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Q: We are a firm based in Hong Kong. It has been noticed that our clients face more and more scrutiny when they have complex ownership structures from the banks and the regulators. We have been using Dubai-based companies for group structuring in view of tax advantage. Please provide your views on the future of such structuring where a combination of offshore, mid-shore and onshore companies are used. RG, Hong Kong
A: The economic world is continuously evolving. The structures of the group designed a couple of years back may not be able to withstand the changing times and hence it is necessary that the structure should be adaptable and flexible. The regulators and the government of many countries now have widened their reporting requirements where there will more information sharing between the authorities. US was the first to implement the Foreign Account Tax Compliance Act (FATCA) and the new Common Reporting Standards (CRS) endorsed by OECD is around the corner where first impact on compliance have already started with effect from January 1, 2016 for tax residence. A large number of countries including all OECD members have accepted the CRS, this will ensure that there will be an automatic transmission of information of individuals and corporates with respect to their tax residence and implications thereof. Banks are the primary source of information and hence you see a great revamp in the bank compliance procedures for acceptance of new clients and their subsequent transactions. It is not uncommon for the banks to refuse accounts if they do not meet the criteria. The business organisations need to take it in their stride that tax implication in the jurisdiction of residence will be inevitable in the times to come. The authorities and regulators are scrutinizing and verifying the substance of the entity in the jurisdiction; this would mean that the entity has to show that the company has real operations in the jurisdiction. Real operations would mean that there are employees engaged, physical operations, decision being made, etc. By September 2017 the CRS is expected to be fully engaged. Base Erosion and profit shifting (BEPS) is one other area where the authorities and regulators will have more say in not so distant future. Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid. Due to this convergence of information, the corporates around the world have to rethink about their bases and plans. A more transparent information sharing is on the anvil. Tax is a way of life and this is an undeniable fact.
Q: We are a company based out of India and having some subsidiary in Mauritius. Will it be possible for such Mauritius company to be shareholder in the UAE LLC? If yes, what the requirements. PKA, Sharjah
A: The UAE Commercial Companies Law of 2015 allows any individual or corporate to be the shareholder in the local limited liability company. An overseas corporate shareholder where the shareholding is not UAE nationals can hold a maximum of 49 per cent in the LLC. Such corporate would need to produce their Memorandum & Articles, Incorporation certificate, Certificate of good standing or equivalent and the resolution for the investment in the LLC. Resolution should name the representative who will sign on behalf of the company in the local government departments and provide him necessary powers to do so. Expatriate corporate shareholder also has to commit the capital due from such shareholder. The local notary and government departments will accept the above documents only if they are duly notarized and legalized from the country of origin and further from the UAE Embassy or consulate in that country. Super legalisation will also be required from the UAE Ministry of Foreign Affairs and at times from ministry of justice. All these documents have to be legally translated in Arabic for their acceptance in the local departments.
The writer is partner at Crowe Horwath, UAE. You can send your business queries to him at atik.munshi@crowehorwath.ae. Views expressed are his own and do not reflect the newspaper's policy.
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