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Is Working Capital Sizing, Fund Sourcing, and Fund Sizing Essential for Achieving M&A Success in the Middle East?

Is Working Capital Sizing, Fund Sourcing, and Fund Sizing Essential for Achieving M&A Success in the Middle East

In the Middle East, Mergers and Acquisitions (M&A) are becoming increasingly central to strategic growth as businesses seek to adapt to a diversifying economy and capitalize on emerging opportunities. The region’s economic landscape is marked by rapid transformation, driven by efforts to reduce reliance on oil and invest in infrastructure, technology, and new markets.

As M&A activity intensifies, understanding the unique financial dynamics—such as working capital sizing, fund sourcing, and fund sizing—becomes crucial. These financial considerations not only impact deal valuation and pricing but also play a pivotal role in ensuring that transactions align with regional economic conditions and regulatory environments, setting the stage for successful and sustainable business growth.

The Interlink Between Working Capital Sizing, Fund Sourcing, and Fund Sizing

Working capital sizing, fund sourcing, and fund sizing are closely interconnected in M&A transactions. Working capital sizing ensures the target company can cover short-term liabilities and maintain operations. This impacts fund sourcing, where securing the right financial resources is crucial to support the target’s working capital needs. Fund sizing involves determining the total capital required for the deal, including purchase price and associated costs. Aligning these elements ensures a well-funded, smooth acquisition process and supports sustainable business growth.

Understanding Working Capital Sizing, Fund Sourcing, and Fund Sizing

What is Working Capital?

Working capital is a measure of a company’s short-term financial health and operational efficiency. It is calculated as the difference between current assets (e.g., cash, accounts receivable, inventory) and current liabilities (e.g., accounts payable, short-term debt). Adequate working capital ensures that a company can meet its short-term obligations and continue its operations without financial strain.

Why is Working Capital Sizing Crucial in M&A?

In an M&A context, working capital sizing is essential for several reasons:

  • Liquidity Assessment: It provides insights into the target company’s ability to sustain its operations and cover short-term liabilities.
  • Purchase Price Adjustment: Working capital levels directly impact on the purchase price. Adjustments may be needed to account for differences between the target’s historical and current working capital.
  • Operational Continuity: Ensuring that the target company has sufficient working capital helps in maintaining smooth operations post-acquisition.

How to Size Working Capital

  1. Historical Analysis: Start by reviewing the target company’s historical financial statements to understand its typical working capital needs. This involves analyzing trends in accounts receivable, inventory, and accounts payable.
  2. Normalization: Adjust historical figures for any unusual or non-recurring items that may distort the true working capital requirement. This includes seasonal fluctuations, one-time events, or changes in business operations.
  3. Working Capital Targets: Define a working capital target that reflects the normal operating needs of the business. This target should be agreed upon by both parties in the purchase agreement.
  4. Adjustments and Reconciliation: Post-acquisition, compare the target’s actual working capital to the agreed-upon target. Adjust the purchase price accordingly to reflect any differences.

Fund Sourcing: Finding the Right Financial Resources

What is Fund Sourcing?

Fund sourcing involves identifying and securing the necessary financial resources to complete an M&A transaction. Effective fund sourcing ensures that the deal can be financed without straining the acquiring company’s finances.

Sources of Funds

  1. Equity Financing
    • Public Equity: Issuing new shares to the public through an IPO or a secondary offering.
    • Private Equity: Raising capital from private investors or private equity firms. This can provide significant funding without incurring debt but may involve giving up ownership stakes.
  2. Debt Financing
    • Bank Loans: Securing loans from financial institutions. This option often requires collateral and involves interest payments.
    • Bonds: Issuing bonds to raise capital. Bonds come with fixed interest payments and a repayment schedule.
  3. Internal Cash Reserves
    • Company Cash: Using existing cash reserves can be a cost-effective way to finance the acquisition. This option reduces reliance on external funding but may impact on the company’s liquidity.
  4. Joint Ventures and Partnerships
    • Strategic Alliances: Collaborating with other companies or investors to share the financial burden and risks associated with the transaction.

Fund Sizing: Determining the Total Capital Requirement

What is Fund Sizing?

Fund sizing involves calculating the total amount of capital needed to finance an M&A transaction. This includes not only the purchase price but also associated costs and potential contingencies.

Components of Fund Sizing

  1. Purchase Price
    • Valuation: Determining the value of the target company through various valuation methods such as DCF, comparable company analysis, and precedent transactions.
  2. Transaction Costs
    • Advisory Fees: Costs associated with financial advisors, legal advisors, and consultants.
    • Due Diligence: Expenses related to conducting thorough due diligence to assess the target company’s financial and operational health.
  3. Integration Costs
    • Operational Integration: Costs of merging operations, systems, and personnel.
    • Cultural Integration: Expenses related to aligning company cultures and managing employee transitions.
  4. Contingencies
    • Unexpected Costs: Setting aside funds for unforeseen expenses or liabilities that may arise post-acquisition.

Optimizing Working Capital Sizing, Fund Sourcing, and Fund Sizing

Working capital sizing, fund sourcing, and fund sizing are key components that influence deal valuation, pricing, and operational continuity. By carefully assessing working capital needs, securing the right funding, and accurately sizing your capital requirements, you can position your business for impactful and sustainable growth in the Middle East and beyond. As the Middle East evolves, businesses that master these financial considerations will be better positioned to align their M&A activities with regional economic conditions and regulatory frameworks.

Master Working Capital Sizing, Fund Sourcing, and Fund Sizing with MS

At MS, we offer expert services in working capital sizing, fund sourcing, and fund sizing to ensure your M&A transactions are both strategic and efficient. We provide precise assessments of working capital needs, secure optimal funding solutions, and accurately determine the total capital required for your deals. With our guidance, you can confidently navigate the financial complexities of M&A, aligning your strategies with regional market conditions for sustainable growth.

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The UAE rises as a hotspot for business: decoding the formula for success in H2 2024

The United Arab Emirates is redefining its identity, moving beyond its oil-rich past to become a hotspot for business and innovation. With more and more ambitious entrepreneurs and industry leaders from around the world setting up in the region, the UAE has been acting as a magnet for startups and UHNWI’s.

The UAE rises as a hotspot for business and wondering why?

How do growth factors fuel the fact that the UAE rises as a hotspot for business?

It’s no surprise because the UAE has been a driving force for business setup. From its prime location to world-class infrastructure, it’s a dream come true for global ventures. Let’s explore the factors driving the UAE’s rise as a hotspot for business.

Strategic Geographic Location: The UAE is the second bilateral investor in the continent. Being one of the valuable economic connectors, positioned at the crossroads of Europe, Asia, and Africa, the UAE offers easy access to global markets and efficient logistics. Being a BRICS member, and have signed the CEPA trade deal, various emirates have been showing supercharged growth in recent times.

Economic stability: In the first quarter of 2024, the UAE’s GDP surged to Dh430 billion, showcasing its strong focus on economic diversification and knowledge-based sectors. Adding to this impressive performance, the country achieved record-breaking non-oil trade figures, reaching AED 1.4 trillion ($381 billion). These milestones clearly demonstrate that the UAE is not just resting on its oil-rich past but is actively shaping a dynamic and diverse future in global trade.

Freezone regulatory advantages: Free zones in the UAE offer key advantages over the mainland. You get full foreign ownership without needing a local partner, simplifying setup and giving you complete control. The process is quick and efficient, avoiding unnecessary bureaucracy. Free zones also feature top-notch infrastructure and a range of flexible legal and commercial options, making it easier to tailor your business to your needs.

Safest City index: The UAE is setting new standards in safety and liveability, with Abu Dhabi recently crowned the world’s safest city. Emirates like Ajman, Dubai, and Ras al-Khaimah also excel in global safety rankings, highlighting the country’s commitment to providing a secure and high-quality environment. This focus on safety and exceptional living conditions isn’t just attracting residents—it’s also drawing in businesses and investors from around the globe, eager to benefit from the UAE’s unparalleled standards.

State-of-the-art infrastructure: The United Arab Emirates (UAE) has firmly established itself as a global leader in infrastructure, demonstrating both impressive progress and a strong commitment to continuous growth. With world-class international airports in Dubai and Abu Dhabi, and other infrastructure investments, the UAE ranks fourth globally for infrastructure quality.

Innovation and technology: The UAE has taken the lead in innovation and technology, emerging as a key player in shaping the future of digital economies. The country is at the forefront of the evolving digital landscape, with a strong emphasis on cryptocurrency, Web3, and blockchain technologies. These advancements promise significant benefits, including increased efficiency, transparency, and security for businesses. As a result, the UAE is not only driving growth and innovation in finance but also attracting top-tier talent and businesses from around the world.

UAE rises as a hotspot for business: The strategic role of financial Freezones

Dubai International Financial Centre (DIFC)

For two decades, the Dubai International Financial Centre (DIFC) has been a major player in shaping the financial landscape of the Middle East, Africa, and South Asia (MEASA). Positioned as the leading financial hub in the region, DIFC has earned its reputation as the number one global free zone for greenfield Foreign Direct Investment (FDI) projects.

Here’s why DIFC is a game-changer for the UAE’s business scene:

  • Massive Growth: Assets Under Management have surged by 58%, reaching an impressive USD 700 billion.
  • Fintech Boom: The fintech and innovation sectors are thriving, with a 33% increase in new firms.
  • Business Expansion: Active registered companies have jumped by 24% year-on-year, surpassing 6,000 for the first time in the first half of the year.
  • Job Creation: The addition of 820 new businesses has boosted the workforce, creating a wealth of new job opportunities.

DIFC is opening exciting new growth avenues and attracting High Net-Worth Individuals (HNWIs), solidifying Dubai’s role as a central hub for international finance and commerce. As the UAE rises as a hotspot for business the vibrant ecosystem is not only enhancing the country’s global business appeal.

Abu Dhabi Global Market (ADGM)

After H1 2024, the Abu Dhabi Global Market (ADGM) is truly standing out, reinforcing its role as a premier global financial hub and a key factor in making the UAE a top destination for business.

  • Huge Growth in Assets: ADGM saw a remarkable 226% increase in Assets Under Management (AUM) compared to last year, reaching new heights and drawing significant attention from global asset managers.
  • Booming Business: The number of asset and fund managers at ADGM has risen to 112, with a 20.5% jump in new licenses issued. This surge highlights ADGM’s growing appeal to new businesses and investors.
  • Job Creation Surge: The centre’s expansion has led to over 2,500 new jobs, boosting employment and contributing to Abu Dhabi’s economic vitality.

ADGM’s impressive growth and strategic initiatives are making Abu Dhabi an even more attractive place for business setups and investments. Its success is helping the UAE solidify its position as a top destination for global finance and commerce.

The UAE rises as a business hotspot: what’s next in H2 and beyond

Entering the second half of 2024, it’s clear that the UAE is moving through a golden era. It’s not just the tax benefits and exemptions that sparkle the most, but the incredible quality of life and a business environment that are second to none.

The UAE isn’t hitting the brakes anytime soon. From launching new businesses to managing the entire lifecycle of enterprises, the country’s growth is showing no signs of slowing. As the year rolls on, the momentum will only continue to build, further solidifying the UAE’s rise as a hotspot for business and investment.

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How the Future of Executive Search Is Evolving: 8 Trends You Need to Watch

The future of executive search is evolving. It’s no longer just about filling roles; it’s about finding leaders who align with an organization’s vision and are ready to drive success from day one. As businesses face new challenges and opportunities, the qualities of a great leader are being redefined in the future of executive search. Modern executive search demands a fresh approach—one that embraces technology, fosters diversity, and puts people at the centre of every decision.

Let’s explore the top eight trends that are setting the stage for the future of executive search.

1. Data-Driven Talent Hunting: The Smart Way to Recruit

Say goodbye to gut-feeling hiring! Data analytics is revolutionizing how companies find top talent. By using big data and predictive analytics, organizations can identify the perfect fit based on historical data, behaviors, and cultural alignment.

Case in Point: Microsoft has taken a data-driven approach to its executive search process, utilizing analytics to uncover traits linked to success in leadership roles. This strategy has not only shortened hiring times but has also improved retention rates, illustrating the power of data in modern recruitment.

2. AI Takes Over: Automating the Hunt for Leaders

From AI-driven tools that sift through resumes to virtual assistants that handle initial interviews, automation is speeding up the search process while reducing bias. The future of executive search will see AI doing more of the heavy lifting—giving companies a sharper edge in finding the best leaders without sacrificing quality.

Case in Point: Unilever has embraced AI in their hiring process, especially for executive roles. By using AI to analyze candidate videos and resumes, Unilever reduced hiring time by 75%, demonstrating how AI can make the recruitment process faster, more efficient, and more inclusive.

3. Diversity, Equity, and Inclusion: Beyond the Buzzwords

DEI is no longer optional—it’s a business imperative. Companies are prioritizing diversity to boost innovation and performance. Executive search firms are stepping up, employing new strategies to build diverse leadership pipelines and foster an inclusive hiring process that reflects today’s values and tomorrow’s needs.

Case in Point: IBM is at the forefront of DEI in executive search. The company’s global diversity strategy ensures that its leadership mirrors the diversity of its markets and clients. Through proactive searches for diverse candidates and unconscious biased training for recruiters, IBM sets a standard for inclusive hiring.

4. Remote Leadership: A New Kind of CEO

As remote and hybrid work becomes the new normal, companies are rethinking what makes a great leader. The ideal candidate now needs to excel at managing teams across digital platforms, fostering virtual collaboration, and driving engagement from afar. This trend is reshaping the competencies and skills in demand for top roles.

Case in Point: By prioritizing candidates who can drive innovation and engagement in a virtual environment, Twitter has successfully adapted to the demands of a remote-first company, attracting a more geographically diverse talent pool.

5. Employer Branding: Path to Attract Top Talent

Your brand speaks louder than ever. In a competitive market, a strong employer brand is key to drawing in top-tier candidates. Organizations that offer a compelling mission, a clear set of values, and a great culture are the ones that will capture—and keep—the attention of the best leaders.

Case in Point: Google’s robust employer branding and candidate experience strategy have set the benchmark in the industry. By focusing on transparency and engagement throughout the recruitment process, Google continues to attract some of the brightest minds in the world, securing its status as a top employer.

6. New Roles, New Skills: Digital Leaders for a Digital World

The digital age calls for new leadership roles—think Chief Data Officers, Chief Innovation Officers, and beyond. Tomorrow’s leaders must be agile, tech-savvy, and strategic thinkers. As these roles evolve, so must the search strategies to ensure organizations are ready for what’s next.

Case in Point: Salesforce has pioneered the creation of roles tailored to the digital world. By focusing on recruiting executives with deep digital expertise, Salesforce ensures that its leadership team is well-equipped to navigate the complexities of digital transformation.

7. Beyond Resumes: Psychometric and Behavioral Assessments are In

Want to find out who can handle stress, make tough decisions, and thrive under pressure? Psychometric and behavioral assessments are becoming must-have tools in executive search. These assessments offer deep insights into a candidate’s potential, helping companies make smarter, more informed hiring decisions.

Case in Point: BP has integrated psychometric and behavioral assessments into its executive hiring process. By evaluating candidates’ decision-making styles and stress management abilities, BP ensures that it hires leaders who are not only competent but also align with the company’s culture and long-term goals.

8. The Human Touch: Building Real Connections in a Digital World

Despite all the tech advancements, human connection remains at the heart of executive search. Building trust, showing empathy, and creating meaningful relationships are what attract and retain top talent. It’s not just about algorithms; it’s about authentic engagement.

Case in Point: Salesforce also exemplifies a human-centric approach to recruitment. Their “people-first” strategy, which emphasizes relationship-building and regular communication, has resulted in higher candidate engagement and satisfaction, proving that the human touch is irreplaceable.

Embrace Visionary Leadership for a Better Future of Executive Search

As the future of executive search shifts from simply filling positions to finding visionary leaders, staying ahead of these eight game-changing trends is essential. Embrace data-driven insights, AI innovation, and a strong commitment to DEI and remote leadership to redefine how you discover and attract top talent. By focusing on employer branding, new digital roles, psychometric evaluations, and maintaining the human touch, you’ll ensure your leadership team is not just equipped for today, but ready to drive your organization’s success tomorrow.

MS for Transforming the Future of Executive Search

At MS, we are dedicated to redefining the future of executive search in the UAE by integrating innovative solutions and forward-thinking strategies. Our approach focuses on finding visionary leaders who can drive your organization’s success. By leveraging advanced technology and maintaining a commitment to diversity and inclusion, we ensure that our search aligns with your strategic goals. Let us help you build a leadership team that is prepared for the future and ready to lead your organization to new heights.

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How ADNOC Got It Right: Lessons in Discount Rate and Risk-Free Rate for Middle Eastern M&A in 2024

In recent years, the Middle Eastern market has witnessed an increasing number of deals, driven by government reforms, economic diversification strategies, and a surge in foreign investments. Determining the right discount rate and Risk-Free Rate and accurately measuring industry risk are critical steps in ensuring successful M&A transactions in the region.

A prime example of this is Abu Dhabi National Oil Company (ADNOC), which entered into a strategic $5.8 billion partnership with Italy’s ENI and Austria’s OMV in its refining and trading businesses in 2019. Given the volatility of the oil and gas sector in the Middle East, ADNOC needed to carefully calculate the discount rate to determine the present value of its refining operations. The deal factored in multiple elements including the Risk-Free Rate, Industry Risk, and Country-Specific Risks.

ADNOC’s success in attracting foreign investment and optimizing its asset portfolio illustrates the importance of accurately determining the discount rate and industry risk, particularly in a complex and evolving market like the Middle East.

Let’s explore how concepts of Discount Rate and Risk-Free Rate can be applied effectively in the region.

Understanding the Relationship Between the Discount Rate and Risk-Free Rate:  

The Risk-Free Rate is a critical component in calculating the discount rate. In the Middle East, the risk-free rate often reflects the yield on local government bonds (such as UAE or Saudi Arabian government securities) and treasury bonds for transactions involving international investors. The discount rate, however, goes beyond this baseline rate, incorporating various risk factors pertinent to the Middle Eastern market.

When valuing a company in the Middle East, the discount rate typically includes:

  • Risk-Free Rate: The expected return from an investment with minimal risk of financial loss.
  • Market Risk Premium: Additional return required by investors to compensate for exposure to regional market risks.
  • Country-Specific Risks: Factors unique to the Middle East, such as political stability, currency volatility, and regulatory changes.
  • Industry-Specific Risks: Risks specific to the sector in which the target company operates, which may vary significantly across different countries in the region.

Discount Rate and Risk-Free Rate: Calculating the Discount Rate in the Middle East

Two primary methods are often employed to determine the discount rate and risk-free rate in the Middle East:

  • Capital Asset Pricing Model (CAPM): This model helps estimate the cost of equity, starting with the risk-free rate and adding premiums for market and country-specific risks. In a Middle Eastern context, the Risk-Free Rate may be based on local government bonds or adjusted to reflect geopolitical risks. The beta (β) will reflect the volatility of the company or industry relative to both local and international markets.
  • Weighted Average Cost of Capital (WACC): WACC calculates the overall discount rate by weighing the cost of equity and the cost of debt according to their proportions in the company’s capital structure. In the Middle East, the cost of debt might be influenced by factors like regional credit ratings, interest rate trends, and the overall economic stability of specific countries.

Measuring Industry Risk in the Middle East: Industry risk in the Middle East is shaped by several regional dynamics, from economic diversification policies (like Saudi Arabia’s Vision 2030, and We the UAE 2031) to rapid technological adoption in sectors such as fintech and healthcare.

Here’s how to assess it:

  • Qualitative Factors:
    • Regulatory Environment: Consider regional-specific regulations, such as the UAE’s progressive corporate tax policies or Saudi Arabia’s regulatory reforms to attract foreign investment.
    • Political and Economic Stability: Evaluate how geopolitical events, such as diplomatic relations and regional conflicts, might impact specific industries.
    • Sectoral Growth Trends: Assess government-led initiatives, such as infrastructure development, renewable energy projects, and digital transformation strategies, which may drive growth in specific sectors.
  • Quantitative Factors:
    • Beta Coefficient (β): Obtain beta values that reflect the Middle Eastern market dynamics, using a regional benchmark index like the Tadawul All Share Index (TASI) in Saudi Arabia or the Dubai Financial Market General Index (DFMGI).
    • Industry-Specific Data: Use historical data on default rates, credit spreads, and earnings volatility to understand industry-specific risks.
    • Foreign Exchange Risk: Account for currency risks, especially for industries that rely on imports or exports or have exposure to foreign currency transactions.
  • Start with the Local Risk-Free Rate: Use the yield on local government bonds as a baseline, adjusting for any geopolitical risks or currency considerations specific to the Middle Eastern market.
  • Incorporate Market and Industry Risks: Add the market risk premium, which accounts for the broader market’s volatility, adjusted by the industry beta (β). Factor in specific risks like political instability, regulatory changes, and sector-specific risks that might affect the target company.
  • Calculate the Final Discount Rate: Combine these elements using the CAPM or WACC formulas. The final discount rate should accurately reflect both the baseline risk (Rf) and additional risks unique to the Middle Eastern region.

Combining Risk Free Rate and Industry Risk to Find the Discount Rate: With both the Risk-Free Rate (Rf) and industry risk measures in place, here’s how to use them to calculate the appropriate discount rate for an M&A deal in the Middle East:

In the Middle East, while the Risk-Free Rate provides a baseline, comprehensive discount rate and Risk-Free Rate must account for the region’s unique characteristics. Factors such as geopolitical instability, sector-specific risks, and regulatory changes significantly influence investment returns along with discount rate and Risk-Free Rate. By meticulously integrating these elements, investors can navigate the region’s challenges, make informed decisions, and achieve optimal outcomes in M&A negotiations.

MS offers a unique blend of industry expertise and strategic guidance to help to unlock your full potential through M&A. Our services, including valuation and due diligence ensure seamless deal execution and maximum value creation. Let us make the deals work for you.

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First UAE Corporate Tax Return Filing: Countdown to September 30th, 2024, Begins!

The introduction of Corporate Tax in the UAE had sparked a wave of anxiety among businesses, largely due to confusion and misunderstandings surrounding the new rules.

One of the most prevalent myths is that taxes are only payable from January 1, 2024. However, this is not true for businesses whose first UAE corporate tax return filing period falls between June and December 2023. For these companies, the initial tax return deadline is September 30, 2024, setting a vital benchmark for future filings.

Let’s clear the air and focus on what your first tax period will actually look like and how to effectively prepare.

Understanding Your First Tax Period for First UAE Corporate Tax Return Filing

Since the announcement of the UAE corporate tax law on June 1, 2023, businesses have been through a sea of changes. One area where confusion persists is the ‘tax period,’ which is the financial year or part of the year for which a tax return must be submitted.

Under the law, businesses have some flexibility in defining their financial year. They can align with the Gregorian calendar year (January to December) or select a custom 12-month period that matches their reporting practices. The law applies to all entities incorporated under the UAE Commercial Companies Law, such as mainland companies, free zones, trusts, civil companies, and even foreign entities operating in the UAE through branches or headquarters.

A common sticking point is determining the commencement of the first tax period. For most businesses, this period begins with the first financial year starting on or after June 1, 2023, typically January 1, 2024. However, newly incorporated companies might face more complexity, with their first financial year ranging from six to 18 months.

First UAE Corporate Tax Return Filing: Examples to Illustrate the First Tax Period

To provide more clarity, let’s look at some scenarios:

  1. Company A: Established on February 1, 2023, and aligned with the Gregorian calendar, the initial financial period runs from February 1 to December 31, 2023. However, the first UAE corporate tax return filing period will start on January 1, 2024 – the first financial year beginning after June 1, 2023.
  2. Company B: Incorporated on June 2, 2023, with a financial year from January to December, will see its first tax period run from June 2 to December 31, 2023. The tax return for this period is due by September 30, 2024. This breaks the myth that the first UAE corporate tax return filing is due only by September 30, 2025.

Key Points on Tax Obligations and Financial Year Flexibility

While businesses can choose their financial year, this flexibility does not alter their corporate tax obligations. Whether a company’s first tax period is shorter or longer than 12 months, the AED 375,000 income threshold for the zero percent corporate tax rate remains unchanged. Likewise, the small business relief limit of AED 3 million in revenue still applies. Companies with revenues exceeding AED 50 million must provide audited financial statements, regardless of the length of their tax period.

Additionally, for tax periods shorter or longer than 12 months, certain rules, such as the general interest deduction limitation, adjust proportionately. This ensures fairness in deductions and maintains the integrity of tax calculations.

First UAE Corporate Tax Return Filing: Special Considerations for Non-Resident Entities

The corporate tax law also provides guidance for non-resident persons operating in the UAE through a permanent establishment or dependent agent:

  • Permanent Establishment: For non-residents with a fixed place of business, the first tax period begins six months after the entity has been operational. For instance, a company that began operations on February 1, 2022, and continues past June 1, 2023, would have its first tax period starting from January 1, 2024.
  • Dependent Agents: The tax period for non-residents operating through a dependent agent begins immediately after June 1, 2023. A non-resident agent effective from March 1, 2023, will have its first tax period begin on March 1, 2024.

Foreign juridical persons effectively managed and controlled in the UAE are considered resident persons under the law. A foreign company with a financial year from January 1 to December 31 will have its first tax period starting from January 1, 2024, if managed and controlled in the UAE during this time. Similarly, a foreign entity with a financial year from September 1 to August 31 would have its first tax period starting on September 1, 2023, if under UAE management and control.

Deregistration Requirements

Businesses must deregister for corporate tax if they cease operations due to dissolution, liquidation, or other reasons. However, the expiration of a business license alone does not suffice for deregistration. Even if a company winds down its operations during its first tax period, it is required to register for corporate tax according to the law.

Optimize Your First UAE Corporate Tax Return Filing with MS

Our team at MS provides solutions to your business with its unique tax obligations, from understanding your first tax period to aligning your financial year effectively. We assist with tax registration, compliance, and financial reporting, ensuring your documentation is accurate and submitted on time. With continuous updates and strategic insights on evolving tax regulations, we keep you ahead of the curve, allowing you to focus on growth while we manage your tax responsibilities.

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Dubai Bound? Discover the Fast Track to DIFC Residency

Whether you’re moving here for work, bringing your family along, or setting up a business, getting your visa sorted is a crucial step in making Dubai your home away from home.

As a leading financial centre in Dubai, the Dubai International Financial Centre (DIFC) offers comprehensive visa services tailored to meet the needs of professionals and their families. DIFC makes managing dependent visas straightforward and efficient, ensuring you have the right documentation and support throughout the process.

Let’s walk you through the essential steps and tips to understand the DIFC Residency services seamlessly to help you make the most of your time in this incredible city.

Client Portal for DIFC Residency

The DIFC Client Portal is designed to offer a wide range of online services to entities registered in the DIFC. Through the portal, users can easily access both company and employee services. For instance, the ‘Employee Services’ section allows DIFC entities to manage government service applications, including new employment visas, renewals, cancellations, and more. Additionally, the portal enables the submission of dependent visa packages and other optional services. The first user registered under the entity account is granted Super User privileges, providing them the ability to add or remove users and manage access permissions efficiently.

  • Facilitating the submission of dependent visa packages

For those with ‘Employee Services’ access, applying for dependent visas is a breeze through the portal. Just make sure your portal account has enough balance before hitting that submit button.

  • Avoiding Overstay Fines

To steer clear of overstay fines, submit your visa application at least 10 days before your current visit visa expires or the grace period for a canceled visa runs out. If there’s an overstay fine, your application will be on hold until it’s settled in the client portal.

  • Keeping Track of Your Application

Once you’ve submitted your application, you can keep an eye on its status through the portal. The DIFC Government Services Office will also send you emails and SMS updates when your documents are ready for pick-up or if they need more info.

  • Submitting Your Documents

When uploading documents, make sure they’re clear, colored, and in .jpg format. For passport photos, use a white background and make sure the applicant is facing the camera. If the dependent is under 15, the photo should follow EID guidelines: no teeth showing, no glasses or heavy jewelry, and a clear view of the face.

  • Accuracy is Key

Double-check your application details to avoid any hiccups. The Government Services Office isn’t responsible for errors if the information provided is inaccurate and the information is kept confidential.

  • Picking Up Your Documents

Original passports will only be handed over to the appointed consignee or company PROs, as per DIFC’s security policy. If someone else needs to collect the documents, make sure to send an authorization email from the registered portal user to gs.helpdesk@difc.ae.

  • Handling Service Requests

Be aware that any service requests with pending information or documents for over six months will be deleted, and unfortunately, there won’t be a refund for the service fee.

  • Fees and VAT

Some dependent visa applications might have VAT added. Don’t worry—a detailed tax invoice will be emailed to you once you’ve submitted your service request.

  • Office Hours

The DIFC Government Services Office is open Monday to Friday, from 8:00 AM to 3:00 PM. They take a break during Friday prayers from 1:00 to 2:00 PM, and they’re closed on public holidays.

In wrapping up, making Dubai your home is just a visa away! The DIFC offers an efficient gateway to living and working in this dynamic city, with straightforward processes to ensure a smooth transition. By following the tips and leveraging the services available, you can avoid unnecessary headaches and focus on what truly matters—embracing your new life in Dubai.

MS for DIFC Residency Services

MS is a registered corporate service provider in DIFC with a dedicated team ensuring that every aspect of the DIFC residency application is handled with precision and care. From guiding you through the documentation requirements to managing compliance with DIFC regulations, we provide comprehensive support throughout the entire process. Our goal is to simplify your journey, whether you’re seeking to establish a new business or relocate your workforce, ensuring a smooth and efficient experience in Dubai’s premier financial hub.

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From Record-Breaking 1.4 Trillion Non-Oil Trade to Ambitious 4 Trillion! Read the UAE’s H1 2024 results

Amidst global unrest and conflicts, including the ongoing Israel-Palestine crisis, the UAE stands out as a pillar of economic strength and stability.  The country is well-positioned to maintain its momentum in global trade, serving as a crucial link between East and West, as well as North and South. Its remarkable non-oil trade figures further highlight its growing influence and resilience in a time of significant change.

The UAE’s Exceptional Growth in Non-Oil Trade Figures

In the first half of 2024, the UAE achieved record-breaking non-oil trade figures, reaching AED 1.4 trillion ($381 billion). This remarkable performance not only surpasses the annual export figures from before the COVID-19 pandemic but also puts the country on track to achieve AED 3 trillion ($817 billion) in non-oil trade by the end of the year.

  • Non-Oil Exports: AED 345.1 billion ($94 billion), reflecting a significant 25% growth.
  • Non-Oil Imports: AED 800 billion ($218 billion), showcasing an 11.3% increase.
  • Re-Exports: AED 345.1 billion ($94 billion), with a 2.7% increase from the previous year.

The UAE Strengthening Global Trade Relations

As the global trade landscape evolves, it is increasingly shaped by structural changes in the world economy and society. Advances in technology, shifts in manufacturing centers, changing consumer preferences, demographic trends, and geopolitical developments are all driving significant transformations in how and where trade occurs.

The UAE has taken centre stage when it comes to the bilateral trade. One clear example of this is the UAE’s relationship with India. The UAE isn’t just a major trading partner for India; it’s also a vital gateway for Indian exports. This is reflected in the 10% increase in trade between the two countries.

But it doesn’t stop there. The UAE is also strengthening its trade ties with other important partners. Trade with Türkiye has grown by 15%, highlighting a solid economic partnership. Even more impressive is the 41% jump in trade with Iraq, which has now become the UAE’s top destination for exports. This showcases the transformative impact of the Comprehensive Economic Partnership Agreements (CEPA).

UAE’s non-oil trade and diversification

The UAE has long been a leading force in global trade largely due to its abundant natural oil reserves. With the sixth-largest oil reserves in the world, this strength has consistently positioned the UAE as one of the key players in international trade.

However, the UAE is now shifting gears and focusing more on non-oil trade. With the current H1 trade results, the country has set impressive new records and shown significant growth in this area. While it continues to benefit from its oil resources, the UAE is making a full-throttle push into non-oil sectors, demonstrating its ability to diversify and excel across a broader range of industries. It’s a clear sign that the UAE is not just resting on its oil-rich past but is actively shaping a broader, more dynamic future in global trade.

The emirates’ contributions to making the UAE a leading force in global trade are substantial. Abu Dhabi has broken a 10-year record for non-oil GDP in Q1 2024, driven by growth in sectors such as construction, finance, transport, manufacturing, and telecommunications with key contributions from Abu Dhabi Global Market (ADGM).

Meanwhile, Dubai continued its steady economic growth in Q1 2024, with positive performance across sectors including transportation, finance, real estate, and information and communication. The Dubai International Financial Centre (DIFC) delivered exceptional results in H1 2024, reinforcing Dubai’s role as a hub for innovation and business growth.

UAE’s trade vision: how the emirate’s aims for AED 4 trillion by 2031

As we look to the future, the UAE has set an exciting goal: reaching AED 4 trillion ($1.1 trillion) in annual foreign trade by 2031. Given the impressive progress we’ve already seen in 2024, it’s clear that this target is well within reach. The UAE is committed to expanding its trade network and building even stronger international relationships, which is driving its continued economic success. With these strategies in place, the UAE is well-positioned to achieve its ambitious goals and thrive in the years ahead.

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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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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.

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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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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