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The following Report Assess three different scenarios in terms of the question raised, and provide the detailed explanation as required in the questions. The cases deal with the Taxation and accounting in the UAE (Case 1), American Expats Warned against Tax non- Compliance (Case 2) and Emirati Government on Humanitarian Aid (Case 3).
Case # 1: RAK Free Zone: Taxation and Accounting in the UAE
Tax Laws in the UAE and the sources of Taxable and Non Taxable income in the UAE:
United Arab Emirates is a’ No Tax’ country which does not require the residents of the UAE to pay Income Taxes on their earnings. Corporations other than the Oil, gas, petrochemical companies and banks are not required to pay corporation taxes on their annual profits. Similarly, there is not direct or indirect taxation enforced on the end user of products in the form of ‘Value Added Tax’ (VAT) in the UAE. This makes UAE an attractive place for the international investor’s corporation to encourage their businesses to be established in the UAE.
The main sources of income from the tax for the country are from the taxes imposed on the owners of the business properties who rent out their properties. These owners are required to pay the emirate municipal tax which is usually 10% of their annual rental value earned by the owner. Another source of the income for UAE is the contribution made by the individuals on their earnings who are UAE Nationals only which is around 5% of their salary. Also, the tax imposed on the Oil, Gas, Petrochemical and Banks in the form of the Corporation tax could also be a contribution to the government’s sources of income.
As UAE is a ‘No Tax’ Country meaning that it does not have to be federal legislation in the UAE which embodies the Tax regulation i.e. The Tax payment or the Refunds to the individuals, corporations and the Capitals Gains tax which arises as a result of the capital gain earned by an individual. The IUAE does not have a federal tax legislation imposed in the country however; each emirate in the UAE can impose and have its own tax laws. However, there is a legislation imposed in Abu Dhabi.
UAE has the double taxation treaties with other countries which states that the incomes or profits earned by the corporation in the UAE which submit their remittance of their profits to the countries which their parent companies have been in operation, No tax will be levied on the profits of that company. Similarly, if the company earns a dividend income, interest or the royalties, or the fees, these will only be taxable in the state where that income is earned. This makes UAE an attractive location for the companies having their parent companies in some other countries and which have a double taxation treaties with the UAE. For Example Company A earns a profit of $10 Million and the parent company of Company A operates in such a country which has a double taxation treaty with the UAE, then the company A will have to pay no Tax on the remittance of its profits which it makes to its parent company.
International Accounting Standards are used widely by the companies operating in the UAE in order to prepare their Financial Statements. The companies are required to maintain their accounting records which include invoices etc. for a period of five years as per the Commercial Companies Law and Commercial Transaction Laws.
The companies operating in the UAE are required to file to the UAE Federal Ministry of the Economy and Commerce and with the local licensing authority their financial statements within 120 day from the end of the financial year. Some licensing authorities also require the companies to file audited financial statement as part of the annual license renewal process usually within 90 from the date of the year end.
Case # 2: American Expats Warned Against Tax non- Compliance
The scenario provides detailed information regarding the filing of the Tax Return by the Americans working in the UAE. Americans residing in the UAE should be able file their tax return as the overseas taxpayers as early as possible.
The IRS (Inland Revenue Service) has been assessing the Americans who are living and working in the abroad, UAE in particular. The US citizens are given dates of filing their tax returns which should be beginning by 1st January and the tax returns should reach IRS by April 15 as mentioned by Virginia La Torre Jeker.
In the scenario presented in the case study the American residents residing and working in the UAE are required to declare their assets and the relative income earned by those assets. Double Taxation treaties may apply in this scenario as the American Residents may have earned the income or the revenue from the ownership of the assets in the UAE and they may not be required to be any tax on these incomes in the UAE. However, being the American Nationals residing in the foreign country they may be required by the US Tax jurisdiction to pay their taxes to IRS on their incomes and the profits.
The costs for the Non-compliance by the American Residents earning in the UAE could be high enough. If any of the American residents in the UAE fails to file their tax returns to the IRS duly within the deadline issued by the tax authority then they may have to be accounted for as per the Offshore Voluntary Disclosure Program.
Those qualifying under the streamed line processing even if they are non-willful may have to face the penalties of $10,000. And the willful violators may have to face a fine of greater of, $100,000 of 50% of the total balance of their foreign bank accounts. The foreign bank are therefore obliged to provide detailed report of their US account holders, the banks may have to deal with the 30% withholding tax on the income from the US financial assets.
Case # 3: Humanitarian Aid
The Emirati government has dealt with the humanitarian aid in such a way that the government has made the humanitarian aid into a foreign policy instrument the philosophy of which has been based on the Islamic belief that helping those in the need is the primary duty. The Government of UAE has been able to establish a body for the Coordination of Foreign Aid (OCFA) in 2008. The approach taken by this body enables the government of UAE to have a more detailed and comprehensive analysis of UAE foreign assistance. The Emirati Government then analyses the aid received from the charity institutes involved in the collection of the funds which needs to be dispatched to the counties or territories in need of the assistance in any matter relating to the welfare of that state or its people.
A report issued in 2012 had revealed that around 43 charity organization in the UAE had been able to disburse about $1.59 billion which makes Dh5.59 billion to the development projects, One of the development projects has been the connecting bridge in the Khyber Pakhtunkhwa province of Pakistan which has enabled the connections between 15 towns and 45 villages on both sides of the Swat river. The Emirati Government has been involved in projects associated with the development of education sector to those countries or territories where there has been a lack of educational infrastructure.
The Emirati government receives funds report from different charity organization operating within the county and even foreign assistance is also received by the government. These finds should be classed as the humanitarian aid received by UAE in regards for helping those in need of the funds. As H.H. Sheikh Khalifa bin Zayed has mentioned that the humanitarian diplomacy is one of the pillars of the country’s foreign policy.
The Emirati government assists in the provision of this aid for the improvement of the quality of life by constructing roads, hospitals and schools and also assisting in the development of economy of any state and to support that state in the development of the budget policies.
- PKF Worldwide Tax Guide (2013) United Arab Emirates Tax Guide 2013. PKF International Tax Committee.
- U.S. Income Tax Return Preparation and Advice for American Citizen (Expatriates) Living in Dubai / UAE. , Expat Tax Guide.
- Translation of development and humanitarian aid into foreign policy instruments., UAE Interact Humanitarian Aid
- Dubai: Double Tax Treaties and Latest Unite Arab Emirates Treaty Updates. Lowtax Global Tax a& Business Portal
- US Expat Taxes Explained: Filing Taxes as an American Living in the UAE. How Expat Taxes, US Expat taxes, UAE Income Tax Rate, UAE Tax Due Dates and UAE Social Security implementations. Protax Consulting Services Inc. Tax Accountants and Consultants.
- UAE double taxation treaties and agreements. Double Taxation Relief; what they mean? List of countries having double taxation relief with UAE, or are under consideration.
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