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Managing Tax Affairs in Emerging
Markets
Jayne Stokes
Khadija Idboujnane
April 2014
General tax landscape
Misconception there is no tax in the Middle East
• Countries rich with natural resources in the Middle East derive revenues
from taxation of the Oil & Gas industry
• Other countries have a greater need for wider tax revenues
• Taxing authorities are evolving and continue to become more
sophisticated
– Move towards simplified tax regimes and reduced corporate tax rates
– Increased implementation of withholding taxes
(“WHT”)
– Introduction of transfer pricing rules
– Increase in the number of double taxation treaties
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WHT and double tax treaties in the Middle East
• WHTs are increasingly being introduced into legislation to increase
taxing revenues on cross border payments
• 13 out of 15 countries in the Middle East region have WHT regimes
– UAE and Bahrain are the exception
• New complexities to cross-border projects, but also opportunities for
effective tax planning, including the application of Double Tax Treaties
(“DTTs”)
• There are currently more than 500 DTTs agreed by MENA countries
– The UAE has the highest with c.60 DTTs
– Palestinian Ruled Territories and Iraq have the lowest with no DTTs concluded
• Increasing number of DTTs being agreed in the region
– Qatar has agreed 12 DTTs in the past 18 months
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Top rates of WHT in the MENA region
Top Rate of Withholding Tax per country
United Arab Emirates
Bahrain
Qatar
Jordan
Syria
Yemen
South Sudan
Palestinian Ruled Territories
Oman
Mauritania
Lebanon
Sudan
Saudi Arabia
Morocco
Kuwait
Iraq
Tunisia
Libya
Egypt
Algeria
0%
5%
10%
15%
20%
25%
30%
WHT Percentage
Source: Deloitte Middle East Tax Handbook 2013
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Challenging times ahead in the Middle East
• Transfer pricing (“TP”) in the Middle East
– The new frontier – OECD based rules
– Egyptian experience
– Documentation requirements
Egypt
Formal TP rules exist,
broadly based on
OECD Guidelines, and
require detailed
documentation to
support the arm’s
length principle
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Kuwait
No formal TP rules,
however, inter
company transactions
considered in some
circulars
Qatar
2011 law introduced
TP principles into the
tax code
Saudi Arabia
No formal TP rules,
however, tax laws
provide for prevention
of tax avoidance
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Considerations for Emerging
Markets
Considerations for emerging markets
• Legislation
•
•
•
Historical tax legislation; updates not consolidated in existing legislation
Practical application not always consistent with legislative position
Changes to legislation not well communicated to taxpayers
• Practical difficulties
•
•
•
Manual processes
Limited guidance on interpretation
Unclear on process requirements
• Tax compliance and risks
•
•
•
•
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Rulings and decisions by Tax Authorities not binding
Pay now, argue later principle
Developing judicial system
Shortage of skilled technical resource
Copyright © 2014 Deloitte LLP. All rights reserved.
Positive developments within the region
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Positive developments within the region
• Developing awareness of taxpayers issues
• Demand for technical training for tax authorities
• Participation in working groups alongside taxpayers and tax
professionals
• Tax authorities increasingly open to dialogue with taxpayers
• Increasing initiatives to modernise the processes (e.g.
introduction of e-filing, e-payment)
• Collaboration between tax authorities of countries in the region to
share best practices
• Increasing interest to expand the tax treaties network
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Questions and answers
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