RAK FTZ TEAMs TAKE To ThE sTREETs - Ras Al Khaimah Free ...

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MONEY MATTERS MONEY MATTERS Death, Taxes, Confidentiality and Asset Protection Recent and dramatic global changes necessitate your immediate review of any outmoded structures! No doubt, one reads of the changed world after the global financial crash with some feeling that the worst is behind us. Unless you are a banker seeking your historical bonus rights, macro-economic policy seems to have little to do with you, the average citizen or business person. Ignorance may not be bliss. Very simply put, the world – post financial crash – has dramatically changed the rules, and you, in ignorance of the new landscape, may be asked to foot the bill for all the government funding that has gone into propping up banks and economies in the major developed countries. To remain a free spirit, you must now play with a different set of rules. What you could do in the past is no longer viable. No need to feel disheartened; your professional advisers, on the whole, are at a loss as well. In terms of confidentiality and tax and asset protection, the world was a different place prior to the crash. Swiss banking secrecy, coupled with a simple offshore company was the norm, with advisers, in many cases, simply peddling a standard and outmoded package to resolve all issues for clients. Country GDP’s were growing and economies booming – the issue of increasing fiscal collections was not critical. Death taxes, confidentiality and asset protection are now serious financial issues, and at best, you need to reconsider what you have and, ideally, recast your structures; otherwise, you will pay more tax; you will lose more assets on death; and you will not have any defence as, for the most part, banking secrecy is all but dead. Your worldly private banker or your friendly family accountant or lawyer may not be your allies during this period of introspection. Tread carefully – the consequences may not be a rap on the knuckles; tax evasion is now a serious crime. By: Jas Sekhon Your advisor may also have a positive duty to report you where money laundering is suspected (which in some countries now extends to tax avoidance). And the situation is likely to get worse – the only way that governments, which have indulged and gloated in stimulus packages to bail out economies, can easily recover funding, is through taxation. Never stand in the way of a bankrupt government seeking to collect more taxes – unless you are prepared to play a new game with a different set of rules to those that existed before, albeit less than two short years ago. The Organisation for Economic Co-operation and Development (OECD) at the behest of the G20 has forced the so called “level playing” field and there are no easy escape hatches left. A white/grey/black list was announced last April, and since that time, there have been three revisions to the list, as countries scramble to enter into many hundreds of tax and banking information exchange agreements. Since the beginning of 2008, international tax evasion and the implementation of high standards of transparency and exchange of information have been very high on the political agenda, reflecting recent scandals that have affected countries around the world and the spotlight that the global financial crisis has put on financial centres generally. Tax transparency was a key feature of the G20 Summits in Washington, London and Pittsburgh. Take the following statements: “We agree to take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over.” - G20 Leaders’ Statement, London, UK, April 2009 “We are committed to maintain the momentum in dealing with tax havens…We stand ready to use countermeasures against tax havens from March 2010.” - G20 Leaders’ Statement, Pittsburgh, USA, September 2009 “All jurisdictions must now quickly implement their commitments. We cannot continue to tolerate large amounts of capital hidden to evade taxation.” - G-8 Declaration, L’Aquila, Italy, July 2009 After giving many presentations in Europe last year and particularly in Switzerland, I found the calm mood of the expert lawyer, accountant or fiduciary almost alarming. “No it’s not that bad – a mini tsunami – it will pass and things will be back to normal” was a common view. Unfortunately, the politicians do not share the same view. The United States, Germany, the United Kingdom, Italy, Spain, Australia, China, France, India and so on have all agreed that increased tax collection is the easy way to claw back their deficits. My fear is that the worst in that respect is, almost certainly, yet to come. The immediate need is for you to re-examine your old structures and consider alternatives. Seek advice – but your advisor may have been selling BVI and Mauritius for the last countless years and may possess too much of a vested interest or a duty (in some cases) to inform the authorities, coupled with a lack of alternatives, to be impartial or forthright. One such alternative is to look carefully at the benefits of the UAE tax treaties and the combination of a RAK International and Free Zone company as a possible restructure. The UAE has over 47 tax treaties with other countries, and importantly, the UAE is the only country always on the OCED white list with a zero rate of individual or corporate taxation. Other jurisdictions, such as the BVI, Cayman, Bahamas and the like, cannot enter into a tax treaty – but must enter into a TIEA (Tax Information Exchange Agreement). TIEA’s provide only for a mechanism for information exchange, whilst tax treaties provide for reduced taxation in the home country and a well understood formal process for the exchange of information, in the right circumstances. For example, the OECD commentary to the DTA’s clearly states that no information needs to be provided by the UAE where the other country is entering into a “fishing expedition.” Where the old OECD exchange of information article exists, as it does, remarkably, in most of the UAE treaties, investors in UAE entities can take great comfort from the fact that no information that is not locally required will be provided to foreign treaty partners. Many countries, such as Switzerland, Lichtenstein, Austria, and so on, have been forced to accept the new, and much broader, OECD articles in their treaties providing almost unrestricted exchange of information. rak premium product – combining the rak iC and ftz entity RAK entities may clearly benefit from the DTA’s that exist in the UAE, and indeed, RAK (and the Ministry of Finance) will provide, on application, a certificate of tax residency, which is conclusive proof to the foreign government treaty partner that the terms of the treaty will apply to a RAK entity. However, in certain cases, the treaties will look for the substance of your activities. Therefore, the RAK Premium product allows for a RAK-IC to own 100% the shares of the FZE to provide confidentiality and flexibility, with the FZE providing the operational substance. Some of the key advantages of the Premium product are summarised as follows: 1. Complete substance in terms of visas and employees; 2. Complete substance in terms of licences to trade/consult; 3. Complete Substance in terms of physical offices/warehouse/ industrial space; 4. Absolute confidentiality in terms of ownership; 5. Absolute confidentiality in terms of no audit report for the RAK IC; 6. Absolute confidentiality in terms of the ownership of the FZE and RAK IC; 7. Absolute flexibility in terms of choice of foreign (non UAE) law for the RAK IC; 8. Absolute flexibility in terms of structuring licence, royalty and other arrangements between the RAK-IC and the FZE; 9. Tax residence certificates for the RAK IC and FZE; and 10. Migration out of the RAK-IC holding company, should political circumstances change. As always, these matters may be complex in the new world order, and advice appropriate to your individual circumstances must be obtained. Nonetheless, RAK is unique in offering a premium solution as an onshore global financial centre. The Premium product is a responsive addition to the services available to our clients. Substantive solutions must now involve, as a minimum, a true commercial reality and robust solutions - as opposed to exotic dreams of tropical island company registries and tropical island bank accounts or ill-conceived low budget onshore places for business. 9 10
TRADE ZONE TRADE ZONE Emerging Markets - The Economic Panacea Lately, emerging markets have been making headlines globally. The global recovery is being led by emerging economies, and this is a fundamental fact bound to stay. We receive an average of 3-4 business delegations a month here in Ras Al Khaimah. These delegations come from all corners of the world, since our free zone has investors from 120 different countries. While delegations of businessmen may not be statistically viable samples to determine the trends in a specific country, they do provide, nonetheless, a good viewpoint from which to develop a perspective about so many different economies. Over time, over many delegations, consistent trends tend to set in. I was, therefore, very happy in February, when HSBC published the results of the its most recent research on SME Confidence (20 markets were surveyed) based on primary data gathered last October and November 2009. These results are the statistical confirmation of the trends I have been collecting over the past year: not only are emerging markets leading the economic recovery, but SMEs are going to play a principal role. The report also confirmed a wide differential in confidence levels between the so-called highly industrialised economies (G7++) and the emerging markets. Emerging markets are significantly more confident than developed markets. With an index of 100 as neutral, emerging markets have scored an aggregate of 121 and developed markets an aggregate of 106 (France registers below 100 at 96). Nicholas Levitt, Regional Head of Business Banking at HSBC said: “Confidence levels appear to be back to pre-financial crisis level. The Middle East outlook correlates strongly to the global emerging market outlook, and as a major international trading hub, the region is wellplaced for future growth.” By: Luca Gorlero From the survey, we learn that the Middle East is the second most optimistic area after India. I can relate to this finding personally, since I receive one or two business delegations from India every month. During my presentation on emerging markets, I always ask them: “How is business during these challenging times?” Invariably, the feedback I receive, regarding the impact of the crisis, goes from mild to negligible. In the Middle East, the SME survey confirms: • 47 per cent plans to increase capital expenditures • 47 per cent plans to increase capital expenditures • 41 per cent is committed to current levels of capital expense • 11 per cent is planning capital expense reductions • 36 per cent intends to increase staffing • 58 per cent will keep the same staffing levels SMEs were also asked about their propensity to engage more in international business, and the survey has confirmed the role of the Middle East as an international trading hub. • 72 per cent of the SMEs in Qatar planned to grow their business internationally within the next 2 years • 28 per cent in Egypt • 19 per cent in Saudi Arabia The top international locations for business for the Middle East are China, South East Asia and Europe. While this research presents gaps in its approach to defining the geographical footprint, it highlights something that is at the core of the global economic shift currently underway. In order to validate the aspirations for internationalisation of many SMEs, both in the Middle East and other emerging markets, it is necessary for local governments to support the development of a solid and more sophisticated banking system, specifically tailored to support trade and investment. As Dr. Butcha, Vice President and Managing Director at A.T. Kearney Middle East, said in a recent article “A.T. Kearney has worked with governments across the world to improve the SME sector. SMEs are the backbone of any successful and sustainable economy; they are the blood cells behind successfully diversified economies and large corporations. Successful long term economic growth plans for the GCC can only succeed with strong support to SMEs...” A.T. Kearney research in emerging markets shows that successful SMEs create jobs at a rate that is four times faster than larger corporations, and they create revenue and GDP at a rate that is six times faster than large corporations. This is largely due to the fact that successful SMEs tend to grow more exponentially than large blue chip and established businesses (more at: www.eyeofdubai.com/v1/news/newsdetail-38845.htm). It is because of the essential role of SMEs in the global economy that RAK FTZ has been creating a business environment specifically designed to facilitate SME business. The newly-created valued added services for RAK FTZ clients are focused on reducing the “incubation” period of new companies and putting them in the condition to generate successful business in the region in the fastest and most cost effective way. Note: the survey did not include the United Arab Emirates in the emerging markets, developed markets surveyed included only US, Canada, UK, France, results in confidence in the developed economies would have been slightly different if Spain, Greece, Italy had been included. 11 12
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