The UAE Corporate Income Tax has been introduced recently, and even though the law will be effective starting June 2023, it is crucial to get familiar with it and be ready for its implementation on time.

The new law will bring many changes and will significantly impact all companies. Many still need help understanding how CIT affects their businesses, and what steps to take to ensure compliance. We listed the top 10 things about CIT that everyone should know right now.

See our previous analysis here:

UAE Publishes Corporate Income Tax Law

After the announcement of the introduction of Corporate Income Tax (CIT) and the Frequently Asked Questions (FAQs) on 31 January 2022, and the release of the Public Consultation Document in April 2022, the Corporate Income Tax (CIT) Law has finally been published today (9 December 2022). The UAE CIT Law is Federal Decree-Law No. 47 of 2022 issued on 3 October 2022, and is effective 15 days after its publication in the Official Gazette. The UAE CIT Law was published on 10 October 2022 in issue #737 of the UAE Official Gazette. The CIT law is applicable on business profits effective for financial years starting on or after 1 June 2023.

The CIT regime has been implemented by the UAE in view of achieving the following objectives:

• Cementing the UAE’s position as a world-leading hub for business and investment;
• Meeting international standards for tax transparency and preventing harmful tax practices; and
• Accelerating the UAE’s development and transformation to achieve its strategic objectives.

We include hereafter the main features of the new regime, as announced by the Ministry of Finance (“MoF”) and the Federal Tax Authority (“FTA”). 

Aurifer will conduct a webinar on 14 December 2022 at 2 pm UAE time. Interested participants can register here.

The text of the UAE Corporate Tax Law (UAE CIT Law), can be found here, and the FAQ’s here.

Scope

CIT will apply on the adjusted worldwide accounting net profits of the business. The UAE CIT regime introduces two different rates:

• A 0% tax rate will apply for taxable profits up to an amount to be specified in a Cabinet Decision, although the FAQ’s refer to a threshold of AED 375,000.
• The standard statutory tax rate will be 9 per cent. Because of the low tax rate, the UAE will continue to be highly competitive at a global level.

There is currently no mention in Article 3 of the 15% global minimum tax rate applicable for MNEs that fall within the scope of ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project. Specifically, this would apply to MNEs that have consolidated global revenues in excess of EUR 750m (c. AED 3.15 billion), in any two of the previous four years. The FAQs still refer to the possibility of adoption in the UAE of these rules.

Individuals are subject to corporate tax insofar as they engage in business activity. The definition of business is inspired by the VAT definition, and is therefore broad. A Cabinet Decision will be published in regard to the application of CIT to natural persons.

There is a carve-out regime for businesses established within UAE free zones that (1) maintain adequate substance, and (2) earn qualifying income. What constitutes qualifying income, will be determined in a Cabinet Decision. Presumably, this is a reference to the requirement not to conduct business with mainland UAE, as previously outlined in the Public Consultation Document. It is confirmed as well that Free Zone businesses can voluntarily elect to be subject to Corporate Income Tax at the rate of 9 per cent.

There will be a 0% withholding tax on categories of State Sourced Income derived by a Non-Resident.  This means that foreign investors who do not carry on business in the UAE will in principle not be subject to tax in the UAE.

For foreign entities, they could be considered a resident in the UAE if they are managed and controlled in the UAE. For foreign entities not considered resident in the UAE, but who may have a Permanent Establishment in the UAE, the Permanent Establishment definitions encompass definitions of a fixed PE and an agency PE. We expect further details about the PEs in a Ministerial Decision. For the financial sector, the Investment Manager Exemption from the Public Consultation Document is retained in the UAE CIT Law. Specific rules apply for Partnerships, which could be transparent, and Family Foundations can also apply for tax transparency.

Government entities and government-controlled entities will be exempt from the UAE CIT Law, as will qualifying public benefit entities and qualifying investment funds. Extractive businesses (upstream oil & gas businesses) will also be exempt, to the extent they earn income from the extractive business. In principle, banking operations will be subject to CIT (unless the institution is in a Free Zone and qualifies for the 0% rate). 

Date of implementation 

Article 69 of the UAE CIT Law provides that the Law will apply to Tax Periods starting on or after 1 June 2023. 

Businesses with a financial year starting 1 January will be subject to CIT as from 1 January 2024.

Deductible expenses

Expenses incurred wholly and exclusively for business purposes, and which are not to be capitalized, are deductible immediately. Deductions are not allowed for expenditures incurred to obtain exempt income. When there is a mixed purpose, the deduction is only partially allowed. Interest expenses are deductible subject to a cap of 30% of the EBITDA. So-called financial assistance rules are in place, which prevents businesses from obtaining financing to pay out dividends or profit distributions. Entertainment expenses are capped at 50% deductibility.

Non-deductible expenses include donations made to a non Qualifying Public Benefit Entity, fines, bribes and dividends. Importantly as well, amounts withdrawn from the Business by a natural person who is a taxable person are not deductible.

Exempt income and relief

The following categories of income will be exempt from CIT (article 22 UAE CIT Law):

• Capital Gains, Dividends and other profit distributions from a Resident Person
• Capital Gains, Dividends and other profit distributions from a Qualifying shareholding in a foreign legal person, subject to a holding period of 12 months, minimum participation of 5%, at a minimum subject to 9% CIT in the country of source
• Income from a Foreign PE, subject to conditions and an election to apply the exemption (rather than a credit)
• Income derived by a non-resident Person derived from operating aircraft or ships in international transportation

The following transactions are subject to specific relief, i.e. effectively a deferral of taxes:

• Qualifying intragroup transactions and restructurings – entities will qualify if they have 75% common ownership
• Business restructuring relief – subject to certain conditions.

Transfer pricing 

Article 34 of the UAE CIT Law confirms the requirement for related party transactions to be conducted in accordance with the arm’s length principle. Furthermore, it outlines the five traditional OECD transfer pricing methods as being appropriate to support the arm’s length nature of related party arrangements, while allowing the use of other methods where required. 

Additionally, Article 34 outlines that in the event of an adjustment imposed by a foreign tax authority which impacts a UAE entity, an application must be made to the FTA for a corresponding adjustment to provide the UAE company with relief from double taxation. Any corresponding adjustments related to domestic transactions does not require such an application.

Article 55 covers transfer pricing documentation requirements. UAE businesses will need to comply with the transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing Guidelines. This means three tier reporting, i.e., master file, local file and country-by-country reporting. There is also a reference to a controlled transactions disclosure form, details of which remain outstanding. Additionally, it is noted that no materiality thresholds have been provided. Separate legislation will be issued later.

Advanced pricing arrangements will be available as well, through the regular clarification process already in place.

While not necessarily transfer pricing, the UAE has implemented provisions requiring payments and benefits made to connected persons to be at market value, for those amounts to be tax deductible. For the application of this principle, the same principles are applied as in article 34 of the UAE CIT Law, which refers to a transfer pricing methodology.

Administration and enforcement 

• The MoF seems to remain the competent authority for the purposes of multi-lateral / bilateral agreements and the international exchange of information.
• The FTA will be responsible for the administration, collection and enforcement of the new corporate income tax regime. Penalties and fines are determined by the Tax Procedures Law.
• Businesses will need to obtain a Tax Registration Number with the FTA.

Businesses that are subject to UAE CIT will be required to file a CIT return electronically for each financial period within 9 months of the end of the Financial Period. A financial period is generally any 12-month financial period year. Free Zone businesses subject to 0% CIT are also required to file a CIT return. 

Other considerations

• Foreign tax will be allowed to be credited against UAE corporate tax payable. The mechanism of the application is as in the Public Consultation Document. Businesses can claim the lower of the corporate tax due, or the amount of withholding tax effectively deducted. There will be no carry forward. There are no credits for taxes paid to the individual Emirate.
• Fiscal consolidation or Tax Group: UAE companies will be able to form a “fiscal unity” or Tax Group for UAE CIT purposes. The most important condition for a Tax Group to comply with is the (in)direct shareholding requirement of 95%. Free zone entities subject to 0% cannot enter into a Tax Group. In addition, the parent (which can be intermediate) needs to be a UAE company.
• Losses can be carried forward up to 75% of the Taxable Income (article 37 of the UAE CIT Law).
• Losses can be transferred between members of the same group of companies, provided the entities are 75% direct or indirectly commonly held. Losses cannot be transferred from exempt persons or free zone entities. The loss offset is also subject to the 75% cap, as for businesses rolling forward losses.
• Tax deductible losses can be lost when there is a change of control (50% or more) except if the new owner conducts the same or a similar business. The conditions for this have now been defined.
• Extensive UAE sourcing rules are applicable, which may be of great relevance for the Free zone businesses.
• The UAE implements a General Anti-Abuse rule, or “GAAR”, which is inspired by the Principal Purpose Test found in the MLI. The GAAR applies to situations where one of the main purposes of a Transaction is to obtain a Corporate Tax Advantage not consistent with the intention or purpose of the UAE CIT Law. The FTA will counteract or adjust the transaction. The GAAR applies for transactions or arrangements entered into on or after the date the UAE CIT Law is published in the Official Gazette. The UAE CIT Law was published in the UAE Official Gazette of 10 October 2022 in issue #737.

Our initial thoughts

The introduction of CIT is a direct result of OECD’s ‘Pillar Two’ which is part of the Base Erosion and Profit Shifting (“BEPS”) project.

With a headline rate of 9% on taxable income and small business relief, the UAE is striking the right balance.

Interestingly as well is that with the implementation of CIT, the UAE also introduced mandatory transfer pricing regulations.

The rules are very much in line with the Public Consultation Document published earlier this year. Much of the detail is deferred to Cabinet and Tax Authority Decisions, and there’s surely a great deal of guidance to be expected. 

Aurifer will conduct a webinar on 14 December 2022 at 2 pm UAE time. Interested participants can register here. In the meantime, feel free to reach out to your regular Aurifer contact for more detail. 

We are still awaiting the release of the Corporate Income Tax Law (CIT Law) in the United Arab Emirates (UAE). Meanwhile, there have been a slew of updates and amendments in the months of October and November 2022 in the UAE on the fronts of Income Tax, Value Added Tax (VAT) and Excise Tax. We try and cover the main amendments below.

1. UAE’s new criteria for tax residency:

The UAE issued Cabinet Decision No. 85 of 2022 dated 2 September 2022 (Decision), laying down the criteria for being considered as a tax resident for legal and natural persons. This is the first time that the UAE has formalized tax residency criteria at the Federal level.

The Decision is applicable from 1 March 2023. A legal person is considered a tax resident in the State if any of the following are met:

• It has been established, formed, or recognized in accordance with the laws and regulations enforced in the UAE, and which does not include branch of a foreign legal entity;
• It is considered a tax resident under the applicable tax law in the UAE.

It is interesting to note that though this provision does not explicitly refer to the situation where a legal person is ‘effectively managed’ for tax residency purposes, as provided in the Public Consultation Document (PCD) in Paragraph 4.4.

Further, an individual is considered a tax resident in the UAE, if any one of the following are met:

• His primary place of residence and the center of his economic and personal relations are in the UAE or meets certain criteria and conditions that are determined by the Minister of Finance (MoF),
• He has been physically present in the UAE for a period of 183 days or more, during a period of 12 consecutive months,
• He:
  • has been physically present in the UAE for a period of 90 days or more, during a period of 12 consecutive months, and,
  • holds,
    • either the nationality of the UAE,
    • (or) a valid residence permit in the UAE,
    • (or) the nationality of any other Gulf Cooperation Council (GCC) country, and
  • either has a permanent place of residence in the UAE, or a job or business in the UAE.

Given the supremacy of International Law, if any Double Tax Treaty (DTT) specifies any conditions for determining a person’s tax residency, the provisions of that DTT shall apply.

2. Amendments to UAE Excise Tax Law

The FTA also published amendments to the Federal Decree-Law No. 17 of 2017 (Decree-Law) on Excise Tax, effective from 14 October 2022. A summary of the amendments is as follows:

• An exception is now foreseen from the requirement to register for Excise Tax for the following activities, if not regularly conducted by a Person:
  • Import of Excise Goods,
  • Release of Excise Goods from a Designated Zone.
• To avail the above exception, the Person is required to inform the FTA of any changes that would subject such person to the registration requirements. 
• Any Person importing goods for other purposes than conducting business, is also not required to register for excise tax purposes.
• The benefit of not having to register is without prejudice to the following:
  • The obligation of payment of Due Tax on such import. Persons availing the benefit therefore still to settle the Due Tax when importing the Excise Goods. 
  • The obligation to settle any Due Tax or Administrative Penalty in accordance with the Decree-Law or any other law. 
• Any amount received by such Person purporting as Excise Tax, or any invoice issued in relation to Excise Tax, is deemed to be Excise Tax due to the FTA and needs to be settled accordingly. This provision is mainly targeted towards taxpayers unduly “charging” excise tax, and therefore profiteering. The practice of mentioning excise tax on an invoice happened sometimes, even though excise tax is not actually chargeable to the customer.
• Generally, the FTA cannot conduct a Tax Audit or issue a Tax Assessment after the expiry of 5 years from the end of the relevant Tax Period. However, there are now important exceptions to this provision, as below:
  • If the Person is notified of the commencement of the Tax Audit or Tax assessment before the expiry of the 5-year period, provided that the Tax Audit is completed or the Tax Assessment is issued within 4 years from the date of notification of the Tax Audit. 
  • If the Tax Audit or Tax Assessment relates to a Voluntary Disclosure (VD) submitted in the 5th year from the end of the tax period, provided that the Tax Audit is completed or the Tax Assessment is issued within 1 year from submission of the VD). 
  • In cases of Tax Evasion, where the Tax Audit may be conducted or the Tax Assessment may be issued within 15 years from when the Tax Evasion occurred.
  • In cases of failure to register, where the Tax Audit may be conducted or the Tax Assessment may be issued within 15 years from the date on which the Person should have registered.

Where any of the reasons stipulated in the Civil Transactions Law (Federal Law No. 5 of 1985) (Civil Transactions Law), or any other law replacing the Civil Transactions Law occur, the abovementioned Statute of Limitation is to be interrupted (i.e., kept in abeyance).

3. Amendments to UAE VAT Law

 The FTA also published amendments to the Federal Decree-Law No. 18 of 2022 (VAT Law Amendments) where certain Provisions of Federal Decree-Law No. (8) of 2017 on Value Added Tax (VAT Law) were amended. The VAT Law Amendments are effective as from 1 January 2023.

A summary of some of the important VAT Law Amendments is as follows:

• In Article 26(1), which provides for the determination of date of supply in special cases, ‘the date on which one yearhas passed from the date on which goods or services are provided’ has been added as one of the events to determine the date of supply. This means that, apart from the other factors that determine the date of supply, if one year has passed from the date on which the goods or services are provided, Article 26(1) triggers.

According to the Public Clarification issued by the FTA (VATP030), this means that the place of supply of goods supplied under any contract that includes periodic payments or consecutive invoices, shall be the UAE at any time under the execution of the contract.

• In Article 30(8), which determines the place of supply of services for transportation services, the amendment now includes ‘transportation related services’ within its ambit. This means that the place of supply for ‘transportation related services’ shall also be where the transportation starts.
• Article 33 was amended and made the words Principal and Agent trade places. According to the Public Clarification issued by the FTA (VATP030), this means that where the activities in the UAE of the agent have as a result that the principal has a place of residence, the principal will be regarded like a regular resident taxpayer, and therefore be subject to the normal Mandatory Registration Thresholds.

The residency criteria for foreign principals is inspired by the legislation covering direct taxes on PEs but includes the holding of stock, which is normally an exclusion under the PE definition in article 5 of the OECD Model Tax Convention. The inclusion of these provisions is not common for VAT purposes.

• In Article 36, which contains rules for valuation of supplies for related party transactions, the provision now overrides Article 37 (which determines the valuation of deemed supplies). This means that the value of deemed supplies between related parties shall also be the market value, if the following conditions are met:
• The value of such deemed supplies between related parties is less than the market value,
• The deemed supply is a taxable supply, and the recipient of goods or services does not have the right to recover the full tax that would have been charged to such supply as Input Tax.

The term “market value” is not an explicit reference to transfer pricing legislation.

Prior to this amendment, the valuation of deemed supplies, based on the total cost incurred by the Taxable Personto make such deemed supplies, was not overridden by Article 36, and hence there was no explicit bar from being applicable to related party transactions.

• Intended to be of clarificatory nature, in article 45 additional situations are added where the zero rate applies on imports of certain goods.
• Under Article 48, dealing with the reverse charge mechanism, Paragraph 3 now includes the term ‘pure hydrocarbons’, rather than ‘hydrocarbons’. The term ‘pure hydrocarbons’ has been defined in Article 1 to mean, ‘Any kind of different pure combination of a chemical equation made only of hydrogen and carbon (CxHy).’ This would. for example, exclude hydrocarbons with bonded compounds or impurities of sulphur or nitrogen, such as lubricants and bitumen.
• Under Article 55, which deals with the recovery of Input Tax, conditions for documentary evidence for claiming input tax on imports have been provided as follows: (i) where goods are imported, the invoices and import documents must be made available, (ii) where services are imported, the invoices pursuant to such import must be made available.
• Under Article 61, which deals with instances and conditions for output tax adjustments, the amendment now provides that the output tax shall be adjusted after the date of supply, even where the tax treatment was applied incorrectly. This is an important amendment, as this situation was not clear before and is helpful for businesses wanting to correct errors.
• Under Article 62(2), which deals with the mechanism for output tax adjustment, the amendment provides that a credit note must be issued within 14 days from the date on which any of the provisions of Art. 61(1) occurrs.
• Under Article 65(4), which provides that where a taxable person issues a tax invoice displaying VAT on the invoice or receiving any amount as VAT, such person will have to pay VAT to the Federal Tax Authority (FTA) on such amount.This provision is usually intended to be an anti-fraud provision and contains the legal basis for the FTA to claim VAT from taxable persons who incorrectly claimed it from customers.
• Under Article 67, normally an invoice must be issued within 14 days from the date of supply. A clause has been added to provide that the Executive Regulation shall determine cases where the tax invoice must be provided in a different period.
• Under Article 74, the amendment provides a clarification providing that if no application for recovery of the excess tax is made after the setoff is effected, the excess recoverable tax shall be carried forward to the subsequent tax months.This amendment is a mere formalization of the practice already in place.
• A new article has been inserted in Article 79 bis on the statute of limitations. This provision is similar to the recent amendments made to the Excise Tax law on the statute of limitation, covered above.

4. Amendments to VAT Executive Regulations

The FTA also published amendments to the Executive Regulations to the Value Added Tax VAT Law (VAT Executive Regulations Amendments), by way of Cabinet Decision No. 99 of 2022. The VAT Executive Regulations Amendments are effective as from 1 January 2023.

The major changes in the VAT Executive Regulations Amendments are:

• In Article 3, a new provision is added, which states that functions performed by a natural person who is a member of a board of directors in any government entity or private sector entity, shall not be considered a supply of services. This means that no VAT is due on the income received by the natural person in his capacity as a board member. This not the case when the income is received by a legal person.
• In Article 72, a provision has been added which states that where the value of taxable supplies made by a taxable person through electronic commerce exceeds AED 100,000,000 (the equivalent of approximately 27,2 M USD) during the calendar year, such taxable person must keep records of the transaction, to prove the Emirate in which the supply is received. The timeframe for such record keeping is as follows:
• (From the first tax period that begins on or after 1 July 2023) – 18 months, where the Threshold is met, for the calendar year ending 31 December 2022.
• (From the first Tax period of the calendar year that begins after the date of which the Threshold is met) – 2 years commencing from the tax period.

The record keeping provisions will likely go hand in hand with amended Emirate reporting requirements.

5. Key takeaways, trends and final thoughts

By and large, the changes and the amendments have been issued in light of the Government’s intention to further improve the ease of doing business in the UAE and further the UAE’s reputation of an ideal jurisdiction for Multinational Enterprises (MNEs).

With the formalization of the tax residency criteria, the building blocks of the upcoming, and perhaps imminent, CIT regime have been laid down.

Certainly, one of the most significant amendments has been to the extension of the Statute of Limitation right before some of the claims become time barred. There is also a strong emphasis on measures to counter tax evasion.

Together with the relaxation of the penalties regime last year, and a more rewarding Voluntary Disclosure regime, the face of taxes has evolved since 2017. The new rules will be tested at the event of the five year anniversary of VAT and the implementation of Corporate Income Tax.  

International sports bodies typically insist on obtaining widespread tax exemptions as a precondition to awarding the hosting rights to a bidder. This also applies for events organized by the Fédération Internationale de Football Association (FIFA). FIFA’s biggest event, the Football World Cup, will kick off later this month in Qatar.

Obtaining tax exemptions is such a sensitive topic for sports organizations that there have even been instances where the events have entirely moved to another country because a country was unable to grant the exemption. For example, the T20 Cricket World Cup was moved from India to the United Arab Emirates (UAE) and Oman last year because the Indian Government did not offer the exemptions in time.

In Qatar, even though Qatar has Free Zones, only the Qatar Financial Centre (QFC) issues its own tax framework. It applies next to the general tax framework applicable in the rest of the State of Qatar. We will be looking at these frameworks in this article.

Claiming Tax Exemptions (Substantive Aspects)

For mainland Qatar, Ministerial Decision No. 9 of 2022 (Ministerial Decision) issued earlier this year on 25 August 2022 = provides details on the exemptions available to different parties, based on Government Guarantee No. (3) dated 22 February 2010 (Government Guarantee) issued by the State of Qatar to FIFA.

The most comprehensive exemption benefits are provided to FIFA itself and its affiliates (whether residents or non-residents). They are totally exempt from any taxes.

Contractors are granted a limited exemption to the extent of all taxes on import, export or transfer of goods, services and rights related to the activities of the World Cup, if the goods are imported for their use by:

• The Contractors themselves in Qatar,
• The Contractors, with the possibility of re-exporting the goods,
• The Contractors, with the possibility to donate to sports entities, charitable foundations etc.

Individuals employed or appointed by the following, are also exempt from individual taxes on payments, fringe benefits or amounts paid or received in relation to the World Cup, until 31 December 2023:

• FIFA,
• FIFA’s affiliates,
• Continental or National Football Associations,
• Event broadcasters,
• Suppliers of goods,
• Works contractors and
• Service providers.

This exemption also covers Personal Income Taxes for those individuals who enter and exit Qatar between 60 days before the first match (21 September 2022) until 60 days after the final match (16 February 2023), as long as they do not permanently reside in Qatar. This exemption may be void of much effect, given the absence of Personal Income Tax in Qatar.

An Exemption from Excise tax is to be obtained by way of refund, by providing documents like purchase invoices and bank details.

 Claiming The Exemptions – Logistical Aspects

For exemptions granted by the General Tax Authority (GTA), there is no requirement to register with the GTA. Instead, FIFA (through the Supreme Committee for Delivery and Legacy (Supreme Committee)) prepared a list of exempted entities and individual, containing data such as the nature of contracted works, term and value of the contract, and the residency of the contracting party.

The Supreme Committee then provides the GTA the relevant documentation (Articles of Associations of companies, addresses of individuals etc.) in regard to the organisation or individuals for whom the Tax Exemption is applied.

For claiming customs duty exemptions with the General Authority of Customs (GAC), (and unlike the procedure with the GTA), the claimants need to register with the GAC.

Here too, FIFA approves the list for the Supreme Committee to provide to the GAC to entitle those entities to exemptions from customs duties and fees.  Based on this list, the GAC provides the listed entities amongst others with facilities in regard to electronic customs clearance.

In this regard, the GAC also earlier this year launched a ‘Sports Events Management System’ to facilitate customs procedures during sporting events, including the World Cup. This system provides electronic services for the clearance of goods, including easy registrations, accelerated customs procedures, and the inclusion of a special unit to facilitate approvals for incoming shipments. 

There may be some interesting questions on the applicability of the Ministerial Decision, including:

• To what extent are the activities ‘directly or indirectly’ related to the activities of the World Cup? For example, does it include online betting platforms involved in placing bets on the matches? Would it include businesses that are involved in ancillary aspects to the World Cup such as general tourism consequent to the World Cup?
• Would match fee or advertisement / sponsorship / award income earned by the footballers in relation to the World Cup also be covered under the Ministerial Decision?
• Where an event broadcaster obtains substantial advertisement income from brand sponsors during the broadcast of the match or match related activities, is such income also exempt from taxes?

QFC – Tax Exemption Regime for the World Cup 

The QFC in its Concessionary Statement of Practice (Statement) explicitly provides that a QFC entity which is a:

• FIFA subsidiary – is exempt from Corporation tax and any other charge, levy, penalty or interest related thereto;
• FIFA Host Broadcaster or a Local Organizing Committee (LoC) Entity – is exempt from Tax ‘in relation to taxable profits that are derived from activities carried on for the purposes of the World Cup’.

The major conditions for such QFC entities to claim the exemption are as follows:

• Such QFC entities have genuine economic substance in Qatar,
• The QFC entity operates in terms of the license and upon authorization of the Qatar Financial Centre Regulatory Authority (QFCRA),
• An Advanced Ruling has been applied for by the QFC entity and granted by the QFC, confirming the exempt status of such QFC entity,
• The QFC entity is included in the list provided by FIFA to the QFC Tax Department,
• The sole or main purpose of such QFC entity is not avoidance of tax,
• The QFC Tax Department is satisfied that granting the exemption is not in breach of international tax principles set out in the BEPS Project minimum standards.

The potential activities that can be developed in the QFC are limited, and therefore not all types of businesses can set up in the QFC.

No VAT – No VAT Exemption

Even though Qatar is a part of the GCC VAT Agreement and committed to implement VAT in the same vein as its neighboring countries of the UAE, Kingdom of Saudi Arabia (KSA), Bahrain and Oman have done, it has not yet enacted any legislation.

Therefore, there is currently no need for a VAT exemption for the World Cup. Who knows, VAT may be introduced shortly after the organization of the World Cup?

Exemptions Worth the Trouble?

Granting tax exemptions for international sporting events are sometimes controversial. The public in some hosting countries do not always believe they receive a return on investments from the event. While Qatar has spent substantial amounts of money on the construction of infrastructure, the effect of the tax exemptions is rather limited, and at least for Qatar, it seems to have been worth the investment. In any case, the exemptions are a precondition, without which a country cannot bid. After the UAE had hosted the FIFA Club World Cup a number of times, Saudi Arabia will now be looking at hosting the Asian Winter Games in 2029. Those countries have given similar tax concessions to the international organizations managing the events.

For future possible events in the UAE, it will also be interesting to see how the sporting organizations and the tax authorities will deal with the Corporate Income Tax (CIT) which is to be introduced in the UAE in June 2023. The relationship may be anything between an unbridled and full-fledged exemption (if the UAE is willing to do so), or it may lead to rather interesting tax claims (like the Formula 1 case on Permanent Establishment (PE) in India a few years ago, which was decided by the courts in the tax authority’s favor). Time alone can tell.