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Peru – A rising regional power in the Latin American region
H.E. Marco Antonio Santivañez, Consul General of Peru in Dubai
When talking about the Latin American region, images appear in the minds of many people of territories rich in natural resources, with emerging, homogeneous nations, with Spanish as the dominant language and with a rich football tradition. The reality is that today Latin American countries diverge significantly in size, history, development model and future projections, among many other differentiating characteristics.
In the case of Peru, we are talking about a country located in a central area of the Latin American region with more than 3,000 kilometres of coastline on the Pacific Ocean and with the South American seaport with the largest volume of cargo, elements that ensure optimal conditions for its projection towards the rest of the world. The development model of open economy that Peru has followed during the last three decades, allowed it to attract important investments in mining, agriculture, fishery, energy, services and other sectors, generating sustained growth rates, thanks to its solid macroeconomic fundamentals and general and specific competitive advantages. Its economy, which is developed in a varied territory of 1,285,216 square kilometres of great biodiversity and a population of more than 33 million inhabitants, has been characterized in recent years by having had the most stable currency and the lowest inflation in the region.
An aspect that deserves to be highlighted in Peruvian foreign policy has been its vocation for peace and integration, expressed in the creation of the Andean Community of Nations (CAN) in 1969, formed by Colombia, Bolivia, Ecuador and Peru, whose headquarters are in Lima. Subsequently, 13 years ago, Peru founded the Pacific Alliance, together with Chile, Colombia and Mexico, which belong to the group of the largest Latin American economies, after Brazil and Argentina, with the purpose of facilitating the transit of goods, people and capitals. Likewise, Peru has been committed for decades to its projection into the Pacific basin, expressed with its entry in 1998 to the important multilateral forum “Asia Pacific Economic Cooperation (APEC)”, to which the largest world powers such as the United States, Russia and China belong, among others, Lima having hosted the APEC Leaders’ Summits in 2008 and 2016, and will host it again for the third time this year in November.
Moving on to a more specific level, I wish to refer to the evolution of the positive relations of friendship and cooperation that unite Peru and the United Arab Emirates, since I assumed duties as Consul General of Peru in Dubai in 2019. That year we signed agreements of mutual visa exemption for all types of passports, which came into force in November 2020. We have also held meetings of the bilateral political consultation mechanisms between our Foreign Ministries, very useful to promote the agenda of common interest for both countries. The priority that Peru assigns to the UAE was made evident through the consistent Peruvian participation at EXPO 2020 Dubai, with a pavilion that won the gold trophy for the best interior design among the medium-sized pavilions, awarded by “Bureau Internationals des Expositions (BIE)”, based in Paris. After EXPO DUBAI, we witnessed the opening of more than a dozen restaurants offering Peruvian cuisine in Dubai, which also corresponds to the boom our gastronomy experience in many other countries.
Over the last few years, we have had numerous visits from Peru from high authorities, members of the Parliament, businessmen, academicians and other personalities, who have participated in high-level international events and meetings, some of them having been honoured with recognition in the UAE.
This year in February, our Minister of Foreign Trade and Tourism visited in UAE and held an important meeting with the Minister of State for Foreign Trade, Dr. Thani Al Zeyoudi. At the end of the meeting, it was announced the beginning of bilateral negotiations to a “Comprehensive Economic Partnership Agreement – CEPA” between UAE and Peru. This is an important step that will contribute to enrich the legal framework of our relations, as well as to promote the commercial exchange, new investments and the tourism, which had already been reinforced last year with the signing of a bilateral “Air Services Agreement (ASA)”.
On the other hand, the Peruvian Foreign Ministry has recently announced the opening of our Embassy in Abu Dhabi, which will certainly expand our bilateral relations to a higher level. In the dynamic and fast-paced world that we live in, Peru certainly offers great opportunities to companies based in the UAE, to invest and grow in a stable market, with guarantees of equal treatment between national and foreign investors, as well as with great potential. Peruvian exports to the UAE, which are around one billion US dollars, consisting of gold, fruits, food and other products, will surely increase, due to Dubai’s positioning as a port and airport hub.
In order to illustrate the opportunities that can be taken advantage of in the Peruvian economy, I would like to mention just some of the projects that are being carried out in my country, such as the prompt completion of the new air terminal and new runway at the “Jorge Chávez International Airport” located in the capital, operated by Lima Airport Partners (Fraport AG from Frankfurt, Germany); the second line of the Lima underground metro that will cross the capital from east to west and will finally reach the mentioned international airport; the new Cuzco international airport, located in Chinchero; the new multipurpose maritime mega-port of Chancay, located north of Lima; the modernization and expansion of the South Dock of the port of Callao, operated by DP World, which now can receive ships of 400 meters in length and up to 21,000 TEUs; the commuter trains to the north and south of Lima; the Autopista del Sol, which will reduce the journey between the cities of Trujilo and Sullana on the north coast by two hours; the new Talara oil refinery, which will produce fuels of high environmental quality; the new Central Highway and new peripheral road ring in the city of Lima; the new infrastructure for the 2027 Pan American Games; the irrigation of Majes Siguas II and Chavimochic III, which will allow an expansion of the agricultural surface by more than 100,000 hectares; all of which contributes competitiveness and efficiency to the Peruvian economy.
I would like to conclude this message by thanking “Kreston Menon” for the opportunity to address its clients through this medium, congratulate them for the reputation they enjoy due to the quality of their services, as well as invite those businessmen who are interested in exploring new businesses in Peru to contact the Consulate General of Peru in Dubai, which will always have its doors open to provide accurate and timely information.
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Introducing Expo City Dubai & KEZAD Metal Park
Pushpakaran Parambath, Senior Partner - Kreston Menon Corporate Services
Expo City Dubai is the latest addition to the array of Free Trade Zones in Dubai. The City was granted its free zone status in June 2022 through an official decree and resolutions. The Free Zone is an integral part of Dubai 2040 Master Plan which emphasizes the need of sustainable development, greener and healthy communities.
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UAE Corporate Tax: Accounting Profits and Taxable Income
Ravishanker V, Director - Taxation, Kreston Menon
While the fundamental aim of measuring profit aligns across commercial accounting practices and tax regulations, different countries apply distinct tax and accounting rules. Some nations closely link accounting income with taxable income, while others have self-contained tax laws. In the UAE, accounting net profit forms the basis for determining taxable income for corporate tax purposes. The UAE Corporate Tax Law (‘UAE CT Law’) provides that the Taxable Income of each Taxable Person shall be determined separately, on the basis of properly prepared, standalone Financial Statements for financial reporting purposes in accordance with the Accounting Standards accepted in the UAE for Corporate Tax purposes.
Accounting Standards and Accounting Profit
Accounting profit, also known as financial profit or bookkeeping profit, represents a Company’s net income derived from its operational and non-operational activities. It is calculated by subtracting total expenses from total revenue and serves as a key metric for assessing profitability and comparing financial health with industry peers.
Accounting Standards
According to Article 20(1) of the UAE CT Law, Taxable Persons are obligated to prepare financial statements in compliance with the applicable accounting standards within the country. As International Financial Reporting Standards (IFRS) are in effect in the UAE, taxable persons must adhere to IFRS guidelines for their financial reporting. Ministerial Decision No. 114 of 2023 specifies that the only Accounting Standards accepted in the UAE for Corporate Tax purposes are the International Financial Reporting Standards (“IFRS”) and the International Financial Reporting Standard for Small and Medium- sized Entities (“IFRS for SMEs”). Taxable Persons may use IFRS for SMEs if they derive Revenue not exceeding AED 50,000,000 in a Tax Period.
Basis of Accounting
IFRS stipulates that financial statements should be prepared using the accrual basis of accounting. However, Article 20(5)(a) authorizes the Minister to establish circumstances and conditions under which financial statements may be prepared using the cash basis of accounting. Taxable Persons can apply to the Federal Tax Authority (FTA) for transitioning from accrual basis to cash basis accounting. Upon approval by the FTA, these changes will take effect from the commencement of the tax period in which the application is submitted or from a future tax period.
In accordance with Article (2) of Ministerial decision No. 114 of 2023, a Taxable Person may prepare Financial Statements using the Cash Basis of Accounting if:
- Their Revenue does not exceed AED 3 million within the relevant Tax Period; or
- In exceptional circumstances and pursuant to an application submitted by the Taxable Person to the FTA.
Audited Financial Statements
Ministerial Decision No. 82 of 2023 has been published specifying that a Taxable Person deriving Revenue exceeding AED 50,000,000 (Fifty Million United Arab Emirates Dirhams) during the relevant Tax Period as well as a Qualifying Free Zone Person shall prepare and maintain audited financial statements.
Relief for Small Businesses
Article 21 of the UAE CT Law offers tax relief for small businesses, allowing tax resident entities with Revenue not exceeding AED 3,000,000 in a relevant Tax Period and all previous Tax Periods that end on or before 31 December 2026 to elect for Small Business Relief thereby deeming that the entity has not derived any taxable income.
Adjustments to Accounting Profits
As per Article 20 of the UAE CT Law, the Taxable Income for the tax period is the net profit or loss reported in the financial statements, after making adjustments as necessary, for the following items:
Unrealized Gains or Losses
Taxable Persons who prepare their financial statements on an accrual basis will have an option to avail realisation basis treatment of unrealized accounting gains or losses for tax computation. If the Taxable Person decides to avail the benefit of taxing unrealised gains and losses on realisation basis, they are obliged to choose between the following options:
Option 1 – the taxpayer can elect to recognize gains and losses for all assets and liabilities only when they are realized.
Option 2 – the taxpayer can elect for the realization basis to apply only to assets and liabilities held on capital account. Gains and losses on other assets and liabilities would be included in taxable income on a current basis.
Exempt Income
Exempt income under Article 22 encompasses dividends, qualified participation relief dividends, select foreign permanent establishment income, and specific non- resident income related to operating ships and aircraft.
Qualifying Group Exemptions
No gain or loss needs to be considered in determining the Taxable Income in relation to the transfer of one or more assets or liabilities between two Taxable Persons that are members of the same Qualifying Group i.e two or more Taxable Persons who satisfy specified conditions including, but not limited to, common shareholding of 75%.
Business Restructuring Relief
No gain or loss needs to be taken into account in determining Taxable Income in relation to business restructuring transactions, subject to specified conditions.
General expenditure deduction
In accordance with Article 28, Expenditure incurred wholly and exclusively for the purposes of the Taxable Person’s Business that is not capital in nature shall be deductible in the Tax Period in which it is incurred, subject to the provisions of this Decree-Law. Accordingly, the Taxable Person needs to ensure that the expenditure is carefully evaluated to ensure the business purpose of such expenditure and the capital or revenue nature thereof. Further, if any expenditure serves multiple purposes, a deduction is allowed for the identified business purpose of such expenditure or a reasonable portion of such expenditure determined based on a fair and reasonable basis.
Interest Expenditure
The general interest deduction limitation rule, according to Article 30, restricts interest expenditure deduction to 30% of Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA). This limitation doesn’t apply to banks,certainfinancialinstitutions,insurancebusinesses, and individuals. Ministerial Decision No. 126 of 2023 further extends the exemption from this rule to Taxable Persons whose Net Interest Expenditure does not exceed AED 12,000,000 (Twelve Million Dirhams)
Article 31 also prescribes specific non-deduction for interest expenditure on loan obtained from Related Parties, used for certain specific purposes laid down in the UAE CT Law.
Entertainment Expenditure
Article 32 lays down special rules governing entertainment expenses, limiting deductions to 50% of the cost. These expenses encompass spending for entertaining customers, shareholders, suppliers, or business partners, including meals, accommodation, transportation, admission fees, facilities, equipment, and other expenses of similar nature.
Non-deductible Expenditure
Article 33 specifies expenditure that are not deductible for the purposes of computation of Taxable Income. This includes:
Transactions with Related Parties and Connected Persons
Article 34 of the UAE CT Law stipulates that transactions and arrangements between Related Parties must meet the arm’s length standard. Further, Article 36 of the UAE CT Law specifies that a payment or benefit provided by a Taxable Person to its Connected Person shall be deductible only if and to the extent the payment or benefit corresponds with the Market Value of the service, benefit or otherwise provided by the Connected Person and is incurred wholly and exclusively for the purposes of the Taxable Person’s Business.
Accordingly, necessary adjustments may have to be made to the taxable income if the transactions with related partiesandconnectedpersonsarenotcarriedoutinline with the Arm’s Length Principle.
Loss Relief
Chapter 11 of the UAE CT Law specifies that a Tax Loss can be offset against the Taxable Income of subsequent
Tax Periods to arrive at the Taxable Income for those subsequent Tax Periods. Specific rules have been made in relation to conditions to be satisfied for such set off and transfer of losses within the group.
Conclusion
In conclusion, adherence to accounting standards accepted in the UAE is crucial for businesses to accurately determine their taxable income. While there may be differences between commercial accounting practices and tax rules globally, the UAE aims for alignment to international standards, promoting efficiency and reducing compliance costs. Understanding the provisions outlined in the UAE CT Law ensures proper treatment of adjustments such as unrealized gains or losses, exemptions, reliefs, and deductions. Additionally, the flexibility provided for changes in accounting methods underscores the importance of compliance with the law over conflicting accounting standards.
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Imperatives Of New Age Corporate Business Planning
Pradeep Balakrishnan, Senior Manager - Consulting
A boxing legend famously said, “Everyone has a plan until they get punched in the mouth.” Covid-19 taught us that best drawn up corporate business plans do not protect businesses against all eventualities or guarantee business success. In fact, during the recent pandemic, businesses that committed significant resources to major projects according to well laid out plans without effective contingency planning, are the ones which got hit most.
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Single Family Office Effective Solution for Managing Affluent Family Wealth
Pushpakaran Parambath, Senior Partner - Kreston Menon Corporate Services
Wealthy families are seeking advanced, more systematic, and secure ways to manage their wealth and investments. Family Office concept has emerged as a preferred solution providing structured financial services to affluent families, managing their assets, and protecting legacies for future generations. Family Offices facilitate to professionalize investment and management functions by creating investment committees, establishing governing boards, structuring family leadership succession plans, next generation education programs etc. There are manifold reasons to set up a Family Office and these dwell around the family’s vision, objectives, and ambitions. The fundamental objective would be to protect and preserve family wealth through generations, and to ensure that this objective is given a structure that caters to that family and evolves when the family grows or changes. Family offices tend to provide broadly two types of services or a combination thereof: (i) those focused on financial planning and investments; and (ii) those aimed on the family and supporting, its day-to-day needs. The first category would typically include investment and asset management, asset monitoring, trust services, tax and legal services, and under the latter category, concierge services, travel planning and administrative functions may be included.
In UAE, there are Three Robust Jurisdictions where Single Family Office may be Set Up:
(1) Dubai International Financial Centre (DIFC)
(2) Abu Dhabi Global Market (ADGM)
(3) Dubai Multi Commodities Centre (DMCC)
DIFC & ADGM
DIFC and ADGM are the financial centers reputed for the presence of international financial service providers. They emerged as highly respected financial jurisdictions benchmarking globally recognized regulations and best practices. DIFC and ADGM comprise three independent authorities viz., Registration Authority, Financial Services Regulatory Authority and Court that directly apply common laws. They have created a governing framework that adheres to the highest international standards, creating a secure and stable operating environment that fosters confidence among investors and families alike. Financial Service Authorities of the respective jurisdiction ensure compliance with stringent regulations, providing a vigorous safeguard for investors’ interests and preserving the integrity of the financial ecosystem.
Setting up a Family Office in DIFC
In DIFC, a Family Office can be established as a Private Company or a Limited Liability Partnership. SFO shall be established to either serve (i) a single Family; or (ii) multiple Families. Family Office serving multiple families requires approval by the DIFC Registrar of Companies after it satisfied the Registrar regarding the shared arrangements between the Families served and the reasons for serving multiple Families. A Family to be served by a Family Office must have a minimum net asset of USD 50 million. The net asset value for this purpose is established with reference to a fair market value assessment or, where this is not possible, as determined by way of a book value assessment. The SFO structure shall have a minimum of one shareholder and a minimum of one director.
DIFC SFO may Engage the Following Services in General:
(a) Services to one or more family members
(b) Services to family fiduciary structure
(c) Services to family entity
(d) Services to family businesses.
Setting Up a Family Office in ADGM
In ADGM there are no minimum investment requirements for setting up a family office. In spite of a benchmark figure is USD 10 million, the families can decide on their investment size based on their financial goals and aspirations. The accepted legal structure is Restricted Scope Companies (RSCs) and Foundations, each with distinct benefits catering to specific objectives. Eligibility to set up a SFO is based on the underlying principle that the family must have a closely related group of individuals united by blood, marriage, or adoption and share a common interest in wealth management and preservation. SFO may opt for a physical office or engage a service provider in ADGM.
ADGM SFO may Engage the Services in General:
(a) Creation of a family office structure can engage in devising investment strategies and business plans.
(b) Develop appropriate remuneration packages and strategies to attract key staff members.
(c) Developing governance structures from a corporate and family perspective.
(d) Design and develop appropriate succession planning. (e) Strategize acquisitions, re-organization and exits from investments and businesses.
(f) Cration of philanthropic strategy and designing a structure that meets social responsibility and commitments.
Setting Up a Family Office in DMCC
In DMCC, Single Family Offices are incorporated as per DMCC Company Regulations and as per the Guidelines for
Single Family Office License. SFO may accept the legal structure of a free zone limited liability company which may be owned either by individuals or a corporate entity or a registered trust (in each case wholly owned by the same family and UBOs).
It is desirable that the family has a minimum of USD 1 Million investible/liquid assets to be accepted as a SFO in DMCC. The SFO is permitted only to manage the assets of one family group and not permitted to act as trustee but might act solely as protector or as conduit with offshore regulated trustees operating the trusts or foundations. May supervise and coordinate activities amongst foreign fiduciary service providers.
The beneficiaries shall not sell shares of the SFO entity to any party, except in the case of transfer within family members. Only a family member may be a member of the board of directors; except for a consultant to the SFO who may be appointed as a director. In such a case also at least one family member must be appointed as a board member or legal representative.
DMCC SFO may Engage the Services in General:
(a) Wealth management
(b) Asset management
(c) Concierge work
(d) Day to day accounting
(e) Management of legal affairs
(f) Corporate governance issues
(g) Administrational and office affairs
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Strategic Role of HR as an ESG Partner
Shibu Abraham, Director – Human Resources & Administration - Kreston Menon and Chair of the Leadership Team, HR & People Network - Kreston Global
The term “ESG” refers to a broad category of corporate responsibility initiatives that focus on governance, social, and environmental issues. In the previous editions of Kreston Menon News, ESG experts talked about how the emergence of ESG requirements persuades businesses to think beyond profit generation and about the long-term impact of their activities on the environment and society.
In this edition we will be focusing on the ‘S’ of ESG and how those social initiatives can be put into play in your businesses. Companies with a vision for tomorrow have identified that supporting ESG initiatives can have a meaningful impact on employee engagement and well- being which in turn will contribute to enhanced productivity and profitability.
Infusing ESG Strategy to the EVP
I recently visited a real estate company where the salesperson was focusing more on the positive impact the sustainability measures incorporated into the building will have on the day to day lives of the tenants and residents. When probed more on his approach of centering his conversation on the green initiatives than the infrastructural details and layout of the units, he disclosed that these ESG factors are the deal breakers when it comes to the purchase decision of young potential buyers.
Similarly, in today’s war for talent, many organizations are positioning ESG as the focal point of their EVP (Employee Value Proposition) and using it to market themselves to the younger generation. They do not opt to work with organizations unless they are certain that those businesses have a futuristic vision and have the sustainability of the planet at the core of what they do.
In a recent study among recruiters, it was found that most discussions of Gen Z jobseekers rotate around the environmental and social aspects of the employer. They are drawn towards purpose-driven organizations, who promote wellbeing as well as Diversity and Equity within the workplace, follow high ethical and quality standards, and reach out to the society. For them, these attributes have become non-negotiable.
The Pivotal Role of HR in ESG
Talent Acquisition and Retention
ESG conscious organizations understand how critical it is to attract and retain talent who is committed to sustainability. HR departments are instrumental in incorporating ESG values into the organization’s culture, ensuring that current and prospective employees align with the defined ESG goals. According to the recent Gen Z and Millennial Survey of Deloitte, majority of the respondents prefer an employer who offers proper work/life balance and has made steady progress in Diversity, Equity & Inclusion (DEI), societal impact, and environmental sustainability.
SHRM says, 86% of employees who work at organizations that have ESG related initiatives stated that the ESG goals make them feel proud to work for their employers, bring in a meaningful dimension to their jobs and encourage them to stay with their organization.
Employee Engagement and Societal Impact
The Human Resources department plays a vital role in fostering an ESG oriented mindset among employees. Through training programs and communication strategies, HR ensures that employees understand the significance of ESG initiatives and how they can contribute to the company’s sustainability goals. Beyond mere announcements, HR should initiate the ‘walk the talk’, by formulating employee engagement activities like wellness programs, volunteering opportunities and participation in social causes.
At Kreston Menon we encourage our people to support societies and communities in a socially responsible, sustainable manner. We have forged partnerships with Dubai Cares, Al Jalila Foundation, Al Noor Training Centre for Persons with Disabilities, Rashid Pediatric Therapy Center, Dubai Autism Center, Dubai Center for Special Needs, Dubai Foundation for Women and Children, Make a Wish Foundation and Red Crescent UAE where our people are offered opportunities to interact and contribute.
Diversity, Equity and Inclusion
HR is responsible for positioning the organization as an equal opportunity employer, by providing employment opportunities to the most competent and suitable candidate. This conscious effort should not stop with recruitments, where the organization should strive to provide every person with an equitable opportunity for growth beyond the differences of nationality, colour, religion, gender or abilities.
Green Initiatives
Progressive organizations are taking measures to reduce their carbon footprint by creating environmentally conscious workplaces. HR team will be the change agents by introducing sustainable practices at the workplaces through policies and programs that encourage “green” behaviours.
It is a fact that ESG friendly workplaces improve employee engagement and productivity. Employees who are proud of their company’s ethical and social responsibility are likely to be more engaged and productive, thus contributing to overall business success.
ESG Initiatives at workplace
1. ESG Awareness Programs: Conduct ESG awareness program for employees.
2. Sustainable office practices: Implement recycling, and eco-friendly supplies and sustainable meetings.
3. Energy-Efficient Office: Implement measures to reduce energy consumption in the workplace by reducing the use of electric lights during day time and opting for sustainable products.
4. Reduce Paper Usage: By going digital, reduce the usage of paper.
5. Plastic-Free Challenge: Discourage single-use plastics at work. Introduce reusable mugs and stainless-steel water bottles.
6. Physical and Mental Wellness: Promote employee well- being by organizing sports activities and encouraging an active lifestyle. Ensure a healthy work environment and provide the needed support.
7. Eco-Friendly Transportation: Encourage carpooling and public transport.
8. Education Partnerships: Collaboration with schools and universities for internships and student training.
9. Employment Opportunities for people of determination: Bring people with disabilities to the mainstream by providing them employment opportunities and avenues to contribute and grow.
10. Ethical Supply Chain: Ensure suppliers follow ethical and sustainable practices.
11. Education and Skill Development: Enhance employee knowledge and expertise through training and development programs.
12. Involve Employees in CSR: Encourage employee participation in social causes like philanthropy, volunteering, blood donation and environmental initiatives.
United Nations Sustainable Development Goals (SDGs) adapted by Kreston Global
Let the World Know
Communicate
The study by Marsh McLennan has found that by 2029, the Millennial and Gen Z generations will make up 72 percent of the world’s workforce, compared to 52 percent in 2019. The younger generation place greater importance on ESG than their predecessors do – and will expect more from employers on environmental and social concerns.
This brings in the need for businesses to have effective communication of their sustainability achievements through mailers, social media and career pages to their internal and external audience.
At Kreston Menon, we have opened an interface on our career page where we talk about ‘Life at Kreston Menon’ highlighting how we have created a workplace that is diverse, equitable and inclusive and how we are doing our bit to make this earth a better place for the generations to come.
Involve
Employees are your best brand ambassadors. The success of your ESG strategy depends on their involvement in your green initiatives. Stories shared voluntarily by the employees will have more credibility and impact than the well curated social media posts of the organization.
As people would love to work for organizations that are taking measures to make this planet a better place, integrating your EVP with your ESG strategy can bolster your efforts to attract and retain talent.
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