G20 proposals may affect some offshore GCC firms

Proposals by the G20 countries to crack down on tax havens will affect some offshore companies in the GCC countries if they become law.

But offshore companies formed to illegally avoid paying tax or to hide earnings will face problems, say UAE experts.

Legally constituted free zone companies need not worry about the proposals as the UAE complies with the tax standards set by the Organisation for Economic Cooperation and Development (OECD).

And the experts said investors who set up offshore companies to buy freehold property in the UAE and avoid Shariah property laws need not worry about the G20 move. Only the Ras Al Khaimah and Jebel Ali free zones in the UAE allow offshore companies to be set up.

"The G20 discussions on controlling tax havens and offshore financial centres are only at the proposal stage and nothing has passed into law in these countries," Richard Bell of the Clyde and Company law firm told Emirates Business.

"Companies in the UAE, including free zone ones, will not be affected as their business is conducted legally. Even if these proposals become law and corresponding legislation is introduced here, free zone companies will not be affected. The UAE has a tax-free environment and only companies that send their earnings to tax havens will be affected."

KK Sharatchandra Bose, a partner and corporate and contract lawyer at Dar Al Adalah Legal Consultants and Advocates of Dubai, said: "The G20 countries are targeting major offshore centers such as the British Virgin Islands (BVI), Switzerland, Panama and Belize. The governments in these tax havens have been protecting offshore companies by not disclosing details to tax authorities abroad.

"Compared with them the offshore system in the UAE is quite new – it is only five years since the formation of offshore companies was allowed here. Many offshore companies have been formed here but even if the proposals become law they may not have a major impact here.

"A crackdown on tax havens will hit major havens more than new centres. There are many restrictions on the operation of offshore companies here."

Jitendra Gianchandani, a partner at Jitendra Business Consultants, a company that assists with the formation of offshore firms in the UAE and in tax havens, said the crackdown on established centres would result in an increased inflow of funds into the UAE from other countries.

"Existing offshore investors will not be affected as they are aware that the UAE has already substantially implemented the internationally agreed tax standards. Their current offshore investments are safe in the UAE and these funds will remain in the UAE.

"Investors' confidence level will be high as they will feel that the UAE is a reputable country and is recognised in the international market. The UAE is a 100 per cent tax-free economy, there is no tax on companies formed either in the free zones or offshore.

"Foreign investors have bought property in the region through offshore companies to avoid paying transaction fees and the local Shariah property rules. In the case of real estate owned by an offshore company it is easy to conduct property transactions as the owners simply have to transfer the shares in the company."

The G20 leaders came down hard on tax havens and offshore financial centres worldwide at their recent meeting in London. Around $7.3 trillion (Dh26.8trn) has reportedly been stashed away by corporations and wealthy individuals to shield their operations and reduce their tax burdens.

Gianchandani said the main concerns of the G20 countries were the evasion of taxation and the hindering of investigations into white-collar crime.

Ansar Merchant, Partner, PKF, said the UAE was mentioned by the G20 countries, but it is not categorised as a defaulter to the global transparency standards and business consultants should properly guide investors the offshore destination chosen to form an offshore company.

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