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Tax News

UAE Ministry of Finance Revamps Corporate Tax Regulations for Free Zones

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Dubai: The UAE Ministry of Finance has introduced significant changes with the issuance of Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 265 of 2023. These decisions specifically impact qualifying income and activities within free zones. Younis Haji Al Khoori, Undersecretary of the Ministry of Finance, emphasized the vital role of free zones in the UAE’s economic growth and their significance in attracting foreign direct investment. The decisions underscore the UAE’s commitment to aligning with international taxation standards and enhancing the competitiveness of its Corporate Tax regime. Cabinet Decision No. 100 broadens the definition of Qualifying Income to encompass income derived from the ownership or exploitation of Qualifying Intellectual Property. This aligns with the OECD’s modified nexus approach, detailed in Ministerial Decision No. 265 of 2023. Ministerial Decision No. 265 designates the trading of Qualifying Commodities as a Qualifying Activity, qualifying for a 0% corporate tax rate for income generated from the physical trading of various commodities on recognized stock exchanges. It also includes derivative trading income utilized for risk hedging in such trading activities. Moreover, the Ministerial Decision provides clarity on the scope of Qualifying and Excluded Activities, offering transparency to businesses operating within free zones. The decisions aim to maintain a competitive Corporate Tax regime, reinforcing the UAE’s position as a global hub for business and investment, and align with its sustainable development agenda.

Tax News

Can Non-Residents Engaged in UAE Business Activities Be Subject to Corporate Tax?

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In March, we emphasized the need to distinguish between UAE’s tax residency regulations and being deemed a ‘resident person’ for corporate tax purposes. Contrary to the misconception that an individual is exempt from UAE corporate tax without a primary or permanent residence in the UAE or staying less than 90 days, the Federal Tax Authority clarified that physical residence, whether by citizenship or residency visa, is not the criterion for determining corporate tax residency or taxability. Individuals engaging in a ‘business’ or ‘business activity’ in the UAE are considered ‘resident persons’ and subject to taxation, provided their turnover exceeds Dh1 million annually. The accuracy of immigration status, visas, work permits, and business licenses does not affect tax implications. The scope extends beyond ‘business’ to include ‘business activity,’ potentially triggering corporate tax liability. ‘Business’ encompasses any regular, independent activity, such as industrial, commercial, or vocational activities, while ‘business activity’ considers short-term activities conducted in the UAE. Determining factors include the location of individuals contributing to services or assets supporting service rendering in the UAE. For instance, a person regularly providing architectural services in the UAE is considered a ‘resident person’ subject to the Dh1 million threshold. Overseas individuals, including performers, sportspersons, and celebrities, need to assess whether their activities constitute a ‘business activity’ in the UAE, potentially obligating them to corporate tax compliance. Tax treaties with other countries may influence tax obligations. Where overseas individuals are not engaged in a ‘business activity,’ their UAE-sourced income might be subject to withholding tax. The current withholding tax rate is 0%. The guide clarifies that certain activities, like raffle winnings or game show prizes, are not typically considered ‘business’ or ‘business activity.’ However, sports personalities earning income in other countries often encounter similar tax considerations on winnings. Resident individuals engaged in independent business activities, such as doctors, artists, or social media influencers, should assess tax implications. Golden Visa holders earning income other than wages or investment income need special attention. Individuals and professionals should be aware of their tax obligations, seeking timely consultations for a smooth transition into the tax era with confidence.

Retail

Yusuffali Attends First Event Since Chopper Crash, Inaugurates New Outlet

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Businessman Yusuffali M.A. marked his return to public events after a helicopter crash as LuLu Group inaugurated a hypermarket in Ajman. Fully recovered from spine surgery following the April accident, Yusuffali emphasized LuLu Group’s dedication to the UAE’s progress, stating that the opening of the 212th hypermarket, the third in Ajman, demonstrated their commitment despite pandemic challenges. Sheikh Mohammed bin Abdullah Al Nuaimi, Chairman of Ajman Ports and Customs, praised Yusuffali and LuLu Group’s resilience, foreseeing their contribution to the UAE’s recovery and growth. The 70,000-square feet facility in Nuaimia, a full-fledged supermarket and department store, reflects LuLu Group’s ongoing investment in the UAE’s future amid post-pandemic rebuilding efforts. Yusuffali affirmed the group’s commitment to supporting the UAE’s vision and being an integral part of its progress.

Retail

Consumer Confidence in the UAE on the Rise Amidst Sustained Economic Recovery

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In the second quarter of 2021, the UAE retail sector witnessed a 4% surge in consumer spending compared to the first quarter, according to Majid Al Futtaim’s State of the UAE Retail Economy Report. This growth surpasses the corresponding quarterly increase of 3% in 2019. The report indicates the continuation of retail recovery from the first quarter of 2021, with consumers displaying cautious optimism about the future. The prevailing sentiment in the UAE retail market during Q2 2021 is characterized by cautious optimism, bolstered by steady economic recovery. The success of the UAE’s response measures and vaccination program is expected to further enhance positive sentiment and resilience. The data underscores the permanence of e-commerce, with a 17% overall increase in e-commerce sales in H1 2021 compared to H1 2020. Despite a 3% dip in consumer spending in H1 2021 compared to H1 2019, sectors most affected by lockdowns, such as leisure, entertainment, fashion, and hyper/supermarkets, experienced the bulk of the decline. Leisure and entertainment spending, for instance, saw a 51% decrease in H1 2021. Alain Bejjani, CEO of Majid Al Futtaim – Holding, noted positive trends in the UAE retail economy over the past six months, with significant progress in some sectors returning to pre-pandemic levels. Cautious optimism is attributed to robust vaccination measures by the UAE Government. Excluding the worst-hit sectors, there was a modest 0.3% increase in retail general categories between H1 2019 and H1 2021, signaling a potential return to pre-COVID-19 levels by the end of the year. Tourism trends are evolving, with fewer tourists but longer stays and increased spending. The average length of stay in the UAE rose from 3.5 nights in 2019 to 5 nights in 2021. Remote working has influenced growth in sectors like home furnishings, with an 18% increase, and books and stationery, with a 46% rise in H1 2021 compared to H1 2019. While fashion sales declined by 4.0% during the same period, other retail general categories, including food and beverage, electronics, home furnishings, and hotels, recorded a modest yet significant 0.3% increase between H1 2019 and H1 2021. The UAE retail economy, as depicted by POS data and mall footfall across multiple sources, indicates that consumer spending is approaching 2019 levels, with growth observed in May 2021. Looking forward, accelerated consumer expectations for omni-channel experiences, increased integration of digital and technology solutions, and anticipated recovery in tourism-related sectors, especially with the opening of Expo 2020, contribute to the optimism. The report highlights green shoots of sustainable growth, and Majid Al Futtaim expresses confidence in the UAE retail economy’s trajectory toward a complete recovery. In sectors like residential property, pent-up demand, exemplified by a 215% increase in residential property transactions in Dubai between May 2020 and May 2021, demonstrates the rebound after the relaxation of restrictions. Shoppers are showing increased comfort in public spaces, with 64% feeling at ease visiting shopping malls. Majid Al Futtaim’s malls witnessed an 11% increase in total footfall in Q2 2021 compared to Q1 2021. Non-mall retail destinations experienced a 3.0% increase in consumer spending in the second quarter of 2021 compared to the equivalent period pre-pandemic (Q2 2019). Food and beverage sales surged by 41%, and home furnishings recorded a 28% increase.

Retail

Lamborghini Achieves Milestone with Over 10,000 Vehicle Sales in 2023, CEO Announces

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Italian luxury sports carmaker Lamborghini achieved a historic milestone by selling over 10,000 vehicles in the past year, marking the first time in its history, according to Chairman and CEO Stephan Winkelmann. The success is attributed to the popularity of the Urus SUV, priced at over 230,000 euros ($250,000). Lamborghini, a subsidiary of Germany’s Volkswagen, witnessed an increase in deliveries from over 9,200 vehicles in 2022 to 10,112 sports cars and SUVs in 2023. The Urus played a significant role in the brand’s expanded output, driven by robust demand from affluent car enthusiasts. The company plans to introduce hybrid models in its lineup, with the Urus and a new car replacing the Huracan expected to go all-hybrid in 2024. The highest increase in deliveries occurred in the Europe, Middle East, and Africa (EMEA) region, with a 14% rise to nearly 4,000 vehicles, followed by a 9% increase in the Americas to 3,465 and a 4% growth in the Asia Pacific region to 2,660. Rival Ferrari, set to release 2023 data later this year, delivered more than 13,200 cars in 2022.

Property

Dubai Investments announces its inaugural international venture with a project in Angola.

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Dubai Investments has officially confirmed its first international project, set to take place in Angola, Africa. The venture, covering 2,000 hectares, is designed to mirror the success of Dubai Investments Park in Dubai. Encompassing residential, commercial, and industrial real estate, the project will integrate seamlessly across a 3-kilometer coastline and a 2-kilometer beachfront. Dubai Investments, trading at Dh2.36 on the Dubai Financial Market, will develop the infrastructure and lease land for the project, which includes plans for an 18-hole golf course and diverse housing options. The strategic location in Dande Municipality positions it 50 kilometers from Luanda, the capital, and 33 kilometers west of Caxito, the provincial capital. The project underscores Dubai Investments’ commitment to leveraging its expertise in constructing successful mixed-use developments globally, marking a strategic expansion into the African market.

Markets

In Dubai, the sales of homes priced at $10 million and above experienced a significant increase, nearing 100% throughout the year 2023.

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In Dubai, the luxury real estate market experienced a surge in sales of homes priced at $10 million and above, witnessing an impressive increase of over 92% in 2023, totaling 431 transactions. The year marked several record-breaking achievements in this high-end property segment, and the trend is expected to continue into 2024. Faisal Durrani, Partner and Head of Research for MENA at Knight Frank, emphasized Dubai’s position as the world’s most active $10 million-plus homes market. During the final quarter of 2023, the value of homes sold in this category increased by 28% year-on-year, highlighting the robust demand for the city’s most luxurious residences. Interestingly, city-wide listings above $10 million decreased by 8.9% in the same period, underscoring the scarcity of such properties. In the first nine months of 2023, Dubai outperformed its closest competitor, New York, by selling more than twice as many homes priced over $10 million. Dubai recorded 323 deals compared to New York’s 159. Developers responded to this demand surge by launching projects, including high-rises and communities, to cater to discerning buyers willing to make substantial investments. The international ultra-high-net-worth demand not only impacted the $10 million-plus market but also supercharged the $25 million-plus property market. The number of homes trading at this ultra-luxury level doubled in 2023 to 56 deals, totaling $2.3 billion. Palm Jumeirah emerged as the preferred choice for buyers in the $10 million-plus segment, with Jumeira Bay Island securing the second spot. Despite Palm Jumeirah having 9.5% fewer homes for sale in 2023 compared to 2022, its central location in New Dubai and prestigious ‘Blue Flag’ status added to its appeal among elite buyers seeking immediate access to the vibrant lifestyle offered by Dubai.

Markets

“Indian Rupee Depreciates Against UAE Dirham, Ending Nine-Day Upward Trend”

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The Indian rupee, after a continuous nine-day ascent, experienced a setback by depreciating 11 paise to reach 82.97 against the US dollar (23.05 against the UAE dirham) in early trading on Tuesday. This shift was attributed to the strength of the US dollar against major global currencies and subdued sentiment in the equity markets. Despite some foreign fund inflows providing support, the Indian currency faced challenges from volatile crude oil prices. The rupee opened weaker at 82.95 and extended its decline to 82.97 against the US dollar in the initial trade, reflecting a loss of 11 paise from its previous close.

Markets

“UAE Gold Prices Witness Further Decline, Decreasing by Dh3 per Gram in the Last 24 Hours: Is it the Right Time to Buy?”

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“UAE Gold Prices Experience Decline, Dropping by One-and-a-Half Dirham: Global Rates Influence Precious Metal’s Value Gold prices in the UAE witnessed a decrease of one-and-a-half dirham on Wednesday morning, aligning with the global rate drop. The 24K variant of the precious metal opened at Dh245.25 per gram, compared to the previous night’s closing rate of Dh246.75 per gram. Similarly, 22K, 21K, and 18K variants were also trading lower at Dh227.0, Dh219.75, and Dh188.5 per gram, respectively. The 24K variant of gold has seen a decline of Dh3 per gram since Tuesday morning when it was trading at Dh248.25 per gram, attributed to the continued strengthening of the US dollar. Globally, spot gold dropped by 0.4 percent to $2,020.24 per ounce at 9:22 am UAE time, marking its most substantial single-day decline since December 4, 2023. Federal Reserve governor Christopher Waller emphasized on Tuesday that, while inflation was nearing the central bank’s 2 percent goal, the Fed should not hastily lower interest rates until sustained lower inflation becomes evident. Analysts, including Alex Kuptsikevich, senior market analyst at FxPro, attribute the decline in gold prices to the impact of a strengthening dollar following overly optimistic expectations for an interest rate easing cycle set by policymakers in Davos. Kuptsikevich noted that the technical pullback behind the dollar’s strength comes after markets exceeded expectations, anticipating rate cuts at every Fed meeting since March. He added that further dollar strengthening could significantly increase pressure on gold, diminishing its attractiveness against the backdrop of high yields on US bonds supported by the growth of the US currency.”

Infrastructure

“Dubai to Construct New 4-Lane Bridge, Capable of Accommodating 14,400 Vehicles per Hour in Both Directions”

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Dubai’s Roads and Transport Authority (RTA) has unveiled plans for a 1.4km four-lane bridge connecting Dubai Islands and Bur Dubai, marking a significant development in the Al Shindagha Corridor Improvement Project. This initiative aims to enhance connectivity and accessibility in the region. The bridge, spanning the Dubai Creek between the Infinity Bridge and the Port Rashid Development Project, will offer direct entry and exit points on the Bur Dubai side. According to the RTA, the bridge will measure 1,425 meters and feature four lanes in each direction, accommodating a total capacity of 16,000 vehicles per hour in both directions. Elevated 15.5 meters above the waters of Dubai Creek, the bridge will also incorporate a 75-meter-wide canal, facilitating the passage of various types of ships. The project includes provisions for dedicated lanes catering to cyclists and pedestrians, promoting sustainable modes of transportation. To enhance accessibility, two elevators will be installed at both ends of the bridge for the convenience of pedestrians and cyclists. Additionally, surface roads extending approximately 2,000 meters will be constructed to connect with existing roads on both ends of Dubai Islands and Bur Dubai. The formal agreement to construct this bridge, connecting Dubai Islands and Bur Dubai, was signed by Mattar Al Tayer, RTA Director General and Chairman of the Board of Executive Directors, and Mohammed Ibrahim Al Shaibani, Chairman of the Board of Directors of Nakheel, on Wednesday. Al Tayer emphasized that this project is a pivotal component of the Al Shindagha Corridor Improvement Project, one of the largest initiatives currently undertaken by the RTA with an estimated cost of Dh5.3 billion. He highlighted the strategic significance of the corridor, which will serve Deira and Bur Dubai, along with various development projects such as Dubai Islands, Dubai Seafront, Dubai Maritime City, and Port Rashid. The corridor is anticipated to benefit around one million people, significantly reducing travel time from 104 minutes to just 16 minutes by 2030. The time saved over 20 years is estimated to be worth approximately Dh45 billion. Al Shaibani emphasized that the Dubai Islands will become easily accessible by both land and sea through well-planned road bridges and water transport, further enhancing the connectivity and convenience of the region. The project is scheduled for completion in 2026, contributing to the ongoing development and infrastructure enhancements in Dubai.

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