Dubai: Global tax agreement hurts Indians who transfer trusts to UAE

Several wealthy Indians transferred family trusts and holding entities to Dubai with Abu Dhabi In the Covid-19 pandemic, they are now being contacted with their consultants because they are worried about the new global taxi Agreement of the Organization for Economic Cooperation and Development (OECD) with UAEPlans to introduce more taxes.

All major countries including the UAE have signed the OECD’s Global taxation For transactions, people are worried that the country will levy a comprehensive corporate tax of at least 15%, even applicable to the income of holding trusts and entities.

Many businessmen have set up intermediary companies in these countries to handle their business there, and they can enjoy tax incentives due to the free taxation system of the UAE.

Some of them even started to “create factual patterns” so that they would not be bothered by taxation and other regulatory issues. These factual patterns that highlight historical transactions and structures are intended to prove that this move is not for tax savings, but for other real reasons.

“In the past two years, many Indian families have transferred their holding companies and trusts to Dubai, in whole or in part. Now with the OECD’s global taxation agreement, people are worried that even for these entities, the UAE might A 15% tax is levied. It will eventually eliminate a large part of tax arbitrage,” said Girish Vanvari, founder of the tax consulting firm Transaction Square.

The OECD convened 136 countries last week to accept an agreement to ensure that large multinational companies pay a minimum tax of 15% on their global income from 2023, while those with profits above the threshold pay in the market where they do business Taxes. Tax experts said that although OECD transactions are currently only applicable to about 100 multinational companies of a certain size, this is bound to bring tax complications to other companies and entities in countries such as the UAE.

“This is mainly because countries with low or no corporate taxes may raise or levy 15% corporate tax across the board sometime in the next year or two, which will also affect trust or holding entities in these countries,” Tax Advisory Said Ajay Rotti, partner of the company Dhruva Advisors.

Countries such as the UAE are more inclined to set up certain holding entities or trusts because it has so far not had any income tax or other direct taxes.

Those who have advised clients on such matters stated that some merchants, especially those in the commodity business, have transferred or transferred part of their business or wealth to Arab countries after reorganizing the holding entity.

Some companies have also created structures under which some key decision makers have moved to these holding companies or intermediate companies outside of India. Looking ahead, these companies will eventually hold global operations including Indian operations.