during their unemployment until new job opportunities come. This insurance scheme is associated with the major insurance companies licensed by the central bank, meeting all the terms and conditions of insurance providers in terms of unemployment. The law introduces an unemployment insurance scheme, which aims to compensate the employee with cash for a limited period during their unemployment. According to this Law, the employees are eligible to get compensation every month of 60% of their subscription salary with a maximum of AED 20,000 monthly for three months from the date of unemployment. The total covering period shall not exceed 12 months during the service of an employee. All employees will be eligible for Compensation if their insurance subscription is more than 12 months. Eligibility conditions vary if the employee has been dismissed for disciplinary reasons, per labour law, yet the compensation claim remains legitimate.

Everything your Business needs to know about the newly issued Corporate Tax in UAE

All Taxable Businesses must register for corporate tax and get a corporate tax registration number, including Free Zone Businesses. Some Exempt Businesses may also be asked to register for Corporate Tax by the Federal Tax Authority. Beginning with the fiscal year from June 1, 2023, businesses will be liable to Corporate Tax. Who are the subjects of the Tax law?The corporate tax law levies taxes based on source and residence. The classification of the Taxable Person determines the applicable basis of taxation. "Resident Business" must pay taxes on both their domestic and international income (i.e., on residence basis). Whereas, only income obtained from sources within the UAE will be subject to taxation for "Non-Resident Business" (i.e., on source basis).Where a person lives or has their domicile does not matter when determining residence for corporate tax purposes. A person will not be a taxable person and thus not be liable for corporate tax if they do not meet the requirements to be either a resident or a non-resident as set out in the law. What is the rate of Tax Levied? Corporate Tax will be levied at a rate of 9% on Taxable Income exceeding AED 375,000. Taxable Income below this threshold will be subject to a 0% rate of Corporate Tax. Corporate Tax will be charged on Taxable Income as follows: For Resident Taxable Business: Taxable Income not exceeding AED 375,000 (this amount is to be confirmed in a Cabinet Decision) - 0% Taxable Income exceeding AED 375,000 - 9% For Free Zone Business: Qualifying Income - 0% Taxable Income that does not meet the Qualifying Income definition - 9% Who are exempted?1. Government entities and government-controlled entities that are listed in a cabinet decision are automatically exempt. 2. Exempt if the Ministry of Finance is notified (and provided certain requirements are met): Natural resource businesses that are both extractive and non-extractive. 3. If included in a Cabinet Decision: Entities that qualify as Public Benefit Entities 4. Subject to compliance with specific requirements, exempt if submitted to and accepted by the Federal Tax Authority: Public or private pension and social security funds, qualified investment funds, wholly-owned and controlled UAE subsidiaries of government entities, government-controlled entities, qualified investment funds, or public or private pension and social security funds. 5. Public or private pension and social security funds, Qualifying Investment Fund, Wholly-owned and controlled UAE subsidiaries of a Government Entity, a Government Controlled Entity, a Qualifying Investment Fund, or a public or private pension or social security fund.

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