• Taxation

    VAT in the UAE: How will it impact your business?


    As the UAE’s economy matures and the reliance on oil revenues decreases, we are seeing a greater need for the country to identify new revenue streams to fund many of UAE’s public services.  The introduction of Value Added Tax (“VAT”), set to be introduced on 1 January 2018, will be a significant step in this direction.

    This article explores the impact on businesses through the introduction of VAT; what they should do to comply with the government’s requirements; and how Davidson & Co can assist to achieve the necessary restructuring and protection your business may need to undertake to ensure compliance.

    Businesses likely to be affected 

    Whilst the official announcement of specific conditions is awaited from the Ministry of Finance (“MOF”), it is anticipated that in order to register for VAT, the below requirements must be met:

    1. Business must sell “taxable goods or services”:
      • Likely to apply to majority of transactions in goods and services.
      • A limited number of exemptions and reliefs may be granted (see below).
    1. Business must meet the “minimum annual turnover” requirement:
      • The exact amount is yet to be confirmed by the MOF, however, stakeholders are hoping that this will safeguard small businesses from registering for VAT in support of local entrepreneurship.

    Nevertheless, according to a recent MOF online article[1], all companies in the UAE (whether subject to VAT or not) will still be obliged to maintain their financial records in order to evidence their VAT position to the government if required.

    Exemptions / Reliefs

    Goods & Services likely to be exempt from VAT

    • A number of food items;
    • Health, education & social services.

    Reliefs from VAT

    • The MOF has expressed an intention to allow foreign businesses to recover the VAT they incur when visiting the UAE (although it is still unclear what is meant by “foreign businesses” and “visiting” the UAE).
    • Special rules on VAT for government entities will be applied, as well as refunds in certain scenarios to these organisations.

    What your business needs to do

    As VAT will be charged throughout the supply chain, businesses are ultimately responsible for invoicing / collecting VAT and remitting it to the UAE government as required.

    Those businesses likely to be affected by VAT will have approximately 18 months once the legislation is enforced to ensure any requirements are met to fulfil their tax obligations.

    It is anticipated that the process will be as follows:

    1. Understand VAT registration obligations (take independent advice as necessary);
    2. Apply for a VAT registration number (Davidson & Co can assist with this);
    3. Ensure relevant financial records are maintained in the appropriate manner and in accordance with the regulations;
    4. Charge VAT at the applicable rate (currently estimated at 5%) on the taxable goods / services;
    5. Revise Terms of Business with customers to ensure VAT ultimately becomes the cost of customers and not suppliers (Davidson & Co can assist with this);
    6. Implement necessary changes to core operations and obtain relevant training, such as:
      • Financial management and book-keeping;
      • Technology (implement manual or automatic systems as part of the accounting process);
      • Human resource mix (e.g. accountants and tax-advisors);
    7. Reclaim business-related VAT paid to suppliers;
    8. Report amount of VAT charged and amount that will be paid to the government through an online submission.

    How can Davidson & Co help?

    From a legal perspective, non-compliance with tax laws will have legal ramifications and may in the near future attract severe penalties which are punishable in the UAE.  It is therefore essential to update your company’s policies to apply VAT correctly and avoid additional costs and/or legal liabilities in non-compliance.

    At Davidson & Co we have the right team to help simplify the UAE’s growing legal and tax complexities in order to find practical solutions to cater to your business needs.  As commercial specialists, we work closely with customs and government entities to advise clients on all aspects of the new taxation regime in the UAE.

    Davidson & Co will continue to update this article as new information comes to light.

    About Davidson & Co

    Davidson & Co is a boutique law firm established in Dubai in 2008, with lawyers and legal consultants drawn from across the globe.  Providing a unique combination of corporate / commercial expertise; dispute resolution solutions; as well as private client advice, we are able to cater to the mass market and offer unparalleled legal services in the region.

    For more information about our capabilities and accolades, please visit http://www.davidsoncolaw.com/about.html or contact 04 343 8897 and ask to speak to one of our associates.

    [1] http://www.mof.gov.ae/En/Budget/Pages/VATQuestions.aspx).

  • Employment

    Altering the UAE Labour Market at the Cost of Employers


    The three new Ministerial Decrees (“Decrees”) introduced by the Ministry of Labour (“MOL”), applicable from 1 January 2016, aim to alter the standard market practice in the UAE by providing further protection and flexibility for employees in the labour market. Even though Federal Law No.8 of 1980 (“UAE Labour Law”) prevails in an event of conflict, the Decrees remain important instruments in building upon the UAE Labour Law and reinforcing existing practices and relationships between employees and employers.

    1. The Offer Letter (Ministerial Decree No. (764) of 2015)

    This Decree makes it mandatory for an employment offer letter (“Offer Letter”) and relevant Annex to be signed and filed with the MOL before expatriates are provided with the relevant UAE work permit and residence visa. This ensures that employers uphold the terms set out in the Offer Letter and that subsequent MOL employment contracts issued reflect the terms of the Offer Letter. Such a requirement restricts employers from amending the initial “goalposts” as set out in the Offer Letter.

    Employers should undertake an extra level of guidance in carefully reviewing the content of the Offer Letter and ensure a readiness to be bound by the terms of the initial offer.

    1. Termination (Ministerial Decree No. (765) of 2015)

    This Decree outlines the rules that should be followed in an event of employment termination in relation to both limited/fixed-term contracts and unlimited term contracts. Decree No. 765 introduces a move away from existing legislation in relation to notice periods, which is silent on the maximum length of notice periods, by limiting the maximum notice period to three (3) months.  The minimum notice period of 30 days as per the Labour Law remains unchanged.

    The three (3) month maximum notice cap may be undesirous to businesses, especially with regards to senior staff members.  Companies may take comfort in relying on other laws, such as non-competition, non-solicitation and confidentiality rules, to protect their trade secrets and sensitive business information.

    Businesses can overcome any increased risk associated with a maximum notice period of 3 months by utilising other protection mechanisms such as contract enhancements and reliance upon other elements of the UAE Labour Law, the UAE Civil Code (Federal Law No. (5)1985 and the UAE Penal Code (Federal Law No. (3) of 1987).

    1. Labour ban (Ministerial Decree No. (766) of 2015)

    Prior to the introduction of Decree 765, employees could be subject to a six (6) month employment ban when they wanted to switch employers if certain conditions were not met. However, this Decree relaxes the labour ban restrictions in respect of skilled workers (i.e. skill level 1 to 3, this includes individuals who completed high school and beyond with some degree of technical and practical skills).  Essentially, if an employee of this skill level has met his contractual and legal obligations he should be granted a new work permit, subject to normal immigration procedures, without any minimum service requirement.  However, the unskilled worker (i.e. level skill 4 and 5) in all cases will require a six (6) month minimum service to avoid implementation of the labour ban.

    Implementation of the labour ban will take place at ministry level and clarification could be sought on how this affects you from the MOL directly.

    Employers might feel disadvantaged by this Decree as the labour ban operated as a safeguard which barred their employees from moving to competitors and potentially disadvantaging the employer’s business. However, employers should embrace this change and the availability of more flexible labour in the UAE market.

    What does this mean for the future of employment law in the UAE?

    These Decrees aim to bring flexibility and transparency to the labour market. However, dissemination of information throughout the labour market will be key to the uptake and implementation of these Decrees.

    How can we help?

    Davidson and Co. employment team keep themselves abreast of legal developments and are well placed to offer practical advice on real world implications of these Decrees and changes.

    Our employment team are able to support and advise both individuals and companies in relation to any employment queries.

    Please note that the Decrees remain open to interpretation and that Davidson and Co. will continue to amend this article as new information comes to light.

    Note: The rules of other free zones including the Dubai International Financial Centre may differ. 

    About Davidson & Co

    Davidson & Co is a boutique law firm established in Dubai in 2008, with lawyers and legal consultants drawn from across the globe.  Providing a unique combination of corporate / commercial expertise; dispute resolution solutions; as well as private client advice, we are able to cater to the mass market and offer unparalleled legal services in the region.

    For more information about our capabilities and accolades, please visit http://www.davidsoncolaw.com/about.html or contact 04 343 8897 and ask to speak to one of our associates.

  • Corporate Law

    Corporate law in Dubai


    The rising profile of Dubai as a place in which to do business depends heavily upon appropriate legal, finance and corporate foundations being in place. Many businesses naturally seek out locations where such robust foundations exist, offering security and ensuring that levels of risk are reduced as a result.

    Dubai is part of the United Arab Emirates (UAE), being subject to the federal laws of the UAE. However, Dubai has the right to control its internal affairs and has considerable flexibility in many areas. Federal codes of law have been expanded in the last 30 years or so and cover a range of topics, including commercial law, immigration, banking and employment. The laws that have been enacted locally within Dubai tend to focus more on administration.

    Dubai has its own independent courts, which are separate from the UAE Federal Judicial Authority. Each of the courts has 3 separate divisions:

    • A civil division
    • A criminal division
    • A Sharia division

    There are no juries within the court system, with all cases being heard by one or more judges. All of the courts conduct their business in Arabic, making it essential that lawyers speak the language, as well as hold licenses to represent you at court.

    The establishment of free zones, which have some laws and regulations that differ from non-free zones, has undoubtedly provided a boost to enterprise. There are very specific conditions for doing business, with 100% foreign ownership of companies being allowed in these areas, unlike in non-free zones. Businesses, in return for the advantages on offer, must demonstrate that they have put down firm roots within the free zones. This mechanism is intended to allow for long-term stability.

    The best known of the free zones is probably the Dubai International Financial Centre (DIFC), which provides a regional centre for investment. Founded in 2004, the DIFC has its own legislation and laws, boasting its own court system too.

    Also providing the base for a stock exchange, which has grown at a rapid rate and is known as NASDAQ Dubai.

    There is no federal income tax or corporate tax, although Dubai did originally have plans to introduce a local income tax. That tax has, however, never been implemented and analysts do not appear to have noted any suggestion that such an implementation is on the cards. Those operating in free zones are offered a range of concessions, while there is no VAT applied in Dubai.

    Dubai leads the way within the region in terms of implementing foundations for proper corporate governance and anti-money laundering legislations. Laws are strictly enforced in Dubai and Davidson & Co are pleased to advise clients on all aspects of corporate law.

  • Open Data

    Data protection in Dubai


    The issue of data protection is one that has been attracting increased awareness in recent years, partly due to the ease with which it is now possible to share data. In the Internet age, data can easily be passed from one organization to the next, but this does create some problems.

    A number of governments around the globe have sought to legislate in this area and Dubai Law Number 26 (known as the “Open Data Law”) has seen the Emirate follow suit, leading the way in the region.

    Having come into force in December 2015, the law potentially has a number of areas of consideration. It covers the dissemination of “Dubai data”, which essentially means data that is related to the Emirate and that is also available to data providers. In particular, this applies to any UAE body of federal government, together with government entities (including authorities that are overseeing free zones) and also to any other person who is specified by a competent authority.

    There are particular areas to consider here for those entities that are specified by a competent authority and that hold applicable data. In effect, there will be a necessity to make data more readily available. Government departments and ministries will be obliged to make certain datasets available. At the heart of the new law is a desire for greater transparency, reflecting steps taken elsewhere. It will be interesting to monitor the impact of the Open Data Law in practical terms, to see how noticeable the changes are.

    Information will, as envisaged, be made available in electronic form in many cases and there is an obligation for data providers to implement appropriate technical protocols to enable this to happen.

    Local government authorities are expected to prepare detailed data sharing plans, including fully approved timetables.

    Initially, the Dubai Open Data Committee will be given the responsibility for overseeing implementation, although it’s expected that a permanent authority will subsequently be established. The Committee was originally established back in 2014 and its membership is drawn from a number of government agencies.

    Open data elsewhere

    How is the issue of open data dealt with elsewhere in the world? The United States is seen by many as being at the forefront of a move towards data transparency, having introduced an Open Data Policy in 2013. This follows on from the Freedom of Information Act, which was enacted back in 1966.

    Other countries have subsequently followed suit, although the pace of change has been somewhat variable. The UK government, for example, introduced its own Freedom of Information Act in 2000, with the Open Government License subsequently being made available in 2010.