Out-Law / Your Daily Need-To-Know

EU removes UAE from tax blacklist

Out-Law News | 15 Oct 2019 | 11:06 am | 1 min. read

The Council of the European Union has removed the United Arab Emirates (UAE) from its ‘blacklist’ of non-cooperative jurisdictions for tax purposes.

The move follows the UAE’s implementation of economic substance requirements (21 page / 297KB PDF) in July and subsequent guidance (13 page / 5.7MB PDF) designed to help businesses comply with those requirements.

The EU said the UAE was now compliant with all commitments on tax cooperation, and could be taken off the list of non-cooperative jurisdictions (18 page / 407KB PDF). The UAE was added to the list in March 2019 as it had not made sufficient progress in implementing economic substance regulations by December 2018.

Tax law expert Catherine Robins of Pinsent Masons, the law firm behind Out-Law, said the move would be beneficial to entities wanting to do business in or with the UAE.

Robins said there were several negative consequences for jurisdictions on the EU’s blacklist. These included reputational issues, with entities headquartered elsewhere reluctant to invest in blacklisted countries or use structures domiciled in blacklisted countries.

EU legislation also restricts some EU development and investment funds from being channelled through entities in the blacklisted countries.

The UAE’s removal from the blacklist comes as EU member states are in the process of transposing a directive known as DAC 6 into national laws. DAC 6 requires mandatory reporting by intermediaries of cross-border tax arrangements falling within certain hallmarks.

It applies from 1 July 2019, but disclosure requirements are backdated to cover arrangements entered into from 25 June 2018. Robins said the directive required reporting of arrangements where tax deductible payments are made to an associated enterprise resident in a blacklisted country, even if the arrangement does not generate a tax advantage.

“The removal of the UAE from the blacklist is welcome as it should mean that many genuine commercial arrangements will not have to be reported under DAC 6, just because a payment is made to the UAE,” Robins said.

Middle East tax law expert Joanne Clarkeof Pinsent Masons welcomed the EU’s move.

“This is good news for the Emirates, together with all businesses currently trading in the region or looking to expand into the region in the near future,” Clarke said.

However she said businesses in the region should make sure they understand and comply with the new economic substance rules.

“Due regard should be given by businesses to these new rules, including any new obligations which they create, in order to ensure timely compliance and to mitigate any risk to the administrative penalties of up to AED 300,000,” Clarke said.

We will be publishing an analysis of the new economic substance rules on Out-Law soon to give businesses some clarity on their obligations.