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The Interpreneur Survey: Understanding Mid-Market Business Trends in the UAE
The UAE’s inclusion in BRICS in 2024 is expected to enhance trade and investment while its record FDI inflow of over $22 billion in 2022 highlights its status as a premier investment hub in the MENA region.
To understand how this landscape is affecting mid-market businesses, we recently surveyed 1,400 C-suite business leaders in 14 countries, in private sector companies earning up to £300m a year that have expanded internationally. We call these CEOs ‘interpreneurs’.
We have analysed the UAE-based data to understand better what drives Middle Eastern business owners when expanding abroad
Global Business Trends: Do UAE Business Leaders Believe More Business will Expand Overseas in the Next 12 Months?
Overseas business expansion is widely expected to Increase
| Significantly increase | 54% |
| Moderately increase | 39% |
| No change | 6% |
| Moderately decrease | 1% |
| Significantly decrease | 0% |
| Not sure | 0% |
At 93%, the UAE is one of the most optimistic countries in the world that global expansion is on the rise.
“The UAE Interpreneur report is precise and will be valuable for any investor. In the UAE, all foreign Governments are actively partnering with the UAE government to attract and bring in foreign direct investments as Government support is key in expanding operations. Every Diplomatic Mission in UAE has set up their separate Trade Offices to attract UAE interpreneurs. And the investor numbers increasing regularly. New areas and sectors for investments are discussed and planned. The main challenges for UAE Interpreneurs for international expansion are market volatility, right business partner and talent. Most of the Governments have formed special Teams to handle international investors and that Team relates with the Trade Offices in UAE. This helps the Interpreneurs expansion plans go seamless. A trusted and knowledgeable advisor is what all interpreneurs look for to take them through the process.”
Sudhir Kumar
Senior Partner & Head-Corporate Communications
Kreston Menon
Which Markets Do UAE Businesses Prefer to Expand into?
Which, if any, of the following regions or countries would you / your business considering expanding to? (Select all that apply)
| Western Europe (e.g. Germany, France, UK, etc) | 62% |
| Middle East | 54% |
| North America (e.g. USA, Canada, Mexico, etc) | 44% |
| North Asia (e.g. China, Japan, Korea, etc) | 34% |
| Eastern Europe (e.g. Poland, Hungary, Romania, etc) | 28% |
| South Asia (e.g. Thailand, Vietnam, Singapore, etc) | 24% |
| Africa | 24% |
| South America (e.g. Brazil, Chile, Colombia, etc) | 19% |
| Australia/New Zealand | 13% |
| Other | 2% |
Western Europe number one choice for UAE interpreneurs when expanding businesses globally or Western Europe is UAE’s number one choice for global expansion
62% of UAE respondents call Western Europe their number one location for business expansion, and they are not alone. Globally, 52% of respondents agreed that Western Europe was in their sights for expansion.
Closer to home, the Middle East is on the radar with a score of 54%. However, UAE companies aren’t afraid of truly going global, and strong trading relations with North America are reflected in the fact that 44% are considering expanding there.
What Makes a Country More Attractive to UAE Businesses Looking to Expand Globally?
Which, if any, of the following would make a country most attractive for international expansion? [Select up to five]
| Government support (e.g. grants, incubators, and mentorship programs) | 49% |
| Skills and talent (e.g. availability of local talent and openness to skilled talent immigration) | 45% |
| Favorable trade agreements (e.g. free trade zones, diplomatic partnerships, or preferential tariff treatment) | 42% |
| Tech infrastructure and digitalisation | 42% |
| Future economic growth prospects | 39% |
| Alignment with long-term growth strategy (e.g. regional investment into specific industries) | 39% |
| Favorable tax policies | 33% |
| Transparent regulatory environment | 31% |
| Geographic proximity to existing operations | 24% |
| Cultural and language similarity to existing operations | 23% |
Government support is the primary attractor for UAE business leaders
UAE respondents were the only country to value government support the most attractive when considering expansion into a country. Cultural and language similarities to existing operations were valued as the least important.
The emphasis on future economic growth as a key trait for international expansion among UAE respondents highlights the region’s forward-thinking mindset. Additionally, the high value placed on local talent availability and openness to skilled immigration (45%) indicates a strategic focus on harnessing human capital to drive innovation and competitiveness.
What Motivates UAE Interpreneurs to Expand Internationally?
Half of UAE businesses are driven to expand internationally by market growth opportunities. Meanwhile, 43% aim to outpace rivals by securing new market footholds, and 38% are motivated by access to cutting-edge digital technologies and innovation.
What are the biggest international expansion challenges in 2024 according to UAE interpreneurs?
Top 3 biggest challenges during international expansion process
| Managing economic volatility (e.g. currency fluctuations, inflation and or low growth) | 46% |
| Adapting logistics and supply chain issues (e.g. managing international shipping, distribution, and communication) | 43% |
| Finding the right local partners (e.g. building reliable and trustworthy relationships) | 39% |
Managing economic volatility proves challenging to UAE CEOs looking to expand internationally
46% of UAE businesses see managing economic volatility, such as currency fluctuations and inflation, as their biggest challenge in international expansion.
43% also majorly concern themselves with adapting logistics and supply chain issues, while 39% struggle with finding reliable local partners. Additionally, 38% of respondents find navigating global tax regulations a significant hurdle, highlighting the complex landscape UAE businesses must navigate to succeed globally.
Risk: What do UAE CEOs Think are the Biggest Risks to Global Business Expansion in 2024?
How much of a risk do the following pose to your business’s international expansion or planned international expansion?
| Escalating geopolitical tensions and instability | Disruptive risk | 6% |
| Significant risk | 36% | |
| Moderate risk | 29% | |
| Minimal risk | 17% | |
| No risk | 10% | |
| Not Sure / Not applicable | 2% | |
| Economic slowdown or recession | Disruptive risk | 17% |
| Significant risk | 25% | |
| Moderate risk | 26% | |
| Minimal risk | 21% | |
| No risk | 10% | |
| Not Sure / Not applicable | 1% | |
| Financial market and foreign exchange volatility | Disruptive risk | 11% |
| Significant risk | 33% | |
| Moderate risk | 26% | |
| Minimal risk | 19% | |
| No risk | 11% | |
| Not Sure / Not applicable | 0% | |
| Cybersecurity threats and data breaches | Disruptive risk | 8% |
| Significant risk | 27% | |
| Moderate risk | 33% | |
| Minimal risk | 17% | |
| No risk | 12% | |
| Not Sure / Not applicable | 3% | |
| Talent shortages and skilled labour gaps | Disruptive risk | 7% |
| Significant risk | 25% | |
| Moderate risk | 30% | |
| Minimal risk | 22% | |
| No risk | 16% | |
| Not Sure / Not applicable | 0% | |
| Technological disruption from AI and new technologies | Disruptive risk | 6% |
| Significant risk | 23% | |
| Moderate risk | 25% | |
| Minimal risk | 24% | |
| No risk | 22% | |
| Not Sure / Not applicable | 0% | |
| Environmental disruption and extreme weather | Disruptive risk | 8% |
| Significant risk | 27% | |
| Moderate risk | 32% | |
| Minimal risk | 19% | |
| No risk | 13% | |
| Not Sure / Not applicable | 1% |
Market volatility key risk for UAE businesses
Nearly half (44%) of UAE businesses view financial market and foreign exchange volatility as a major threat to their international growth, with 11% identifying it as highly disruptive and 33% considering it a significant risk. However, 30% see little to no risk from this volatility.
42% of respondents see economic slowdowns or recessions as disruptive or significant risks. This mirrors the concern for escalating geopolitical tensions and instability, which another 42% also regard as a threat. This heightened apprehension may stem from recent global events and uncertainties, prompting businesses to reassess their risk exposure and adopt robust strategies for resilience and adaptation.
Private Equity vs Venture Capital: Which is the Preferred International Expansion Funding Source for UAE Businesses?
| Private investors (including HNWIs) | 52% |
| Venture capital or private equity | 47% |
| Capital markets (i.e. IPO) | 39% |
| Employee equity schemes | 39% |
| Government funding | 36% |
| Management buyout | 36% |
| Crowdfunding | 34% |
| Debt | 55% |
| None of the above | 0% |
Private investors offering UAE businesses key to global expansion
Like the fast-growing economies we analysed, private investors offer young and burgeoning businesses a flexible pathway to rapid expansion.
Understanding Global Tax: Is the C-Suite Ready for a Global Tax Threshold?
How confident are you in your understanding of the global international tax rules (for example transfer pricing, VAT) that govern multinational businesses?
| Extremely confident: I have a deep understanding of global tax rules and their implications for multinational businesses | 43% |
| Confident: I have a good grasp of key principles and can navigate common scenarios, but may seek external guidance for complex situations | 49% |
| Not very confident: My understanding of global tax rules is limited, and I rely heavily on external advisors for guidance and analysis | 8% |
UAE businesses confident in global taxation understanding
In the UAE, diverse perspectives emerge regarding multinational businesses’ grasp of global international tax rules. Notably, 43% express strong confidence, indicating a deep understanding of these regulations. Additionally, 49% feel confident handling common tax scenarios but may seek external help for complex situations. Only 8% feel less confident and rely heavily on external advisors. This breakdown highlights the varied approaches taken by UAE businesses in navigating global tax obligations.
The Growing Importance of ESG for UAE Investors and Interpreneurs
| We do / would prioritise ESG | 42% |
| We do / would value ESG, but it wouldn’t be our top priority | 35% |
| We do / would consider ESG practices but if only if they don’t interfere with our other priorities | 20% |
| We don’t / wouldn’t strongly consider ESG practices | 2% |
| We don’t / wouldn’t consider ESG practices at all | 1% |
| Not sure | 0% |
UAE business leaders place ESG as a priority
Nearly all (97%) consider ESG factors when expanding into new territories. Of these, 41% prioritise ESG, 35% value it without prioritising, and 20% would consider it if it doesn’t conflict with other priorities. Only 3% disregard ESG. These findings highlight a widespread recognition of ESG’s significance in corporate decision-making, reflecting a nuanced approach to integrating these principles into business strategies.
The Benefits of AI in International Business Operations
To what extent do you agree or disagree with the following statement: ‘I feel prepared to harness the benefits of AI in global business operations within the next two years?
| Strongly agree | 60% |
| Somewhat agree | 34% |
| Neither agree nor disagree | 5% |
| Somewhat disagree | 1% |
UAE business leaders confident about the use of AI in global operations
94% of respondents from the UAE expressed readiness to harness AI’s benefits in global business within the next two years. Notably, 60% strongly endorse this view, while 34% moderately agree. Remarkably, only 1% disagree.
This high level of agreement underscores widespread confidence in AI’s potential across diverse backgrounds. Similar sentiments are echoed in the US and Nigeria. These findings highlight a global readiness to embrace AI as a transformative force in business operations.
Press Release
Khaleej Times – https://www.khaleejtimes.com/business/revealed-where-uae-firms-want-to-expand-this-year
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UAE’s Fourth Industrial Revolution – Operation 300 billion
Pushpakaran Parambath, Senior Partner - Kreston Menon Corporate Services
UAE’s industrial sector witnessed a remarkable growth and transformation in 2023 by encompassing and synergizing the strong partnership between the Ministry of Industry and Advanced Technology (MoIAT) and the private sector. The strategy is aligned with national goals and international commitments relating to advancing sustainable economic growth, deploying clean energy solutions, driving industrial innovation, and promoting responsible consumption and production.
The project operation 300bn aims and encourages sustainable development and leads to the Fourth Industrial Revolution which encapsulates an overall gamechanger to the UAE economy and its competitiveness. It aims to raise the industrial sector’s contribution to the GDP from the current AED 133 billion to AED 300 billion by 2031.
MoIAT Strategy
MoIAT’s Operation 300bn strategy is a comprehensive plan for developing the UAE’s industrial sector and improving its role in stimulating the national economy and abridged to:
- Develop the UAE’s industrial sector, both macro and micro level.
- Increase its in-country value (ICV) program.
- Establish the country as a preferred global hub for industries.
- Build the reputation of the UAE’s industrial products through the promotion of exports to global markets.
- Create quality job opportunities in the industrial sector.
Objectives of MoIAT which formulated the strategy
The strategy is built on the following 6 objectives:
1. To create a relevant and attractive business environment for local and international investors in the industrial sector. 2. to support the growth of national industries and enhance their global competitiveness.
3. To stimulate innovation by accelerating advanced technology adoption across the industrial value chain to upgrade systems and solutions, boost productivity and forge competitive advantages in new areas.
4. To build on the solid industrial foundations that have helped fortify the UAE’s position as a global leader in industries of the future.
5. To cultivate a culture of innovation in the ministry.
6. To provide a comprehensive array of administrative services in accordance with the highest standards of quality, efficiency, and transparency.
Initiatives adopted to implement the strategy
- Established an integrated R&D ecosystem
- Continuous efforts to position UAE as a pioneering global destination for technology and innovation
- Improvement in developing an advanced technology roadmap that drives innovation
- Established standards and metrology that support advanced technology adoption
- Catalysing the adoption of the 4IR technology to boost the productivity of anchor industries
- Consistent monitoring of ICV program
- Continuous promoting ‘Made in the Emirates’ brand and national products
- Developed an integrated quality infrastructure
- Continuous negotiation of reciprocal trade agreements and work to control the classification system of traded products for export and import
- New industrial law has been implemented
- Offering attractive energy and gas tariffs to eligible sectors
- Launched a framework for partnerships with industrial sectors to develop standards and metrology
- Providing flexible financing at competitive costs for priority sectors
- Digital transformation to simplify registration, licensing and fee procedures
- Built a data management platform
Vital Industrial Sectors Identified
The following sectors have been identified to stimulate the growth and achieve the very objectives.
- Food, beverage, and agricultural technology
- Pharmaceuticals
- Electrical equipment and electronics
- Petrochemicals and chemical products • rubber and plastics
- Machinery and equipment
- Hydrogen
- Medical technology
- Space technology
Progress of the project Operation 300bn and the steps adopted so far
Operation 300bn project achieved many milestones since its announcement and implemented many investor friendly measures to accelerate its success.
Abu Dhabi Industrial Development Bureau (IDB) endorses significant achievements in the year 2023 within the industrial sector, with numerous initiatives and programs supporting the objectives of Operation 300bn, along with the Abu Dhabi Industrial Strategy (ADIS). The strong performance of the industrial sector in 2023 reflects the continued success of ADIS initiatives. The sector now represents over 17 percent of Abu Dhabi’s non-oil GDP and 9 percent of overall GDP.
Dubai Industrial City witnesses the presence of more than 800 customers and 300 operational factories within Dubai Industrial City. The collaboration with the Ministry of Industry and Advanced Technology helped Dubai Industrial City to launch their “Make Brilliance” global awareness campaign in 2023, where they executed a tripartite agreement with MoIAT and Emirates Development Bank (EDB) to boost the ‘Make it in the Emirates’ initiative. As part of the agreement, EDB committed to providing AED 1 billion in financing for Dubai Industrial City’s customers over the next three to five years.
MoIAT issued 263 new industrial production licenses in 2022, a 20 per cent increase over 2021, while the National In-Country Value program succeeded in redirecting Dh53 billion into the economy, a 25 per cent increase.
The Ministry is also providing financial incentives through seven local and international financial institutions and has reduced 14 service fees to cut the cost of doing business.
MoIAT announced that more than 300 products can be manufactured locally by investing in excess of Dh110 billion as part of companies’ procurement requirements for the next decade across 11 growth sectors.
MoIAT aims to unveil more than 1,000 technological projects by 2031, raise advanced technology exports to Dh15 billion and increase the GDP of advanced technology to Dh110 billion.
The Ministry signed an integrated industrial partnership with Egypt, Jordan, and Bahrain. As part of the partnership, the first wave of industrial projects worth more than $1 billion was unveiled last year.
Role of Emirates Development Bank (EDB)
EDB plays a key role and a prominent enabler in succeeding the objectives of MoIAT. EDB has earmarked a portfolio of AED 30 billion to support the industrial sector over a period of five years. The bank aims to finance 13,500 SMEs and create 25,000 jobs in the following sectors.
Manufacturing
Petrochemicals, plastics, heavy industries, machinery, electrical appliances and renewable energy equipment
Infrastructure
Energy, transportation, communications and digital infrastructure
Technology
Software, IT, storage devices, peripherals, renewable energy technology and education technology
Healthcare
Pharmaceuticals, biotechnology, medical equipment and hospital services
Food security
Agriculture, livestock, aquaculture and water desalination.
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Global Minimum Tax (GMT) and UAE Corporate Tax: Navigating Pillar Two
Ravishanker V, Director - Taxation, Kreston Menon
The Organisation for Economic Cooperation and Development (OECD) has explained Base Erosion and Profit Shifting (BEPS) as ‘tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax’.
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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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