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ADGM Annual Accounts Compliance Requirements You Should Know

As a world-class international financial centre, Abu Dhabi Global Market (ADGM) has set a high bar for corporate governance, transparency, and financial reporting. Companies operating within ADGM are required to meet stringent standards to maintain their good standing and ensure that their financial statements reflect accuracy, accountability, and integrity.

When it comes to preparing your company’s annual accounts, getting the numbers right is just the beginning. From currency denomination standards to ensuring the right signatures are in place, each compliance detail plays a crucial role in shaping the accuracy, credibility, and reliability of your financial reporting. Whether you’re a startup or an established enterprise, meeting these key requirements isn’t just compliance —it’s about building trust with investors, aligning with international standards, and setting the stage for future growth.

Explore the key aspects of ADGM annual account compliance requirements.

1. Currency Denomination: Accounts Must Be in USD

One of the fundamental requirements for preparing annual accounts is that all financial statements must be denominated in U.S. Dollars (USD). This standardization ensures consistency and comparability, particularly for companies that operate across borders or engage with international stakeholders. Presenting accounts in USD helps to avoid currency translation issues and provides a clearer picture of financial performance on a globally recognized scale.

Key Points to Consider:

  • Consistency: All transactions, assets, liabilities, income, and expenses should be recorded in USD.
  • Conversion Rates: For companies dealing in multiple currencies, it’s essential to use consistent exchange rates and disclose the rates used in the notes to the accounts.
  • Regulatory Compliance: Adhering to USD denomination aligns with international accounting standards, particularly for companies registered in jurisdictions that mandate USD for financial reporting.

2. Balance Sheet Signatures: Director’s Responsibility

The balance sheet is one of the most critical components of the annual accounts, providing a snapshot of the company’s financial position at a specific point in time. To ensure accountability and authenticity, the balance sheet must be signed by a director of the company, with the director’s name clearly stated. This requirement highlights the director’s role in overseeing financial accuracy and attests to the reliability of the information presented.

Key Points to Consider:

  • Legal Accountability: The director’s signature on the balance sheet signifies that the accounts have been reviewed and approved by the company’s management.
  • Transparency: Including the name of the signing director fosters transparency and reinforces stakeholder confidence in the company’s financial disclosures.
  • Documentation: The signed balance sheet should be properly archived as part of the company’s official records.

3. Audited Accounts: Director’s Report Signature

For audited accounts, the Director’s Report is a critical narrative that accompanies the financial statements, providing insights into the company’s performance, strategy, and outlook. This report must be signed by a director or the company secretary, with the name of the individual clearly stated. This requirement ensures that senior management takes ownership of the content, emphasizing the importance of the report in providing context to the figures presented.

Key Points to Consider:

  • Clarity and Accountability: The Director’s Report outlines the key activities, risks, and governance matters of the company, and its authenticity is validated through the signature.
  • Insightful Information: It provides shareholders and other stakeholders with a comprehensive view of the company’s operations beyond the numbers.
  • Compliance: The signature requirement ensures that the report complies with relevant corporate governance standards.

4. Auditor’s Report: Naming the Audit Firm and Senior Auditor

The Auditor’s Report is a crucial element of the annual accounts, offering an independent evaluation of the company’s financial statements. This report must include the name of the audit firm and the senior auditor responsible for the audit. Naming the audit firm and the senior auditor adds credibility to the financial statements and assures stakeholders of the rigor of the audit process.

Key Points to Consider:

  • Independence and Assurance: An external audit provides independent verification of the company’s financial statements, enhancing their credibility.
  • Transparency: Naming the audit firm and the senior auditor offers transparency and accountability, especially in case of any discrepancies or audit qualifications.
  • Professional Standards: The inclusion of the audit firm and auditor’s names aligns with international auditing standards and fosters trust among investors and regulators.

Ensuring ADGM Annual Accounts Compliance with Expert Guidance from MS

Understanding the complexities of ADGM annual accounts compliance requirements can be daunting, but MS is equipped to make the process seamless and stress-free. At MS, we offer specialized support to help your company meet all ADGM compliance standards for annual accounts preparation. With our comprehensive approach, you can avoid compliance pitfalls, streamline your annual reporting, and strengthen the credibility of your financial statements. Trust us to be your partner in compliance, ensuring that your ADGM annual accounts are prepared with precision and in full alignment with regulatory expectations.

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News & Press Releases Featured

MS gains DIFC Corporate Service Provider License, inaugurates new office space

Dubai, 29 August 2024 – MS Corporate Services (DIFC) Limited is proud to announce the successful acquisition of a Corporate Service Provider license and the establishment of its physical presence in the Dubai International Financial Centre (DIFC). With this, MS can offer a broad range of services to the local and international clients within the DIFC jurisdiction.

With over seven years of exceptional service in the UAE, MS has evolved from its humble beginnings in Abu Dhabi to strategically expanding its presence with key offices in ADGM, DMCC, and now DIFC. The success of their initial office in Dubai, located in DMCC—a vital hub for MS’s diverse service offerings—has paved the way for the opening of their second Dubai office in this premiere financial centre. This expansion not only reflects MS’s commitment to addressing the needs of the emirates, but also significantly enhances the capacity to serve the financial services sector across the broader Middle East, Africa, and South Asia (MEASA) markets.

By leveraging the strategic advantages of both ADGM and DIFC, MS is well-positioned to deliver tailored solutions and exceptional service to the regional and international clients. The newly acquired DIFC license marks a significant milestone in MS Group’s journey, allowing them to substantially broaden their service offerings. Building on their established expertise in company incorporation, compliance advisory, tax, and accounting services, MS is now positioned to provide comprehensive support in the establishment of prescribed companies, family offices, and foundations. Additionally, the expanded capabilities include offering specialized Company Secretarial Services and Residency services within DIFC. This enhancement of MS’s service portfolio reinforces their commitment to delivering holistic solutions, ensuring that evolving client needs in the UAE and beyond are met.

C A Mohammed Shafeek, Founder & Group CEO, MS, said “Dubai and DIFC are at the forefront of global finance and innovation, making our expansion into DIFC a natural progression in our journey within the UAE. The city’s ‘speed to market’ and relentless drive for innovation have always inspired us, and we are committed to upholding these values with the same agility and responsiveness. As one of the region’s leading financial hubs, DIFC offers a wealth of experience, knowledge, and expertise, which will be instrumental as we enhance our service offerings. Our vision is to establish MS as the premier Corporate Service Provider and Professional Service Provider across the region, and this step forward is a key part of our strategy to expand our presence across all International Financial Centres (IFCs) in the region. We extend our heartfelt thanks to the DIFC authorities for their outstanding support during our journey to establish our presence in the DIFC. We look forward to collaborating closely with DIFC authorities, our clients, and partners, as we contribute to the ongoing success and growth of this vibrant financial ecosystem.”

MS’s Dubai office is at Level 1 Gate Avenue – South Zone, Dubai International Financial Centre (DIFC), Dubai, UAE.

About MS

MS is a corporate and professional service provider that brings together a team of multidisciplinary professionals to offer expertise in corporate, compliance, advisory, tax, and accounting services to private and international clients.

MS operates under the trading names of M S Chartered Accountants LTD (ADGM), M S Global Solutions DMCC and MS Corporate Services (DIFC) Limited.

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Blogs

M&A in the UAE Healthcare Sector: Why is it so Appealing Sector in 2024?

M&A in the UAE healthcare sector is on an ever-best surge- Experts all over the world write and speak across the news and columns. But what happened behind the scenes in its run to 2024?

The United Arab Emirates (UAE) has emerged as a global healthcare hub, characterized by its rapid growth, advanced infrastructure, and increasing reliance on technology. This transformative landscape has ignited a surge in Mergers and Acquisitions (M&As) within the region. The Emirates of Dubai and Abu Dhabi have taken the lead, driving the sector’s expansion and solidifying healthcare as one of the UAE’s most rapidly growing industries. As healthcare providers seek to expand their reach, enhance capabilities, and capitalize on emerging trends, strategic partnerships, and acquisitions have become essential tools for growth.

M&A in the UAE Healthcare Sector

The Rise of M&A in the UAE Healthcare Sector

M&A in the UAE’s healthcare sector has gained momentum, particularly in HealthTech and MedTech assets. Investment firms have recognized the potential in these areas, leading to a shift from provider consolidation to strategic asset acquisition. As corporations re-evaluate their business strategies, healthcare sector investments are being approached with caution but with a clear focus on long-term value.

In the short to medium term, several regions in the UAE are expected to become M&A magnets within the healthcare industry:

  • HealthTech Tools: To address critical challenges, improve employee performance, and optimize processes, healthcare providers are increasingly turning to HealthTech tools such as artificial intelligence (AI), analytics, and cloud technologies.
  • Telehealth: Telehealth is a way to receive healthcare services remotely through electronic devices like your computer, tablet, or smartphone. While still a modest component of most healthcare solutions, telehealth is gaining traction as providers explore specific areas where it can enhance existing capabilities.
  • MedTech Services: As MedTech services evolve from experimental to mainstream, providers are incorporating these services to improve patient care. Leading institutions are expected to build their value propositions around a combination of skilled physicians and comprehensive MedTech support.
  • Value-Based Care: Relevant partners are continuing efforts to standardize practices to support value-based care, aiming to improve patient outcomes while managing costs.

Looking ahead, M&A in the UAE Healthcare Sector is expected to see more decisive transactions, with sustained growth in the tech-enabled health sector. The future of healthcare M&A in 2024 is all with opportunities and challenges. Investment funds are likely to play an increasingly vital role by taking dominant positions in HealthTech assets. As the fundamental pillars of the industry remain strong, the forecast for M&A activity in the UAE remains favorable.

Understanding Regulatory Challenges of M&A in the UAE Healthcare Sector

Despite the continued activities around M&A in the UAE healthcare sector, several challenges persist, particularly on the regulatory front. These challenges can significantly impact the success and execution of M&A deals, requiring businesses to have a thorough understanding of the regulatory landscape.

Successful healthcare M&A deals necessitate proactive planning and effective communication with regulatory authorities. Legal and compliance teams play a crucial role in navigating these challenges. Key regulatory hurdles include:

  • Market Competition: Regulatory authorities closely scrutinize M&A transactions to protect market competition, preventing deals from giving any single entity excessive control. The UAE’s recent enactment of Federal Decree-Law 36/2023 on the Regulation of Competition took effect on January 31, 2024, and represents a comprehensive overhaul of the country’s competition regime.
  • Licensing Compliance: With more M&A deals involving the transfer of licenses or changes in ownership of healthcare facilities, compliance with licensing requirements is crucial.
  • Pharmaceutical Regulatory Approval: For pharmaceutical companies, gaining regulatory approval for drug pipelines and ensuring post-merger compliance with drug safety regulations are essential.

Embracing a Programmatic Approach to M&A

A broader trend in the healthcare and life sciences industry involves adopting a programmatic approach to M&A. This strategy entails executing a steady stream of relatively small, strategic transactions, such as acquisitions to fill gaps in portfolios or entering promising new market segments. This approach has also seen firms divest underperforming parts of their business to maximize profitability.

For instance, 3M, a significant player in the healthcare field globally, exemplifies this programmatic approach through continuous innovation and strategic investments. The company focuses on reducing the weight of power lines, automating healthcare data, and helping manufacturers achieve more with less. Life Sciences, a company providing automation and innovative solutions for various scientific fields, identifies complementary technologies or research capabilities to enhance its portfolio, remaining open to strategic partnerships and acquisitions.

A programmatic approach enables companies to proactively shape their business portfolios, creating the most value across industries. Companies in the UAE will continue tackling challenges while seeking growth opportunities in this dynamic economic landscape to support the expected continuation of M&A activity in the second half of 2024.

What Grabbed the Headlines in the Last Two Years of M&A in the UAE Healthcare Sector?

  • M42 Joint Venture: Formed by Mubadala’s healthcare division and G42, M42 focuses on using AI and technology to enhance healthcare delivery and precision medicine in the UAE and beyond.
  • Aster DM Healthcare Expansion: Aster announced expansion plans across the UAE and GCC, focusing on integrating digital health solutions to improve patient care and accessibility.
  • Pure Health and SEHA Merger: Pure Health merged with SEHA and Daman, creating one of the largest healthcare platforms in the region, aimed at streamlining healthcare delivery and improving patient outcomes.

The USD 232 million deal was closed with a significant EBITDA multiple of 10.5. Other key deals include ADQ’s merger of its healthcare entities Rafed and Union71 with Dubai-based Pure Health, Yas Holding’s acquisition of Geltec Healthcare FZE (part of a renowned pharma and nutraceutical group) and International Holding Company (IHC) acquiring a 40% stake in Response Plus Medical Services (RPM), a unit of VPS. 

The Growing Demand for Business Valuation and Due Diligence Services

With numerous healthcare enterprises establishing their foundations in Dubai and Abu Dhabi, the need for business valuation and due diligence services is becoming increasingly critical. The shift in focus and the rising activity within the sector globally have heightened the demand for accurate valuations and thorough due diligence processes. This trend underscores the importance of these services in facilitating successful M&A transactions.

MS can help you with this. Our expertise ensures that you have the insights and guidance needed to tackle the complexities of business valuation and due diligence, allowing you to focus on the bigger picture – your business’s success. Let’s make the deals work for you.

Connect with our M&A team through LinkedIn – Click Here

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Blogs

Transfer Pricing Adjustments in the Age of Pillar Two: Is it a new challenge to tackle for MNEs?

In 2016, Apple Inc. found itself at the center of a high-stakes tax controversy that captured global attention. The tech giant faced scrutiny from the European Commission over its Transfer Pricing practices and tax arrangements with Ireland. The investigation revealed that Apple had been allocating a substantial portion of its profits to Irish subsidiaries, benefiting from a favorable tax rate that was considerably lower than those in other jurisdictions. This strategy, while legal at the time, raised questions about profit shifting and tax base erosion.

The case was a landmark moment, underscoring the relation between Multinational Enterprises (MNEs) and international tax regulations. It led Apple to overhaul its Transfer Pricing policies to align with the OECD’s BEPS guidelines, ensuring greater transparency and compliance with global standards.

Fast forward to today, and the global tax landscape is evolving once again with the OECD’s Pillar Two GloBE rules introducing a global minimum tax rate of 15%. For MNEs operating in the UAE, understanding how these new rules intersect with UAE Federal Corporate Tax is not just important—it’s essential.

As MNEs operating in the UAE confront the evolving global tax landscape, understanding the intersection of OECD Pillar Two GloBE (Global Anti-Base Erosion) rules and UAE Federal Corporate Tax is crucial. These rules, part of the Base Erosion and Profit Shifting (BEPS) project, set a global minimum tax rate of 15% to combat profit shifting and tax base erosion. For MNEs in the UAE, the close association between Transfer Pricing rules and UAE Federal Corporate Tax brings both opportunities and challenges.

The Interplay Between Transfer Pricing Adjustments and UAE Federal Corporate Tax

In the UAE, Transfer Pricing adjustments are vital for ensuring that transactions between related parties reflect arm’s length pricing, in line with both UAE Federal Corporate Tax and international standards. The introduction of Pillar Two further adds a layer to this landscape:

Timing of Transfer Pricing Adjustments

  • Post-Year-End Adjustments: MNEs in the UAE often make adjustments after the financial year-end to align their results with Transfer Pricing policies. Under Pillar Two, these adjustments must be booked in the fiscal year to which they pertain or the year in which they were made. This requirement aligns with the UAE’s Federal Corporate Tax regulations, which also demand accurate reflection of financial results in tax returns.
  • Low-Tax Jurisdictions: Historically, the UAE’s favorable tax environment has been seen as a low-tax jurisdiction. Under Pillar Two, there is increased scrutiny on Transfer Pricing adjustments in such jurisdictions. The UAE’s Federal Corporate Tax framework, which adheres to the arm’s length principle, must be carefully integrated with the GloBE rules to avoid potential disallowance of adjustments and double taxation risks.
  • Double Taxation Risks: Adjustments made after filing the GloBE Information Return (“GIR”) can complicate dispute resolution. For UAE-based MNEs, this means navigating potential double taxation if income is reallocated from the UAE to higher-tax jurisdictions. The UAE’s corporate tax regime and its alignment with global standards play a critical role in managing these risks.

Strategies for Managing Transfer Pricing Adjustments in the UAE

To address the challenges posed by Pillar Two and ensure compliance with UAE Federal Corporate Tax regulations, MNEs should adopt the following strategies:

1. Creating a Robust Transfer Pricing Policy

  • Alignment with UAE Federal Corporate Tax: Ensure Transfer Pricing policies are consistent with UAE regulations and international standards. The UAE Federal Corporate Tax rules emphasize the arm’s length principle, which should be reflected in the global Transfer Pricing policy to avoid discrepancies with tax authorities.
  • Regular Monitoring: Regularly update Transfer Pricing policies and documentation to align with both UAE Federal Corporate Tax requirements and Pillar Two rules. This practice supports compliance and mitigates risks associated with post-year-end adjustments.

2. Timing of Adjustments

  • Proactive Adjustments: Make Transfer Pricing adjustments contemporaneously with transactions to reduce discrepancies between financial accounts and tax returns. For UAE-based MNEs, timely adjustments are crucial for aligning with both local tax regulations and Pillar Two requirements.

3. Alignment with Financial Reporting

  • Collaboration with Financial Reporting Teams: Ensure that Transfer Pricing adjustments are accurately reflected in consolidated financial statements. Accurate reporting in line with UAE Federal Corporate Tax and GloBE rules is essential for determining the correct GloBE ETR.

4. Seeking Advance Certainty

  • Advance Pricing Agreements (APAs): Utilize APAs to gain certainty on the arm’s length nature of transactions. In the UAE, bilateral or multilateral APAs can help mitigate disputes and ensure that Transfer Pricing adjustments are recognized by UAE tax authorities and other jurisdictions.

The close association between Transfer Pricing rules and UAE Federal Corporate Tax underscores the importance of a well-coordinated approach for MNEs. By aligning Transfer Pricing policies with UAE regulations, managing the timing of adjustments, ensuring accurate financial reporting, and seeking advance certainty through APAs, MNEs can navigate the complexities introduced by OECD Pillar Two effectively. Embracing these strategies will help MNEs comply with both local and global tax requirements, ensuring a smooth alignment with the new international tax standards and minimizing potential risks.

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Blogs

What is the UAE Corporate Tax Exempted Incomes? Find Here!

The UAE’s corporate tax landscape has undergone significant changes, making it essential for businesses to understand the nuances of the new regulations. With the stakes high, non-compliance can lead to substantial penalties.

One of the most crucial aspects of corporate tax regulations is identifying and leveraging available exemptions. The UAE government has outlined specific exemptions for certain types of income and entities, which can significantly reduce tax burdens.

Upcoming CT Deadline: Don’t Miss It!

Before diving into the specifics of corporate tax exempted incomes, it’s crucial to remind you about an important upcoming deadline. If your Resident Juridical Person’s license was issued in June—regardless of the year—you have until 31 August 2024 to submit your Tax Registration application. Missing this deadline could result in late registration penalties, which can have a financial impact on your business. This deadline is just one example of why staying on top of your tax obligations is so important.

Corporate Tax Exempted Incomes: What You Need to Know

While CT registration is mandatory for all businesses, not all income is subject to taxation. The UAE government has outlined specific exemptions that certain businesses and individuals may qualify for. Understanding these exemptions can save you time, effort, and money.

Here’s a concise overview of the Corporate Tax Exempted Incomes:

1. Individuals Earning Employment Income

One of the most common sources of income, salaries, and other employment-related income from both public and private sectors are not subject to corporate tax. This exemption means that individuals working as employees will not see any changes to their tax obligations, as their employment income is not taxable under the corporate tax regime.

2. Passive Income Earners

If you’re earning passive income from sources such as interest, dividends, capital gains, or other investment returns from personal savings or investments, you are exempt from corporate tax. This exemption is particularly beneficial for individuals who rely on investments for income rather than traditional employment, allowing them to continue growing their wealth without the burden of additional taxes.

3. Foreign Investors

The UAE has always been an attractive destination for foreign investors, and this continues under the corporate tax framework. Income generated by foreign investors from dividends, capital gains, interest, and royalties remains non-taxable under UAE corporate tax. This exemption helps maintain the UAE’s competitive edge as a global investment hub, encouraging further foreign investment in the country.

4. Extractive Industries

Businesses involved in the extraction of natural resources, such as oil and gas companies, are governed by Emirate-level taxation. These entities are exempt from federal corporate tax, ensuring that their taxation remains within the jurisdiction of the individual Emirates. This exemption recognizes the unique nature of the extractive industries and the significant role they play in the UAE’s economy.

5. Qualifying Public Benefit Entities

Public benefit entities that meet specific criteria are also exempt from corporate tax. These entities typically include organizations that serve the public good, such as charities and non-profits. By exempting these entities, the UAE government supports the continuation of their vital work without the added financial burden of corporate tax.

6. Government and Government-Controlled Entities

Entities that are wholly owned by the government or are controlled by it are not subject to corporate tax. This exemption ensures that government-related activities can continue uninterrupted, supporting the broader economic and social objectives of the UAE.

7. Free Zone Businesses

The UAE’s Free Zones have long been a major draw for businesses due to their favorable tax regimes. Under the new corporate tax laws, certain businesses operating in Free Zones may continue to enjoy tax exemptions, provided they qualify as “Qualifying Free Zone Persons” and do not engage in business activities within mainland UAE. This exemption maintains the Free Zones’ attractiveness to businesses looking for a tax-efficient environment.

Next Steps: Ensure Compliance and Avoid Penalties with MS

Corporate Tax Exempted Incomes are one key aspect of UAE Corporate Tax Regulations. Also, understanding various aspects of corporate tax can be challenging, especially when it comes to determining whether your business qualifies for an exemption. If you’re unsure about your eligibility or need assistance with the registration process, our team of experts at MS is here to help. We can guide you through the necessary steps to safeguard your business and ensure you remain compliant with all applicable tax regulations.

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What Should Companies Focus on for a Successful ADGM Annual Audit?

Today, compliance is far more than a box to tick. Companies that master the art of regulatory adherence don’t just avoid penalties; they thrive, gaining the trust of stakeholders and reinforcing their reputation in a competitive landscape. Compliance, especially in financial reporting, demands a sharp eye for detail and a forward-thinking strategy, turning what may seem like an obligation into a powerful tool for growth.

At the forefront of regulatory adherence is the Abu Dhabi Global Market (ADGM), a visionary force in the UAE known for its rigorous standards and commitment to transparency. For companies and LLPs registered under ADGM, the preparation of annual accounts is not just a routine task. These financial statements, thoroughly prepared in line with International Accounting Standards (IAS), provide a clear lens into a company’s fiscal health, offering critical insights for both internal decision-makers and external stakeholders.

With the September 30th deadline for submitting these accounts fast approaching, businesses must understand the audit process with care and precision, ensuring that their financial records not only meet ADGM’s regulatory requirements but also stand as a testament to their financial integrity.

In light of the RA’s 2023 assessments, it is crucial for company directors, especially those serving on audit and risk committees, along with audit partners, to carefully scrutinize and approve the ongoing audit work on company accounts.

Accurate, timely, and insightful corporate reporting is fundamental to the proper functioning of capital markets, investor confidence, and the protection of public interests. The RA places a strong emphasis on high audit quality as a regulatory priority and may hold audit firms, audit principals, and company directors responsible for any deficiencies in the preparation or auditing of financial statements.

Key Findings by ADGM Annual Audit 2023 on How Audits Can Go Wrong

ADGM’s commitment to maintaining a strong regulatory environment extends to its audit requirements. Companies must align their audit practices with ADGM’s stringent standards, which prioritize several key areas:

  1. Tailored Audit Approaches: One of the most critical aspects of an ADGM audit is the use of methodologies tailored to incorporate ADGM’s specific requirements. Limited or improper application of these methodologies can lead to significant gaps in the audit process, particularly concerning financial statement disclosures. Utilizing a financial statement disclosure checklist that factors in ADGM requirements is essential for ensuring accuracy and completeness.
  2. Strategic Audit Planning: A well-structured audit begins with strategic planning. However, common issues such as inadequate understanding of the entity, its environment, and risk factors can hinder the audit process. Effective planning procedures, including a comprehensive risk assessment, are crucial for identifying potential challenges early in the audit process and ensuring all relevant areas are covered.
  3. Revenue Verification: Revenue is often a focal point in financial audits, and ADGM audits are no exception. Insufficient audit evidence on key audit assertions can arise from weak audit tests and inadequate planning. Ensuring robust audit tests and well-documented procedures can mitigate these risks, providing a clearer and more accurate representation of the company’s financial performance.
  4. Comprehensive Group Audits: For companies operating as part of a group, group audits present additional complexities. Common challenges include inadequate work by the group auditor, especially in areas such as scoping, materiality, and communication with component auditors. To address these issues, group auditors must establish clear communication channels and ensure a thorough understanding of the component auditors’ work.
  5. Thorough Journals Testing: Journals testing is a critical component of any audit, particularly when there is a significant risk of management override of controls. However, some audit teams fail to conduct adequate work in this area, leading to potential oversight of key risks. Implementing rigorous journals testing procedures can help auditors detect and address these risks effectively.
  6. Assessing Going Concern and Subsequent Events: Auditors must also evaluate the entity’s ability to continue as a going concern and identify any post-period events that require disclosure or adjustment in the financial statements. Inadequate work in this area can lead to significant misstatements. Auditors should conduct thorough reviews and analyses to support the going concern assumption and ensure all relevant events are accounted for.
  7. Ensuring Quality Control: Lastly, maintaining high standards of quality control throughout the audit process is paramount. This includes the active involvement of the ADGM Registered Audit Principal from the planning stage through to completion. Additionally, the engagement partner responsible for issuing and signing the audit report should be consistently involved to ensure continuity and oversight.

Preparing for Your 2024 ADGM Annual Accounts

As the September 30th deadline approaches, it’s vital for companies in ADGM to review their accounting and audit processes and ensure they meet all regulatory requirements. By focusing on the key areas highlighted above, companies can not only comply with ADGM standards but also enhance the accuracy and reliability of their financial statements.

Streamline Your ADGM Annual Accounts Filing with Expert Support from MS

At MS, we specialize in ensuring seamless compliance with the annual filing requirements of the ADGM. Our team of experts guides you through every step of preparing and submitting your annual accounts, aligning with ADGM’s stringent regulatory standards. From accurate financial reporting to timely submissions, we handle the entire process, reducing your administrative burden and ensuring that your business remains in good standing with the regulatory authorities. With our tailored approach, we make sure your financial statements are precise, compliant, and reflective of your company’s financial health.

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Blogs

How to Optimize Your UAE Corporate Tax Position: Key Insights and Best Practices

Recent updates from the UAE Federal Tax Authority (FTA) underscore the urgency for businesses to stay informed about Corporate Tax (CT) regulations. For instance, companies with licenses issued in June 2024 must complete their CT registration by August 31, 2024, to avoid penalties. The introduction of the UAE Corporate Tax CT regime not only brings new compliance requirements but also opens up opportunities for optimizing tax positions. Companies can benefit from incentives for Qualifying Business Activities and must understand detailed rules on expense management and financial reporting. Adopting a proactive approach to these changes is essential for maximizing benefits and ensuring compliance in this complex tax environment to optimize your UAE Corporate Tax position.

Here’s a quick rundown of key points that help you ensure compliance and enhance your tax positioning:

  1. Strategic Tax Optimization and Adjustments

The UAE’s CT framework offers potential incentives for Qualifying Business Activities, providing opportunities to reduce tax liabilities. While specific details are still emerging, businesses should stay updated on these developments. Additionally, understanding the deductibility of local taxes, such as municipal and property taxes, is essential. However, taxes under certain Emirate laws, like those on foreign bank branches, are not deductible.

Key considerations:

  • Qualifying Business Activities: Research potential incentives and explore how your business can align with qualifying criteria.
  • Local Tax Deductibility: Understand the deductibility of various local taxes and plan accordingly.
  • Expense Management and Allocation

Proper management and allocation of expenses are critical under the new CT regime. Employee costs, including benefits like medical insurance and travel allowances, are generally deductible subject to the arm’s length standard. However, excessive contributions to private pension funds are not deductible.

For expenses serving both business operations and exempt income, businesses must allocate them on a fair and reasonable basis using a consistent method. Non-deductible expenses capitalized cannot be depreciated for CT purposes, requiring careful consideration when determining capitalizable costs.

Key considerations:

  • Arm’s Length Standard: Ensure that expense allocations comply with the arm’s length principle.
  • Expense Allocation Methods: Adopt a consistent and justifiable method for allocating expenses.
  • Capitalization and Depreciation: Carefully evaluate the capitalization of expenses and their potential impact on tax deductions.
  • Financial Reporting and Compliance

As businesses approach the financial year-end, accurate and compliant tax-related reporting is essential. Companies with a revenue threshold of AED 50 million must prepare audited financial statements in accordance with the arm’s length standard.

Decisions regarding the election to apply the realization basis for unrealized gains or losses should be made early, as this choice is irreversible. Pre-incorporation and pre-trading expenses, deductible even before revenue generation, need careful recording.

Key considerations:

  • Audited Financial Statements: Ensure compliance with audit requirements for businesses exceeding the revenue threshold.
  • Realization Basis Election: Make informed decisions about the realization basis to optimize tax positions.
  • Pre-Incorporation and Pre-Trading Expenses: Accurately record and document these expenses for potential deductions.
  • Preparing for Tax Adjustments

The UAE’s CT regime requires a structured approach to calculating taxable income and CT payable. Multiple tax adjustments may be necessary, involving data from various business functions.

Key considerations:

  • Tax Policy and Procedures: Implement documented policies and procedures to streamline tax calculations and ensure compliance.
  • Year-End Reporting: Prepare for year-end reporting to accurately calculate CT and related deferred taxes.

Optimize Your UAE Corporate Tax Position with MS

It’s vital for all businesses to begin their UAE Corporate Tax impact assessment to understand where they stand according to the regulations of the CT. Partner with MS to properly assess your Corporate Tax and our expertise will help you understand the UAE taxation, keeping your business compliant and protected. Act now—secure your business’s future with MS today.

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Build, Protect, Pass On: Read How DIFC Foundations are Securing Wealth Across Borders

When it comes to protecting and structuring your wealth, the right tools can make all the difference. Effective wealth management isn’t just about growing your assets—it’s about safeguarding them for future generations and ensuring they are passed on seamlessly. In a world where personal and business interests often span multiple jurisdictions, finding a robust yet flexible solution is crucial. This is where Dubai International Financial Centre (DIFC) foundations come into play. Combining the strengths of trusts and companies, these unique entities offer a powerful vehicle for asset protection, succession planning, and wealth management. Established under the exclusive governance of DIFC laws, DIFC foundations provide a secure, versatile, and globally recognized framework, ideal for individuals and families looking to preserve and manage their wealth across borders.

Key Features of DIFC Foundations

DIFC foundations are unique legal entities governed exclusively by DIFC laws, with limited exceptions. These exceptions apply when the original endowed property is situated outside the DIFC, and the founder lacks the power to dispose of it according to the law where the property is located.

Foundations can be used for various purposes, including wealth management, succession and inheritance planning, and owning private trust companies. They are particularly beneficial for families with members and business interests in both civil and common law jurisdictions. The DIFC’s comprehensive support for financial and non-financial business activities, including banking, professional services, and wealth management, makes it an ideal jurisdiction for establishing such entities.

Incorporating DIFC Foundations

To establish a foundation in the DIFC, the following requirements must be met:

  • Founder: A minimum of one founder is required to establish a foundation.
  • Council Members: The foundation must have at least two members on its council.
  • Registered Office: The foundation must maintain a registered office in the DIFC. This can be achieved by setting up an office within the DIFC, sharing an office with an affiliated entity, or appointing a registered agent.
  • Charter and By-Laws: While a standard foundation charter can be used, it is customizable to suit the specific needs of the client.
  • Guardian Appointment: If the foundation has a charitable or specified non-charitable object, a guardian must be appointed. In other cases, appointing a guardian is optional.

Purpose and Governance

A DIFC foundation’s objectives must be certain, reasonable, and possible, and they must align with the laws and public policy of the DIFC. Foundations can be established for charitable purposes, non-charitable purposes, or to benefit specific individuals or classes of persons.

While a foundation cannot engage in commercial or charitable activities directly, it may conduct activities ancillary or incidental to its objectives.

Governance of the foundation is overseen by a council responsible for administering the foundation’s property and carrying out its objectives. The founder or a corporate entity can serve as a council member, providing flexibility in managing the foundation’s affairs.

Founder Rights and Registered Agents

Founders of DIFC foundations enjoy significant control over the foundation’s operation, including the ability to amend, revoke, or vary the terms of the charter, by-laws, or objectives. Additionally, the founder can terminate the foundation during their lifetime.

While appointing a registered agent is optional, any agent appointed must be licensed by the DIFC Authority and registered with the DFSA as a designated non-financial business or professional (DNFBP).

Qualified Recipients and Depository Receipts

DIFC foundations may provide benefits to individuals or classes of persons as specified in the charter or by-laws. Importantly, information about these recipients is not placed on any public register, ensuring privacy.

Moreover, foundations in the DIFC can issue securities, such as depository receipts or certificates, representing the value of contributed assets. These certificates act as contracts, reflecting the value of the underlying assets owned by the contributor.

Accounting and Compliance

Foundations in the DIFC must prepare annual accounts in accordance with international financial reporting standards. These accounts must be approved by the foundation council and signed by two council members within six months of the end of the financial year. A copy of the approved accounts must be filed with the Registrar (if no registered agent is appointed) or provided to the registered agent. Unlike other entities, DIFC foundations are not required to have their accounts audited, reducing the administrative burden.

DIFC Foundations: Region’s Best Wealth-Protecting Structure

The DIFC’s framework for foundations offers a robust, flexible solution for managing and protecting wealth, particularly for families and individuals with diverse global interests. With its strong legal foundation, comprehensive support for business activities, and flexible governance structure, DIFC foundations are an attractive option for those seeking to safeguard and manage their assets effectively.

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Inside the UAE’s New AML Legislation: What’s Changed and Why It Matters

The UAE has frequently been in the spotlight, but its latest headlines are dominated by the recently updated Anti-Money Laundering (AML) framework.

In the UAE, dirty money has been flowing under the radar for years. As we know that modern financial crimes require updated solutions, the country has been holding its anti-money laws in a tight grip. But have you wondered why the UAE has updated the Anti-Money Laundering (AML) and counter-terrorism financing (CFT) framework now?

Why the New Changes in UAE AML Laws?

The UAE is stepping up its game in the battle against financial crime, especially money laundering and terrorism financing. The UAE has seen a dramatic increase in AML Violation fines, reaching Dh249.2 million last year alone. These new regulations are part of a broader push to strengthen the country’s financial defences and align with global standards, especially after the UAE was removed from the Financial Action Task Force’s grey list earlier this year. This intensified approach underscores the UAE’s commitment to maintaining a secure and transparent financial system.

What’s new in the revised AML regulations?

1. Strengthening Compliance with International Standards

The UAE’s new legislation comes almost six months after the country was removed from the Financial Action Task Force’s (FATF) grey list—a list of countries with deficient AML and CFT measures. The recent amendments aim to further solidify the UAE’s compliance with global standards and recommendations. By aligning its framework with international treaties and guidelines, the UAE seeks to enhance its reputation as a secure and trustworthy financial centre.

2. Enhancing Coordination and Oversight

One of the key goals of the new law is to improve coordination among various entities involved in the fight against financial crimes. The creation of new committees and a General Secretariat is designed to streamline efforts, ensuring that Financial Institutions (FIs), Designated Non-Financial Businesses and Professions (DNFBPs), and other relevant bodies work together more effectively. This enhanced collaboration is expected to improve information sharing and simplify reporting processes, making it harder for financial crimes to go undetected.

3. Committee under the new framework

The UAE has established two major committees under the new law:

  • The National Committee for Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations: This committee will be responsible for developing and implementing comprehensive AML and CFT strategies.
  • The Supreme Committee for the Oversight of the National Strategy for AML and CFT: This committee will oversee the National Committee’s activities, issue guidelines, and ensure that strategies are effective and aligned with international standards.

4. Creating a General Secretariat

A new General Secretariat has been set up to support the committees. Led by a Secretary-General who will also be Vice-Chairperson of the National Committee and a member of the Supreme Committee, the Secretariat will implement decisions and ensure smooth communication between the committees.

5. Improving Reporting and Evaluation

The new law introduces measures to enhance the reporting and evaluation processes. It mandates the oversight of the Mutual Evaluation Report, which assesses the UAE’s compliance with international AML and CFT standards. This focus on rigorous evaluation reflects the UAE’s commitment to not only adhering to global practices but also to continually improving its financial crime prevention measures.

Impact of new AML standards on Financial Institutions and Other Entities

1. Increased Compliance Demands

Financial institutions and DNFBPs will face stricter oversight and heightened reporting requirements. They must update their compliance programs to meet the new standards, including enhanced coordination and prompt reporting of suspicious activities.

2. Strengthened Financial Security

The updated framework aims to strengthens the defenses against financial crimes, contributing to a more secure and stable financial environment. This enhancement is likely to attract international businesses and investors seeking a reliable and protected financial system.

3. Continuous Monitoring and Adjustment

Entities must remain vigilant and adapt their practices in response to the new regulations. Regular updates to compliance strategies and internal controls will be crucial to keeping up with the evolving regulatory landscape.

How are IFC’s setting the benchmark in combating against Money laundering

The UAE’s updated anti-money laundering (AML) regulations now set a strong framework across the entire country, including the leading financial centres like Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC). While both free zones follow the federal AML rules, they also have their own unique requirements. For instance, DIFC, under the Dubai Financial Services Authority (DFSA), has extra rules for real estate developers and requires UAE-resident AML officers. On the other hand, ADGM, regulated by the Financial Services Regulatory Authority (FSRA), focuses on stricter Know Your Customer (KYC) practices and specific sector guidelines.

The UAE Reinforcing the Future of Financial Security with New AML Standards

The UAE’s new anti-money laundering laws represent a significant advancement in the country’s efforts to combat financial crimes. By strengthening its legal framework, improving coordination among key players, and aligning with international standards, the UAE is reinforcing its position as a leading global financial hub. These changes underscore the country’s commitment to maintaining a secure and transparent financial system and enhancing its role in the global fight against financial crime.

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What is Rf (Risk-Free Rate of Return) that influenced the Amazon-Souq Acquisition in 2017? Read Now!

In 2017, Amazon made headlines with its acquisition of Souq.com, the leading online retailer in the Middle East. This landmark deal, valued at around $580 million, was influenced by various financial factors, one of the most critical being the Risk-Free Rate of Return (Rf). At the time, the UAE government bond yields were relatively low, reflecting the country’s stable and robust economic environment. This low Rf played a significant role in creating a favourable discount rate, which enhanced the valuation of Souq.com and made the acquisition attractive for Amazon.

Risk-Free Rate of Return (Rf) is a fundamental concept that can significantly influence the outcome of a deal. This is particularly true in the Middle East, where economic conditions are closely tied to factors like government spending, geopolitical stability, and global oil prices. The Rf serves as a benchmark for evaluating investment risks and plays a crucial role in determining the cost of capital and overall company valuations.

What is the Risk-Free Rate of Return (Rf)?

The Risk-Free Rate of Return (Rf) represents the return on an investment with minimal risk, typically associated with government bonds issued by stable governments. In the Middle East, this often includes bonds from countries like the UAE, Saudi Arabia, and Qatar, which have strong credit ratings and are perceived as low-risk due to their stable political environments and robust economies.

For example, the yield on UAE government bonds, or Saudi Arabian sukuks, is frequently used as a proxy for the risk-free rate in financial models across the region. These instruments are backed by oil-rich governments with solid economic foundations, making them a reliable benchmark for risk-free returns.

Why Does the Risk-Free Rate of Return (Rf) Matter in Middle Eastern M&A Deals?

Influence on Decision-Making

In the Middle East, the risk-free rate (Rf) is a key factor in M&A decision-making, given the region’s fluctuating economic conditions. Changes in Rf, driven by government bond yields or central bank policies, can significantly impact company valuations, affecting deal negotiations and structures.

Reflecting Regional Dynamics

Middle Eastern economies, influenced by global oil prices, government spending, and geopolitical stability, directly affect the Rf. High oil prices and strong government spending typically lower the Rf, indicating stability, while geopolitical tensions or declining oil revenues raise it, impacting M&A valuations.

Risk Assessment in Volatile Markets

Accurately assessing the Rf is essential in the Middle East’s volatile environment. A well-calculated Rf helps investors properly assess transaction risks, avoiding mispricing, especially in sectors sensitive to government policies and global market shifts.

The Role of Rf in M&A Valuations in the Middle East

In the Middle East, the risk-free rate plays a pivotal role in the valuation of companies during M&A transactions. Here’s how it’s utilized:

  1. CAPM Model: Estimating the Cost of Equity

The Capital Asset Pricing Model (CAPM) is widely used in the Middle East to estimate the cost of equity, a crucial factor in company valuations.

  • Rf (Risk-Free Rate): In the Middle Eastern context, this is often derived from the yields on government bonds or sukuks issued by regional governments.
  • Beta (β): This measures the volatility of the company’s stock relative to the overall market. In the Middle East, sectors such as real estate, energy, and banking often exhibit varying levels of volatility.
  • Market Risk Premium (Rm – Rf): The additional return expected from the market over the risk-free rate, which in the Middle East can be influenced by factors like oil prices and geopolitical stability.

2. DCF Model: Impact on Discount Rate

The risk-free rate is a core component of the discount rate used in Discounted Cash Flow (DCF) models. In the Middle East, where economic conditions can be influenced by oil price fluctuations and government spending, the Rf can vary, impacting the discount rate and thus the valuation of a target company.

A lower Rf, often seen in periods of high government spending and economic stability, results in a lower discount rate, which increases the present value of future cash flows. Conversely, during periods of economic uncertainty or lower oil prices, a higher Rf may prevail, leading to a higher discount rate and potentially lower valuations.

3. WACC Model: Influence on Cost of Equity

The Weighted Average Cost of Capital (WACC) is another critical metric in M&A valuations across the Middle East. The WACC reflects the average rate of return required by investors, weighted by the proportion of equity and debt. The risk-free rate, a key factor in determining the cost of equity, significantly impacts WACC calculations in the region, particularly given the diversity of capital structures and financing mechanisms, such as Islamic finance.

With regional governments often supporting businesses through favorable financing terms, the choice of Rf can reflect these conditions, thereby influencing WACC and the overall company valuation.

Amazon’s acquisition of Souq is a prime example of a successful deal leveraging the Rf in the Middle East market. For those seeking to optimize deal outcomes, understanding the Rf rate and its implications is crucial. By effectively utilizing this metric, you can make informed decisions and achieve greater success in your business endeavours

MS: Empowering Strategic Decisions with Expert Business Valuation in the UAE

At MS, we recognize that business valuation is crucial for achieving optimal outcomes for your company. Our team of valuation experts is skilled in applying various valuation methods to capture your company’s distinct features and industry specifics. Whether you’re exploring a merger or acquisition, seeking to raise capital, or assessing your company’s current value, we deliver thorough valuations that offer more than just numbers.

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