The taxation of the digital economy is one of the focus areas of the OECD’s BEPS project, and many countries in the Middle East and Africa are increasingly introducing changes to their tax rules or considering avenues for imposing taxes in relation to digital economy earnings. It is critical for companies to fully understand the local tax regimes across the region and the impact of global developments on the future of taxation of digital services.
Welcome to our inaugural Baker McKenzie Africa Tax Newsletter. With insights from Africa-focused tax advisers from Baker McKenzie and our network of African hub firms, we aim to provide you with regional updates and practical guidance on the tax implications of doing business across the large and diverse African continent.
On 10 October 2019, the European Union (EU) agreed to remove the United Arab Emirates (UAE) from their list of non-cooperative tax jurisdictions (the EU blacklist). This followed from the introduction of the Economic Substance Regulations (ESR) in the UAE in March 2019, and more recently, the specific Guidance on the ESR (the Guidance) published by the UAE Ministry of Finance in September 2019.
The UAE Federal Tax Authority (FTA) has published Public Clarification VATP015 on the key considerations for a transaction to qualify as a transfer of business in the UAE. As a transfer of business is outside the scope of VAT, qualified transactions will have implications for both the seller and the buyer.
The key impact of the Resolution is the obligation of companies carrying out relevant activities to meet the specified Economic Substance requirements and to conduct annual compliance reporting. Non-compliant companies could risk fines and penalties, suspension, withdrawal or non-renewal of licenses, and the disclosure of their position to other foreign authorities. Companies in the UAE carrying out the relevant activities must file their first report within 12 months from the end of their fiscal year.