2014.06.18 - APH - Doing business in the Gulf (IMH Forum)

Doing business

in the GulfPresentation by Andreas Philippou

Audit partner at KPMG in Qatar

At the Cyprus Hilton Park, Nicosia, Cyprus

Wednesday 18 June 2014

©2014 KPMG, Qatar, registered with Ministry of Economy and Commerce, State of Qatar and a member firm of the KPMG network of independent member firms affiliated

with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Agenda

• An exciting time to do business in Qatar

• Audit and financial reporting

• Basics of tax requirements

• Corporate structures available for

investors setting up business in Qatar.

Overview for each of the GCC countries (United Arab

Emirates, Qatar, Bahrain, Saudi Arabia, Oman, and

Kuwait) of the:

• Economy

• Audit and financial reporting requirements

• Setting up operations

• Tax facts and issues

Economic overview

©2011 KPMG Qatar, a registered firm under Qatar law and a member firm of the KPMG network of independent member firms affiliated


• GCC countries benefited from some of the world’s strongest growth rates since the

financial crisis hit in 2008 mainly due to high oil prices.

• Between 2008 and 2013, the real GDP of GCC countries grew by 24%, while that of the

Eurozone shrunk by 2%.

• Between 2008 and 2013, Qatar’s economy performed particularly strongly by 67% and

that of Saudi Arabia by 30%.

• Significant efforts for diversification of all GCC countries away from oil and gas revenues

are creating substantial opportunities for foreign investors to set up and provide their

services in the region.

GCC in general



GCC countries remain highly dependent on oil and gas



Though a wealthy region still significant disparities



Ease of doing business ranking 2014

GCC country Ranking

United Arab Emirates 23

Saudi Arabia 26

Bahrain 46

Oman 47

Qatar 48

Kuwait 104

Non-GCC country Ranking

Singapore 1

USA 4

UK 10

Germany 21

Cyprus 39

Luxembourg 60

Greece 74

Russia 92

Ukraine 112

(Economies were ranked 1-189 by the World Bank based on variety of indicators)



• Highest GDP per capita in the world in excess of

$100k.

• Third largest gas proven reserves (885 tcf making

up 13% of world reserves after Iran and Russia at

18% each), but by far the highest hydrocarbon

reserves and revenue per capita.

• Largest exporter of LNG in the world since 2006.

• Substantial oil reserves as well (25 bl barrels).

• Growth drivers shift towards non-oil and gas

sectors due to large-scale infrastructure spending

as part of the build-up towards the 2022 World

Cup in Qatar and the 2030 Qatar National Vision

investment plans.

• Recently (January 2014) signed DTT with Cyprus.

Qatar…the richest country in the world!



• The largest economy in the Gulf (represents

25% of Arab GDP) and the 19th largest

economy worldwide, which makes it a main

player in the commercial life of the world.

• The largest oil reserves worldwide (267 bl

barrels making 20% of world reserves).

• Fifth largest proven natural gas reserves, but

gas production remains limited.

• Huge unexploited shale gas reserves.

• Cheapest energy prices make it ideal location

for projects that require energy consumption.

• One of the world’s fastest growing economies

with substantial opportunities for investments.

Saudi Arabia… the largest economy in the Gulf!



• Successful economic diversification has made

Dubai the regional center of finance, commerce,

transportation and tourism.

• Dubai’s successful bid to host the 2020 World

Expo will compensate in the coming years for

the slowdown in the oil sector and has already

created an economic boom with positive

spillovers in Abu Dhabi and Sharjah.

• Unlike Dubai that has oil about to run out, Abu

Dhabi (the capital) is very oil reliant.

• Abu Dhabi has taken important steps towards

diversifying its economy towards tourism and

financial services and is expected to grow faster

than the UAE average.

United Arab Emirates…the most developed service economy in the Gulf!



• An established financial center since the 1970s –

ranked by the World Economic Forum as the most

sophisticated financial market in the Gulf.

• Ranks as the 13th most free economy in the world

and ahead of all GCC countries – beating the UK

and only one place below the US.

• Existing extensive global network of Double Tax

Avoidance Treaties, Agreements on Economic,

Trade and Technical Cooperation and for

Promotion and Protection of Investments.

• At the heart of the Gulf and within one hour drive

to 50% of the Saudi economic activity.

• The Gulf’s lowest cost business operating

environment with the less taxes and business

operating costs.

Bahrain…the oldest financial center and freest economy in

the Gulf!



• One of the richest countries in the world

with the 6th largest oil reserves (104 bn

barrels).

• Unprecedented levels of infrastructure

development activity aimed at diversifying

the economy with substantial opportunities

of foreign investments.

• In 2010, the Government earmarked

investments of USD 112 bn for the Kuwait

Development Plan on infrastructure and

development projects in various sectors.

• Strategically located by bordering three

major markets – Saudi, Iraq and Iran.

• Double Tax Treaty with Cyprus since 2010.

Kuwait – one of the richest countries in the world



• Unlike its neighbors, Oman is a modest

producer of oil.

• Economy is heavily dependent on oil, but

as oil reserves are declining, Muscat is

actively pursuing diversification of the

economy under Vision 20-20 into the

service, financial and service sectors.

• Large scale public and private investment

in infrastructure development, including

industrial, tourism and commercial

property projects.

• Growth plans focus on travel and tourism

industry

Oman – the oldest independent state of Arab world!

Audit and financial

reporting

requirements



Audit requirements

GCC country Audit framework Accounting framework

United Arab Emirates ISA IFRS

Saudi Arabia Local auditing standards

(issued by SOCPA)

Local auditing standards (issued by SOCPA),

except banks and insurance (IFRS).

SOCPA has less requirements and

disclosures than IFRS, but differences are not

significant - Move to IFRS in 2017 for listed

companies and 2018 for others.

Bahrain ISA IFRS

Oman ISA IFRS

Qatar ISA IFRS

Kuwait ISA IFRS, except for entities regulated by the

Central Bank of Kuwait (deviation with IAS 39 collective

impairment provision)

Setting up operations

in the Gulf



Commonly used types of entities by foreign investors

GCC country Types of entities Foreign investment restrictions for companies

United Arab Emirates LLC, Branch Yes (Maximum 49%). Possibility to set up 100% foreign owned entities in

FTZs subject to other restrictions.

Saudi Arabia LLC (listed and unlisted

companies), Branch

100% foreign investment allowed in most sectors. In certain sectors (i.e.

trading), there is a requirement to have a Saudi partner with a minimum

share of 25%.

Bahrain LLC, Branch Yes (Maximum 49%). Some sectors relaxed subject to approval.

Oman LLC, Branch Yes (Maximum 70%).

Qatar LLC, Branch Companies registered under Companies Law - Yes (Maximum 49%). Some

sectors relaxed subject to approvals.

Companies registered with QFC – No

Kuwait LLC Yes (Maximum 49%). Some sectors permit 100% foreign ownership subject

to approvals..



Minimum share capital to set up a company or branch

GCC country Company Branch

United Arab Emirates Varies based on location Varies based on location

Saudi Arabia Services: SAR 0.1m (US$ 30,000)*

Industrial: SAR 1m (US$ 270,000)

Trading: SAR 20m (US$ 5,330,000)

Agriculture: SAR 25m (US$ 6,670,000)

Real estate: SAR 30m (US$ 8,000,000)

* SAGIA may prescribe requirements

Services: SAR 0.5m (US$ 130,000)*

Industrial: SAR 1m (US$ 270,000)

* SAGIA may prescribe requirements

Bahrain BHD 20,000 (US$53,000) Nothing

Oman 70% Foreign ownership) – OMR 150,00 (US$ 390,000)

No foreign ownership – OMR 20,000 (US$ 52,000)

Nothing

Qatar QAR 200,000 (US$ 55,000) Nothing

Kuwait KWD 7,500 (US$ 26,250) (subject to increment by Ministry

discretion)

N/A



Running costs of operating a company

Taxation



Corporate tax rates

GCC country Listed co.

%

Unlisted co.

%

Banks

%

Petroleum

%

Bahrain - - - 46

United Arab Emirates - - 20(branches of

foreign banks)

55-85

Qatar - 10 10 35

Oman 12 12 12 55

Kuwait 15 15 15 15

Saudi Arabia 20 20 20 30-85

Corporation tax is imposed on tax resident companies to the extent such companies are (directly or

indirectly) owned by persons who are not nationals of a GCC state.



Withholding tax rates

GCC country Royalty

%

Interest

%

Dividend

%

FTS

%

Mgt fee

%

Bahrain - - - - -

United Arab Emirates - - - - -

Qatar 5 7 - 5 5

Oman 10 - - - 10

Kuwait 5 5 5 or 15 5 5

Saudi Arabia 15 5 5 5 20



Employee and Employer taxes

GCC country Personal tax

Employees

SIC

Employees

SIC

Employer

Occupational

Hazards tax

Employer

Bahrain - Nationals: 6% Nationals: 9% -

United Arab Emirates -

Nationals: 5%

Nationals (Public

sector): 15%

Nationals: (Private

sector): 12.5%

-

Qatar - Nationals: 5% Nationals: 10% -

Oman - Nationals: 6.5% 10.5%

Kuwait - 7.5% (subject to

ceiling)

11% -

Saudi Arabia - Nationals: 9% Nationals: 9%

Non nationals: 2%

Nationals: 2%



Other taxes

GCC country CGT Property tax VAT Service charge at

hotels and

restaurants

Stamp

duties

Custom duties

(Normal rates)

(1)

MV taxes /

license

Bahrain - - - - - 5% -

UAE - Residential tenant:

5% (3)

Commercial tenant:

5-10% (3)

- Restaurants: 5-10%

Hotels:10-15% (2)

Hotels: additional

15% for their services

- 5% -

Qatar - - - - - 5% -

Oman - - - 4-5% - 5% -

Kuwait - - - - - 5% -

Saudi Arabia - - - - - 5% -

1. Free movement of all goods within the GCC.

2. Charged on room rates per night and payable to Municipality.

3. Charged on rent amount

.



Zakat

• Zakat is an obligatory payment required from Muslims according to the sharia

(religious law).

• Zakat forms one of the five pillars of Islam.

• In most Muslim countries the payment of zakat has been left to the individual, whereas in

Saudi Arabia and Kuwait the collection of zakat is governed by regulations.



Tax issues – Bahrain

Tax audits Tax efficiency Auditor involvement

N/A

(No Tax Authority in Bahrain)

Corporate taxes from oil and gas

companies are collected by the Central

Bank of Bahrain

N/A N/A



Tax issues – United Arab Emirates

Tax audits Tax efficiency Permanent

establishment

Auditor involvement

N/A

(No Tax Authority in UAE)

Only foreign companies

extracting oil & gas in the

UAE and also branches of

foreign banks are required to

file and pay corporate tax.

This is done at the Ruler’s

office of each Emirate.

Tax audits are conducted by

nominated inspectors who

are part of the Financial Audit

Department of the Ministry of

Finance or the Ministry of

Finance can assign some

companies to conduct the Tax

audit.

Due to the limited number of

oil & gas upstream

companies as well as banks,

there is not a sophisticated

Tax Administration in the

UAE.

N/A The tax computations filed by

branches of foreign banks

should be supported with

audited financial statements.



Tax issues – Saudi Arabia


100% tax audits of all ZAKAT and

returns by the Department of ZAKAT

and Income Tax

Final assessment accomplished by desk

or field audit.

Tax assessments are slow as Tax

authorities are not flexible.

Currently, online filing is being tested to

improve efficiency.

Online payment is in place.

Only Saudis can submit tax returns and

future direct communication. This is

done via a professional audit firm.

Auditor’s certificate required to support

WHT declarations



Tax issues – Oman


100% tax audits of all tax returns by the

Tax Authority

The new Oman Tax Law has provisions

to exclude small companies (defined by

gross income, average number of

employees and minimum share capital)

from filing tax returns and audited

financial statements. IS THIS IN

FORCE?

Tax payer friendly. Tax payers can

formally approach any tax official to

discuss any tax issues faced by them

and seek a formal ruling.

Tax audits are generally taken up after

three to four years of submission of tax

returns

Large Taxpayers Unit (turnover basis)

set up for audits by experienced

assessors

The filed tax computations filed should

be supported with audited financial

statements.



Tax issues – Qatar


100% tax audits of all tax returns

Most tax audits are desk audits with

limited field audits

Qatar has two Tax authorities:

- The State tax authority administration

is under-staffed due to rapid expansion

of business activity and delays are

encountered.

- The Qatar Financial Center (QFC) is

efficient and effective providing certainty

to taxpayers, including advance rulings

binding on the QFC, but not on the

taxpayer. This is however limited to

financial service sector companies.

Tax returns require sign off by a

registered Auditor and should be

accompanied by audited financial

statements



Tax issues – Kuwait


100% tax audits of all tax returns Process to finalize the tax matters slow

mainly due to lack of tax inspectors and

the lack of proper guidelines for tax

treatment of various items.

Measures are taken (“Circular 1”

recently issued) to expedite the

assessment process. Companies

compliant to the Circular 1 could have

their tax assessment finalized within 6

months.

Not generally possible to obtain

advanced tax rulings.

The filed tax computations filed should

be supported with audited financial

statements.

Foreign Branches have the option to

either file audited financial statements

prepared under IFRS or a audited

statements of Income & Balance Sheet

only.

Tax Authority requires tax payers to

interact with tax officials through tax

advisors in Kuwait.

Piece of advice…



Piece of advice…

The economies of the GCC countries are rapidly developing with many changes happening,

including many related to doing business.

Wise to seek professional assistance in the relevant country



©2014 KPMG, Qatar, registered with Ministry of Economy and Commerce,

State of Qatar and a member firm of the KPMG network of independent

member firms affiliated with KPMG International Cooperative (“KPMG

International”), a Swiss entity. All rights reserved.

The KPMG name, logo and "cutting through complexity" are registered

trademarks or trademarks of KPMG International Cooperative ("KPMG

International").

Andreas Philippou (FCA)

Partner

KPMG in Qatar

+974 3343 4966 (Mobile)

[email protected]

GLAD TO EXTENT TO YOU ANY ASSISTANCE YOU MAY NEED

SHOULD YOU DECIDE TO EXPLORE THE POSSIBILITIES

OFFERED BY QATAR

Thank you!

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2014.06.18 - APH - Doing business in the Gulf (IMH Forum)

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