Tax Assistance in the Middle East

With the increasing globalization of investments and business operations, tax planning and compliance in the Middle East has become a strategic priority for multinationals and SMEs. The tax landscape in the region is historically favorable but rapidly evolving, especially in the United Arab Emirates (UAE), Saudi Arabia, Qatar, and Oman, where corporate tax regimes, anti-avoidance rules, and automatic exchange of information systems (CRS) are emerging.

1. Corporate Tax in the United Arab Emirates

As of June 1, 2023, the United Arab Emirates has implemented a Corporate Tax of 9% on taxable profits exceeding AED 375,000.

Certain exemptions are available for:

  • Qualified Free Zone Persons

  • Dividends received from controlled subsidiaries

  • Participation exemption on qualifying investments

To benefit from these exemptions, companies must:

  • Demonstrate economic substance within the UAE

  • Ensure intercompany transactions comply with the arm’s length principle

2. Permanent Establishment (PE) and Nexus

The concept of Permanent Establishment (PE) is crucial for foreign businesses operating in the region.

A PE is generally triggered when:

  • There is a fixed physical presence in the UAE (office, warehouse, or resident staff)

  • A representative has the authority to conclude contracts on behalf of the foreign entity

  • Managerial or operational activities are performed locally

In contrast, Nexus refers to the minimum level of business connection required to create a tax liability in a jurisdiction.

It is important to note that:

  • Having a presence in a Free Zone does not automatically protect a company from PE risk

  • Tax authorities in the Gulf are increasingly identifying "hidden PEs" related to:

    • E-commerce and digital business models

    • Remote management by resident employees or project managers

3. Taxation of Foreign Dividends

In most GCC countries, dividends received from qualifying foreign shareholdings are not subject to tax, provided:

  • The participation is substantial (typically 5% or more and held for over 12 months)

  • The dividend originates from non-blacklisted jurisdictions

  • The investment is considered strategic and not tax-driven

To benefit from this exemption:

  • The shareholding must be recorded as a qualified investment in the balance sheet

  • The company must prove substance over form

  • Adequate documentation must be available in case of a tax audit

These rules apply in jurisdictions such as UAE, Qatar, and Bahrain.

In Saudi Arabia, however, dividends paid to non-resident companies may be subject to withholding tax (WHT) of up to 5%.

4. Transfer Pricing and Documentation

Several Gulf countries, including UAE, Saudi Arabia, and Qatar, have aligned their transfer pricing frameworks with OECD guidelines.

Businesses are now required to:

  • Apply the arm’s length principle to all related-party transactions

  • Maintain a Master File and Local File

  • Submit annual Disclosure Forms (e.g., in the UAE, as an attachment to the Corporate Tax Return)

Failure to comply with these obligations may result in:

  • Profit margin adjustments

  • Financial penalties

  • Loss of preferential tax exemptions

5. Anti-Avoidance Rules and Substance Requirements

The principle of substance over form is increasingly central in regional tax enforcement.

For instance:

  • Both UAE and Bahrain apply Economic Substance Regulations (ESR)

  • Companies must prove they engage in real business activities, with:

    • Qualified staff

    • Local infrastructure

    • Active operating expenses

Authorities are moving away from tolerating "letterbox companies" used purely for aggressive tax structuring.

6. Automatic Exchange of Information (CRS and FATCA)

Nearly all GCC jurisdictions participate in the Common Reporting Standard (CRS) and comply with FATCA for U.S. taxpayers.

Under these frameworks:

  • Banks and financial institutions must collect and report tax information

  • Reports are submitted to tax authorities of the account holder’s country of residence

  • Cooperation is required in the context of international tax investigations

Conclusion: Strategic Tax Support for the Middle East

Taxation in the Middle East is now:

  • More regulated

  • More transparent

  • More interconnected with global compliance systems

To remain competitive and compliant, businesses operating in the region should adopt a structured tax approach by:

  • Maintaining continuous access to expert advisory

  • Implementing IFRS-compliant internal controls and reporting tools

  • Periodically reviewing risks related to Permanent Establishment and Transfer Pricing

  • Prioritizing economic substance and corporate transparency

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