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Big Change for UAE Fund Managers: New VAT Exemptions for Fund Management Explained 

As the UAE gears up for pivotal amendments to its VAT Executive Regulations on November 15, 2024, fund managers are presented with a unique opportunity to rethink their operations. The extension of VAT exemptions to fund management services promises to reduce compliance burdens and create a more favourable business environment. 

Discover how these regulatory updates VAT exemptions for fund management can empower fund managers to thrive in an evolving financial landscape. 

Breaking Down the New VAT Exemptions for Fund Management 

The latest overhaul of the UAE VAT regulations extends the exemption for financial services under Article 42 to include fund management activities. This change covers a wide spectrum of services that are crucial for managing investment funds, bringing significant implications for fund managers in the region. 

Here’s what the new exemptions include: 

  • Management of Fund Operations: Activities related to the daily management and administration of the fund. This involves ensuring the fund complies with relevant laws, handling administrative tasks, and coordinating with regulators. The exemption here means that VAT will no longer apply to this routine but essential functions. 
  • Strategic Investment Management: Taking the reins of the fund’s investment strategy by making key decisions regarding asset allocation, buying and selling of assets, and ongoing portfolio management. This strategic approach is intended to maximize returns for the investors while managing risk effectively. With VAT removed from these services, fund managers can now offer more attractive terms to investors. 
  • Performance Monitoring and Enhancement: Ongoing evaluation and improvement of the fund’s financial performance is essential for maintaining competitiveness. Activities such as tracking the fund’s benchmarks, identifying areas for improvement, and implementing strategies to enhance returns now fall under the VAT exemptions for fund management. 

VAT Exemptions for Fund Management: What it Means for Fund Managers 

While these VAT exemptions introduce a more business-friendly environment, they also bring unique challenges, particularly concerning VAT recovery. Here’s a closer look at some of the implications: 

  • Simplified Invoicing and Compliance: One of the immediate benefits is the elimination of the need for issuing VAT invoices on qualifying fund management services. This change will make the process of tax reporting less cumbersome and allow fund managers to focus more on value-added activities. 
  • Complexity in Mixed Services: For those providing a mix of exempt and non-exempt services, determining the appropriate VAT treatment for each component will require careful assessment. The changes may prompt fund managers to review their service portfolios and potentially restructure them to optimize tax efficiency. 

How Fund Managers Should Prepare and Act on New VAT Exemptions for Fund Management 

With the VAT amendments set to go live soon, taking a proactive approach can ensure a smooth transition. Here’s what fund managers should do to prepare: 

  1. Review and Update Service Agreements 

Fund managers must ensure that all service agreements meet the qualification criteria for the VAT exemption. The regulations specify that services must be rendered independently and to funds licensed by a competent authority in the UAE. It’s essential to clarify the scope of services covered in agreements to ensure they align with the updated VAT rules. 

  1. Reassess Input VAT Recovery Strategies 

The new exemptions may significantly impact input VAT recovery, especially if fund managers incur substantial expenses related to VAT-exempt services. It’s advisable to reassess current VAT positions and adopt strategies that minimize any potential financial impact. Fund managers should also consider conducting a thorough review of their VAT accounting processes to ensure compliance under the new rules. 

  1. Prepare for Retrospective Adjustments 

With virtual assets now covered under the updated VAT exemptions for fund management retroactively from January 1, 2018, fund managers involved in the transfer, conversion, or management of virtual assets should review past VAT filings. Identifying transactions that could qualify for the exemption may present opportunities for voluntary disclosures or adjustments to past VAT returns. This could result in potential refunds or reduced liabilities. 

  1. Monitor Further Guidance from the Federal Tax Authority 

Like the current VAT exemptions for fund management, the Federal Tax Authority (FTA) may release additional guidelines or clarifications concerning the application of the new VAT rules. Staying informed about any further updates will help fund managers implement the changes more effectively and take advantage of the benefits while avoiding non-compliance risks. 

Understanding the Broader Impacts: The Bigger Picture for the UAE’s Financial Sector 

The current VAT exemptions for fund management extend beyond a simple tax update, aiming to solidify the UAE’s status as a global financial hub by making fund management services more accessible and tax efficient. By lowering the tax burden, the amendments are set to attract capital inflows, encouraging investors to establish or expand funds in the region, which will benefit both the financial sector and the wider economy. The exemption for digital assets, including cryptocurrencies, strengthens the UAE’s position as a crypto-friendly jurisdiction, fostering an environment that supports innovation and investment. Additionally, the simplified VAT compliance process reduces administrative burdens, aligning with the UAE’s ongoing efforts to improve business friendliness and attract foreign investment. 

The new VAT exemptions for fund management provide much-needed relief from tax complexities yet require careful planning to adapt to the changing landscape. Fund managers should proactively review service agreements, reassess VAT recovery strategies, and account for the retrospective application of the exemptions. These reforms reflect the UAE’s forward-thinking approach, balancing revenue collection with the goal of fostering a robust investment climate. Success in navigating the new VAT environment will depend on staying informed, prepared, and adaptable. 

How MS Can Support You Through the Latest UAE VAT Updates 

At MS, we are dedicated to helping businesses to adhere with the latest UAE VAT updates. Our team of experts offers tailored guidance on the new regulations focusing on the VAT exemptions for fund management, ensuring you fully understand their impact on your operations. We provide comprehensive support in critical areas, including VAT exemptions, input VAT recovery, and tax invoicing, helping you maximize your benefits while minimizing risks. With our ongoing compliance services, we ensure your business remains aligned with the evolving VAT framework and excel to further heights. 

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Blogs

Wondering How Simple the Application Process for PCs in the DIFC Is? Here’s Your Quick Answer

Prescribed Companies and Active Enterprises

On July 15th, 2024, Dubai International Financial Centre (DIFC) introduced a significant amendment to its Prescribed Company (PC) Regulations, making the regime more accessible and straightforward. These changes enhance the use of Prescribed Companies as pure holding vehicles rather than operational entities, attracting global attention and increasing demand among those seeking to structure their wealth. This amendment allows businesses to simplify their structures, protect their assets, and significantly reduce costs, making DIFC an even more attractive hub for efficient wealth management and asset protection. 

Setting up a PC in the DIFC also opens doors to a thriving business environment, offering benefits such as tax incentives, a world-class legal framework, and a well-regulated financial ecosystem. As businesses increasingly prioritize transparency and compliance, the DIFC PC’s structured setup process provides a smooth pathway for companies to establish a presence swiftly and effectively. 

For entrepreneurs aiming to capitalize on the opportunities in the DIFC, the journey starts with a well-defined application process for PCs in the DIFC. The process spans from initial profile creation to final approvals, designed to be efficient and responsive, enabling companies to get up and run with minimal delay.  

Quick Approvals: How the Application Process for PCs in the DIFC Speeds Up Your Setup 

A notable advantage of setting up a PC in the DIFC is the speed of the approval process. In-Principle Approval can be secured within three business days from the submission of your application, making it one of the fastest initial approval processes in the region. Following this, setting up the legal structure of your Prescribed Company with the DIFC Registrar of Companies typically takes an additional 3-5 working days.              

Step-by-Step Guide to Setting Up a Prescribed Company in the DIFC 

Establishing a PC involves several key stages, starting from the initial application in the DIFC portal to the final setup. Here’s a breakdown of the major steps for application process for PCs in the DIFC: 

  1. User Profile Creation 
    The first step is creating a user profile in the DIFC portal. This requires the applicant to submit a certified copy of their passport or complete an online verification process through the portal. 
  2. Submission for Initial Approval 
    Once the user profile is set up, the next step is to submit the Initial Approval application via the portal. The applicant must specify whether the PC will appoint a Corporate Service Provider (CSP) and if the registered address will be shared with the CSP. 
  3. Entity Registration 
    After receiving the Initial Approval, the applicant can proceed with registering the entity through the DIFC portal. This step formalizes the legal structure of the company. 
  4. Document Submission 
    The following documents are required for the application:
  5. CSP Appointment Evidence: If a CSP is appointed, the applicant must upload a letter of consent or evidence of appointment from the CSP. 
  6. Office Space Consent: If the PC will share office space with an affiliated entity, a letter of consent from the leaseholder or property owner is needed. 

 Before you leave: Here are key final steps in the Application Process for PCs in the DIFC 

To complete the process smoothly, follow these additional steps: 

  1. Document Collation 
    Gather detailed Know Your Customer (KYC) information for the shareholders and directors of the PC, including identification and background documentation.
  2. Finalization of Registered Address 
    Decide on your registered office address, which can be either a physical address within the DIFC or an address provided by the appointed CSP.
  3. Initial Submission to the Registrar 
    Submit the initial application package to the DIFC Registrar of Companies, ensuring all required information is accurate and complete.
  4. Review and Clarification 
    Be prepared for the DIFC to review the submitted documents and request any necessary clarifications or additional information as a part of the application process for PCs in the DIFC. 
  5. Preparation of Legal Documents 
    Prepare the legal documents required for the setup, including resolutions, articles of incorporation, and other statutory documentation.
  6. Final Approvals 
    Once all documentation is in order and any additional requirements are met, the DIFC will grant final approval, officially establishing the Prescribed Company. 

Establishing a Prescribed Company (PC) in the DIFC is a strategic move that grants businesses access to a thriving financial centre with numerous benefits, including tax incentives and a well-regulated legal environment. The structured and streamlined application process for PCs in the DIFC enables companies to obtain approvals and complete the setup in a matter of days, minimizing delays and facilitating a swift entry into the market. 

How MS Can Simplify the Application Process for PCs in the DIFC 

As a trusted CSP, MS offers comprehensive support throughout the entire application process for PCs in the DIFC. Our services include assisting with regulatory compliance, document preparation, and submission to ensure that all legal and procedural requirements are efficiently met. We manage all communication with the DIFC and provide ongoing administrative support, allowing companies to navigate the process seamlessly. MS’s expertise helps companies address potential challenges and ensures smooth and compliant establishment in the DIFC, positioning businesses to take full advantage of the Centre’s benefits. 

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Blogs

The Deal Thesis: How a Strong ‘Why’ Can Elevate Your M&A to New Heights! 

The Deal Thesis: How a Strong 'Why' Can Elevate Your M&A to New Heights

Every M&A deal starts with a vision – a bold idea that the combined power of two companies can achieve something greater than the sum of their parts. But without a compelling answer to the question “Why?” that vision can quickly fade into a mere financial transaction. The “Why Factor” is the key to any successful acquisition; it’s the driving purpose that energizes teams, aligns strategies, and inspires action across the organization.

When the reason for a deal is not only understood but deeply felt, it can transform an ordinary acquisition into a strategic masterstroke. It’s the difference between pursuing a deal just because it looks good on paper and pursuing it because it fuels the company’s long-term ambitions and creates real value. 

A Deal Thesis captures this “Why Factor” with precision, channeling the enthusiasm and strategic intent into a clear roadmap that guides the acquisition from concept to completion. It lays out not just the logic of the deal, but the story—why this target, why now, and why it matters. By infusing the process with purpose, the Deal Thesis ensures that everyone, from the boardroom to the breakroom, is working towards a shared vision that is as inspiring as it is strategic. 

What is a Deal Thesis? 

A Deal Thesis is the narrative behind an acquisition, weaving together the strategic vision and purpose that justify the pursuit of the target company. It acts as a guiding document, laying out the expected synergies, financial benefits, and key risks involved in the deal. More than just a formality, it’s a compelling argument that helps stakeholders grasp not only the strategic advantages of the acquisition but also the potential hurdles along the way. 

A well-crafted Deal Thesis is a blend of clarity and creativity, articulating the reasons for the acquisition in a straightforward manner while avoiding vague language or jargon that can cloud understanding. It’s rooted in data, drawing insights from the due diligence process to paint a vivid picture of why this acquisition matters. Furthermore, it proactively addresses potential risks, presenting thoughtful strategies for mitigation rather than shying away from acknowledging challenges. 

Developed during the early stages of the Due Diligence Process, the Deal Thesis serves as a foundational pillar that guides due diligence efforts toward critical areas of focus. By clarifying the deal’s purpose and reducing ambiguity, a strong Deal Thesis enhances the quality of decision-making and aligns the entire organization behind a shared vision. In essence, it transforms the complexity of M&A into a compelling story of opportunity and strategic alignment, setting the stage for successful integration and long-term value creation. 

Key Components of a Deal Thesis That You Should Know 

A well-prepared Deal Thesis typically includes the following sections: 

1. Executive Summary 

  • Provides a high-level overview of the deal, including details about the target company, the acquisition rationale, and key financial metrics. 
  • Summarizes the strategic intent behind the deal and sets the stage for a deeper analysis in the subsequent sections. 

2. Strategic Fit 

  • Describes how the acquisition aligns with the acquirer’s strategic objectives. 
  • Includes market analysis, industry trends, and competitive positioning to illustrate how the target complements or enhances the acquirer’s current business. 
  • Explain how the deal will help achieve long-term growth or diversification goals. 

3. Synergies 

  • Analyzes potential synergies that can be realized from the acquisition, such as cost savings, revenue augmentation/revenue enhancements, and operational improvements. 
  • Distinguishes between short-term gains (e.g., immediate cost reductions) and long-term opportunities (e.g., market expansion or product innovation). 
  • Quantifies the anticipated benefits wherever possible to build a strong case for the deal. 

4. Financial Impact 

  • Projects the financial outcomes of the acquisition, including valuation analysis, pro forma financial statements, and return on investment (ROI) estimates. 
  • Discusses the financing structure and its effect on the acquirer’s financial health, such as debt levels, cash flow implications, and potential shareholder returns. 
  • Provides sensitivity analysis to assess the impact of various scenarios on the deal’s profitability. 

5. Risks and Mitigation 

  • Identifies the primary risks associated with the acquisition, such as market volatility, integration challenges, or regulatory concerns. 
  • Proposes strategies to mitigate these risks, ensuring that the potential downsides are addressed proactively. 
  • Encourages a balanced view by assessing both optimistic and realistic outcomes. 

6. Implementation Plan 

  • Outlines the steps required to integrate the target company, specifying timelines, key milestones, and responsible parties. 
  • Emphasizes coordination across different teams to ensure a seamless transition and minimize disruptions. 
  • Involves development of Integration Thesis and Execution Plan, HR Evaluation, and Change Management Strategies”  
  • Highlights the importance of changing management and communication strategies to address cultural differences. 

The true value of M&A unfolds not when the ink dries on the contract but in subsequent days, months, and years. This is where the vision becomes reality. By engaging the right teams from the outset and ensuring everyone is clear on their roles in the post-close execution, companies can cultivate a culture rich in collaboration and shared purpose. When integration is seamlessly woven into the narrative of the Deal Thesis, organizations not only lay the groundwork for achieving their strategic objectives but also create a pathway for sustainable growth and lasting success. This thoughtful approach transforms a mere transaction into a powerful journey, propelling the combined entity toward new heights in an ever-evolving marketplace. 

MS: Your Partner in Crafting Deal Thesis That Drives Strategic Growth 

Our team of experts delivers comprehensive due diligence services, equipping you with the insights needed to confidently navigate the unique business landscape of the UAE. We prioritize the development of a fully aligned Deal Thesis, Integration Thesis, and Execution Plan as key components of our due diligence process. By identifying opportunities and minimizing risks, we help you achieve successful mergers and acquisitions that drive business growth. Let’s make the deals work for you! 

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Why are firms suddenly focusing on Leadership Assessment in the Talent war? Fresh data signals an urgent need!

Leadership assessment in executive search

In today’s whirlwind marketplace, where change is the only constant, businesses find themselves in a relentless race against time. The rapid pace of technological innovation, evolving regulations, and groundbreaking processes can transform the landscape overnight, leaving those who fail to adapt at risk of becoming obsolete.

To stay ahead, companies must embrace a culture of reinvention, streamline their resources, and offer products that not only meet but exceed customer expectations.

Yet, in this competitive arena, organizations face another formidable challenge: the battle for talent. Skilled professionals who can tackle the complexities of change and drive innovation are in high demand, and they know their worth. With numerous opportunities at their fingertips, top candidates can afford to be selective about where they invest their skills and passions.

For organizations eager to lead rather than follow, attracting, nurturing, and retaining exceptional leaders is vital for survival. This is precisely where leadership assessment becomes a game-changer. By systematically evaluating the competencies of their executives, organizations can identify and cultivate the right talent to guide them through turbulent times.

Effective leadership assessment ensures that companies are equipped with individuals who can trace the complexities of change, drive innovation, and chart a course toward sustainable success. With the right leaders at the helm, organizations can confidently face challenges and seize opportunities, positioning themselves as frontrunners in their industries.

The Impact of Effective Leadership Assessment on Organizational Success

Leadership assessment serves as a powerful tool for organizations looking to optimize their leadership potential. This structured and objective process involves a comprehensive evaluation of executives’ capabilities, aligning them with the specific needs and challenges facing the organization. By leveraging various assessment methodologies, such as psychometric tests, 360-degree feedback, and competency frameworks, leadership assessments provide a well-rounded view of an executive’s strengths, weaknesses, and areas for development.

Rather than merely measuring self-worth or providing subjective opinions, leadership assessments are designed to focus on how an executive’s skills and competencies align with the organization’s strategic objectives and the realities of the market. This approach enables companies to identify the critical skills needed to navigate the complexities of today’s business landscape, ensuring that their leaders are not only capable but also adaptable to change.

Understanding the Leadership Assessment Process: What to Expect

A leadership assessment involves several steps:

  1. Competency Evaluation: Executives are assessed based on a set of defined competencies relevant to their roles. This assessment often includes psychometric testing, peer feedback, and performance reviews.
  2. Benchmarking: The results are compared to industry standards and best practices to gauge how executives measure up relative to their peers.
  3. Actionable Insights: Findings from the assessment highlight strengths and areas for improvement, allowing companies to tailor development plans and succession strategies for their leaders.
  4. Development Plans: Based on the assessment results, organizations can create targeted improvement plans, which may include professional development opportunities, coaching, and mentorship programs.

Advantages of External Leadership Assessments

Many companies are recognizing the benefits of engaging external organizations for leadership assessments:

  • Efficiency and Focus: Internal executives often have their hands full managing daily operations, making it impractical for them to conduct thorough evaluations. An external consultancy specializes in this work, allowing companies to focus on their core operations while gaining valuable insights.
  • Objective Feedback: External assessors provide an unbiased view of leadership capabilities. They can deliver frank feedback without the complications of internal politics, which can often distort perceptions and hinder honest evaluations.
  • Comprehensive Perspective: External assessments draw on a wider range of data and industry benchmarks, ensuring a well-rounded view of leadership performance and potential.

Transformative Benefits of Leadership Assessment: Beyond the Basics

Implementing a leadership assessment can lead to several transformative benefits for an organization, including:

  • Cultural Alignment: Assessments can help organizations align their managerial and cultural frameworks with the current competitive landscape, ensuring that leadership styles are effective and relevant.
  • Enhanced M&A Integration: Understanding the human capital aspects of mergers and acquisitions becomes more streamlined, allowing for smoother transitions and better alignment between merging entities.
  • Improved Talent Management: Organizations can identify high-potential individuals, create development pathways, and ensure that top talent is nurtured and retained.
  • Data-Driven Decisions: Companies can make informed decisions regarding promotions, succession planning, and leadership development based on objective data rather than intuition or bias.

When to Implement Leadership Assessments for Maximum Impact

Many organizations initiate leadership assessments when they seek to evaluate their management teams regularly. Approximately 30% of leadership assessments are now integrated into ongoing executive evaluations. Companies that adopt this proactive approach gain a comprehensive understanding of their leadership capabilities, identify gaps, and streamline succession planning.

How MS Enhances Executive Search and Placement After Leadership Assessments

In today’s competitive landscape, where the battle for top talent is intensifying, organizations often find themselves reassessing their leadership needs. After a leadership assessment reveals gaps or opportunities for growth, MS is prepared to facilitate that transformation with unparalleled expertise and precision. Our executive search services are specifically designed to identify and attract exceptional leaders who align with your company’s vision and values. By leveraging our extensive industry network and insights, we pinpoint high-caliber candidates capable of driving innovation and steering your organization toward its strategic objectives. Our collaborative approach ensures that we deeply understand your unique requirements, enabling us to present candidates who seamlessly fit into your culture. As firms increasingly prioritize leadership assessment, MS stands ready to help you emerge victorious in the talent war.

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News & Press Releases

MS expands executive search services to meet the Gulf’s growing leadership demand 

Executive Search Launch

The leading CSP in the region can now provide services to private clients, corporates and institutions to foster growth and innovation in the Gulf region 

Dubai, 11 October 2024: UAE’s Premier Corporate and professional services provider MS has recently expanded its Executive Search portfolio to the wider Gulf region. This announcement stemmed from their extensive search expertise across the premier jurisdictions in the UAE – DIFC, ADGM & DMCC – in domains including Compliance, Finance, and Tax. 

With over 7 years of expertise in the region, MS has been assisting their clients and partners in finding leaders who not only meet their needs but genuinely connect with their vision. This expansion empowers MS to deliver executive search services for C-suite and senior-level roles, supporting private clients, corporates, and institutions looking to build a robust presence in the Gulf region. 

Mohammed Shafeek, Founder and Group CEO of MS, said,

“As a homegrown solutions provider in the UAE, we’ve always maintained a client-first, value-driven approach. Drawing from our strong legacy of operational excellence across the region, our search solutions enable clients to navigate the talent market strategically ensuring every hire is an informed, precise decision that aligns with their business objectives. This expansion reflects our proactive commitment to meeting the evolving needs of our clients and the shifting dynamics of the market. With Mr. Akhil and his team, we’re enhancing MS’s results-driven approach by seamlessly integrating search capabilities to deliver even greater value for our clients.”.  

The region has an active, accessible, leadership talent pool of professionals holding C-suite positions. The leadership team at MS leverages extensive experience and operational excellence to deliver effective executive search solutions. Their deep market understanding enables them to identify and connect clients with top-tier leaders who inspire and drive organizational success. 

Akhil Vijayan, Lead- Executive search at MS, stated that

“As the market is ever growing in recent times, talents are flowing in from all over the world, we would want to groom the talents and match with the client’s requirements. With a human-centric approach to headhunting, our team at MS will guide you through the evolving regulatory landscape in the region”.  

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 accounting services and executive search services to the private and international clients. With over 50+ experts and professionals serving across 4 offices which includes the significant presence at the prominent jurisdictions of the UAE, MS drives private clients, corporates, and institutions to take bold actions that stimulate growth and expedite results in the Gulf. 

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Blogs

UAE FTA Deadline Extension 2024: Corporate Tax Filing and Payment Timeline Explained with Examples

Corporate Tax Filing and Payment Timeline

The Federal Tax Authority (FTA) continues to provide flexibility for businesses adapting to new tax regulations in the UAE. FTA Decision No. 7 of 2024 introduces extended deadlines for corporate tax filing and payment, offering relief to businesses incorporated after 1 June 2023. This decision is particularly relevant for companies with shorter tax periods, ensuring they have additional time to meet their tax obligations. However, for businesses with tax periods ending after 29 February 2024, the standard nine-month rule remains unchanged.

What is FTA Decision No. 7 of 2024 of Corporate Tax Filing and Payment?

FTA Decision No. 7 of 2024 applies to taxable persons incorporated, established, or recognized in the UAE on or after 1 June 2023. These businesses have been granted an extension if their tax period ends on or before 29 February 2024. They are now required to file their tax return and settle corporate tax payable by 31 December 2024. Prior to the entry into effect of FTA Decision No. 7 of 2024, entities would have had to file its Tax Return and settle the Corporate Tax Payable by 30 September 2024.

Here is an example:

Company A, incorporated in Dubai on 12 June 2023, has chosen its financial year to run from January to December. Consequently, its first tax period spans from 12 June 2023 to 31 December 2023. However, in light of FTA Decision No. 7 of 2024, Company A’s deadline to file its corporate tax return and settle any payable tax has been extended. The new deadline for these actions is now 31 December 2024, providing the company additional time to fulfil its tax obligations.

Corporate Tax Filing and Payment: Who Does the Extension Apply To?

The decision mainly affects businesses with short tax periods, particularly those incorporated mid-year. Below is a breakdown of how the extended deadlines of corporate tax filing and payment apply to different businesses:

  1. Tax Period Ending 31 December 2023
    For businesses incorporated in June or 1st July 2023, and those operating on a January to December financial year, the original deadline for filing tax returns and settling tax liabilities was 30 September 2024. However, this has now been extended to 31 December 2024, providing an additional three months to meet their obligations.
  • Tax Period Ending 31 January 2024
    Businesses incorporated in June, July, or 1st August 2023, operating on a February to January financial year, had an initial deadline of 31 October 2024. This has also been extended to 31 December 2024, giving them extra time to complete their tax filings and settle any payable taxes.
  • Tax Period Ending 29 February 2024
    For companies incorporated in June, July, August, or 1st September 2023 with a March to February financial year, the previous deadline of 30 November 2024 has now been pushed to 31 December 2024, allowing additional time to fulfill their corporate tax responsibilities.
  • Short Tax Period due to Cessation of Business
    Businesses that ceased operations, dissolved, or liquidated by 29 February 2024, were initially required to settle their tax filings by the earlier deadlines based on their tax periods. With the new extension, all applicable businesses now have until 31 December 2024 to file their returns and settle their tax liabilities.

Corporate Tax Filing and Payment: Key Takeaways for Businesses

  • New Deadline for Certain Entities: If your business was incorporated or recognized on or after 1 June 2023, and your tax period ends on or before 29 February 2024, you have until 31 December 2024 to file your tax return and settle your corporate tax payable.
  • Penalties from 1 January 2025: Administrative penalties will apply from 1 January 2025 for businesses that miss the new deadlines set by the FTA.

Corporate Tax Filing and Payment: Penalties for Non-Compliance

Failing to meet the filing deadline can lead to severe financial consequences for your business. Understanding the penalties associated with non-compliance is essential:

  • Non-filing Penalty: Businesses that fail to submit their tax returns on time will incur a penalty of AED 500 per month for the first 12 months. After this period, the penalty increases to AED 1,000 per month. This cumulative effect can lead to significant financial burdens over time.
  • Failure to Settle Payable Tax: In addition to filing penalties, any outstanding tax amounts will attract a 14% annual penalty, which is calculated monthly. This penalty applies to the total payable tax that remains unsettled after the deadline, further compounding the financial implications for non-compliant businesses.

How MS Can Assist in Corporate Tax Filing and Payment

At MS, we provide comprehensive support for corporate tax filing, ensuring that businesses fulfil their tax obligations efficiently and accurately. Our process begins with a thorough assessment of each client’s tax requirements, followed by organizing financial records and identifying the correct tax period. Our team of experts calculates tax liabilities with precision and manages the entire filing process to ensure compliance with UAE regulations. We stay informed on the latest tax law updates and offer strategic tax planning to help minimize liabilities. Additionally, we handle filing deadlines by sending timely reminders and offer post-filing support to address any penalties or disputes.

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Blogs

Strengthening Financial Resilience: Key Responsibilities of a Finance Officer in the DIFC

Key Responsibilities of a Finance Officer in the DIFC

Last year, the Dubai Financial Services Authority (DFSA) imposed fines on the former CFO of a listed Real Estate Investment Trust (REIT) for being knowingly concerned in misleading statements and accounting breaches. This case serves as a stark reminder of the critical importance of financial oversight and compliance within the Dubai International Financial Centre (DIFC). It underscores the significant responsibilities of a Finance Officer in the DIFC in ensuring accurate financial reporting and adherence to regulatory standards, protecting both the firm and its stakeholders from potential repercussions.

The FO collaborates closely with senior management and other key stakeholders to oversee compliance, manage capital adequacy, and ensure timely and accurate financial reporting. In light of these events, the responsibilities of a Finance Officer in the DIFC are more critical than ever.

Before exploring the responsibilities of a Finance Officer in the DIFC, it’s essential to understand the value of having one in place.

Why a Finance Officer?

The Finance Officer serves as the regulator’s eyes and ears for the firm’s financial activities. As an Authorized Individual under DFSA regulations, the FO collaborates closely with other key authorized individuals, including the Senior Executive Officer (SEO), Compliance Officer (CO), and Money Laundering Reporting Officer (MLRO). This coordination ensures that the company meets all licensing requirements, such as capital adequacy and audit compliance, while effectively conducting its business operations.

Now, dive into the key responsibilities of a Finance Officer in the DIFC.

Key Responsibilities of a Finance Officer in the DIFC

The key responsibilities of a Finance Officer in the DIFC are comprehensive and encompass various aspects of financial oversight:

  1. Compliance Management: The FO ensures that the company adheres to the DFSA PIB module as an Authorized Individual. This includes the preparation and submission of financial reporting returns through the Electronic Prudential Reporting System (EPRS) in a timely manner.
  2. Financial Reporting: Regular reporting to the SEO and Board on critical financial matters, including capital resources, risk capital requirements, and liquid assets, is a fundamental duty of the FO.
  3. Capital Adequacy Oversight: The FO is responsible for providing timely reports on the company’s capital resources, ensuring adequate capital and liquid resources are maintained at all times to navigate potential stress events.
  4. Budgeting and Financial Projections: Preparing budgets and financial projections is essential to anticipate issues and ensure financial stability.
  5. Accounting Oversight: The FO oversees the finance and accounting functions, ensuring compliance with IFRS and applicable rules. This includes establishing and monitoring the implementation of the company’s financial policies, procedures, systems, and controls.
  6. Internal and External Liaison: The FO plays a vital role in liaising with the external auditor to obtain opinions on the financial statements and coordinate with the internal audit function concerning financial matters.
  7. Client Fund Management: Ensuring the proper reconciliation of client monies and their segregation from the company’s funds is paramount for maintaining trust and compliance.

How MS Facilitates the Key Responsibilities of a Finance Officer in the DIFC

Outsourcing finance officer services with MS plays a crucial role in DIFC bringing extensive financial expertise to ensure that your company operate in compliance with DIFC regulations and upholds ethical standards. FOs implement robust internal controls and financial processes, providing strategic advice that enhances compliance while optimizing financial performance. By fostering transparency and maintaining high financial standards, FOs help prevent fraud and build investor confidence within the DIFC framework. MS enables firms to delegate the key responsibilities of a finance officer in the DIFC, allowing the entities to concentrate on core operations and strategic growth. This partnership not only mitigates regulatory risks but also protects reputations and strengthens positions in the competitive DIFC landscape, ensuring businesses meet and exceed the stringent standards required for success.

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Blogs

Dubai bets big on hedge funds: New DIFC funds centre poised to redefine global wealth management by 2025

DIFC Funds Centre by 2025

“The first-of-its-kind “DIFC Funds Centre” to support hedge fund spinouts, fund platforms and boutique wealth and asset management firms”

Can the UAE really climb to the top of the global economy by narrowing its reliance on oil? Dubai certainly thinks so. Known for its long-term vision, this ambitious country and the city of Dubai are rapidly transforming its economy, with a particular focus on finance. A big part of this story is the Dubai International Financial Centre (DIFC), which recently gained attention by creating headlines regarding the launch of a first-of-its-kind funds centre in 2025. The DIFC funds centre aims to provide an ecosystem for hedge fund spinouts, fund platforms, and boutique wealth management firms, putting Dubai on track to become a major global leader in international finance.  

How DIFC funds centre act as a magnet for global investors 

Dubai’s attractiveness as a financial hub is not limited to local players; it is drawing global interest. The establishment of the DIFC Funds Centre aligns with Dubai’s broader economic ambitions, such as the Dubai Economic Agenda (D33), which aims to position the city as a leading global business and innovation centre. The influx of international capital not only benefits hedge funds but also strengthens key sectors like real estate, technology, and infrastructure. 

The DIFC Funds Centre is perfect for companies and talent looking to scale up, offering flexible working solutions and great opportunities for individual networking.  

Enhancing Economic Diversification: The key role of DIFC funds centre 

The hedge fund boom has been a vital player in diversifying the UAE’s economy. DIFC serves as the base for 13 of the world’s top 100 hedge funds, demonstrating the sector’s rising profile. The region is witnessing a remarkable trend, with around 40 hedge funds managing at least $1 billion in assets. This indicates not only the financial scale of operations but also the sophistication and attractiveness of the investment environment in Dubai.  

With the upcoming DIFC funds centre, the region is set to further enhance this ecosystem. With the city already home to over 72,000 millionaires, the potential for investment activity is massive, as the population of high-net-worth individuals (HNWIs) in the UAE is projected to increase by 40% between 2021 and 2031. 

The contribution of regional financial powerhouse to the UAE’s economy 

In just over a decade, Dubai and DIFC have emerged as the premier investment hub for the Middle East, Africa, and South Asia (MEASA). The concentration of hedge fund activities in DIFC enhances the UAE’s stature as a global financial powerhouse. With 300 wealth and asset management firms currently registered, and 50 additional companies involved in hedge fund activities, the region is positioned for sustained growth. Dubai’s solid regulatory framework and welcoming business environment are major reasons why financial services are booming there. With more hedge funds making their home in the city, they’re set to be key players in attracting wealth, talent, and fresh ideas. 

The DIFC Funds Centre: A Catalyst for Global Wealth Management 

The DIFC funds centre is not just reshaping the UAE’s hedge fund landscape; it’s positioning Dubai as a serious contender on the global financial stage.  

By integrating hedge funds into its expanding financial ecosystem, Dubai is advancing its long-term goal of economic diversification and innovation, a critical part of the UAE’s broader economic strategy. 

With its strategic vision, robust infrastructure, and a growing pool of talent, the DIFC funds centre is set to redefine global wealth management and solidify Dubai’s place as a leading financial hub. This bold initiative marks a pivotal moment in the UAE’s journey towards becoming a top player in the world of finance and investment. 

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Startups Risk Profile and Dynamic Valuation Techniques: Why Do Valuation of Startups Need Unique Approaches? 

Why Do Valuation of Startups Need Unique Approaches

In a world buzzing with possibilities, start-up founders, entrepreneurs, and venture capitalists are leading a wave of innovation, crafting products and services that promise a brighter future. With investments in these young ventures gaining momentum, we’re witnessing an explosion of successful start-ups and an unprecedented rise in unicorns.

Yet, amidst this excitement, challenges loom. Volatile capital markets, shaken by recent crises, add complexity to transactions involving these emerging businesses. One critical aspect of the valuation of startups is the heavy reliance on intangible assets, such as intellectual property, brand strength, and proprietary technologies, which play a significant role in driving a startup’s valuation. Understanding the unique risks that early-stage companies face is crucial; overlooking these can lead to miscalculating their true worth. 

 So, how do we approach their valuation? Do start-ups need their own special methods? 

Join us as we explore these questions in the valuation of startups, trace the journey of a start-up’s risk profile, and uncover how dynamic valuation techniques can reveal their hidden potential. 

Valuation of Startups: Understanding the Weight of the Methods 

The valuation of startups isn’t just a straightforward calculation; it’s a nuanced process where the weight assigned to each method varies significantly depending on the company’s development stage. Here’s a breakdown of how we approach this: 

  • Qualitative Methods: Higher Weight for Early-Stage Companies 

For the valuation of startups that lack a financial track record, qualitative methods take the lead. Approaches like the Scorecard Method and Checklist Method come into play, prioritizing assessments that don’t heavily rely on financial projections—often fraught with uncertainty. 

  • Quantitative Methods: Higher Weight for Mature Companies 

On the flip side, for companies with established financial histories, quantitative methods—such as DCF (Discounted Cash Flow) and Earning Multiple methods—become more prominent. These methods leverage historical data and reliable forecasts, providing a clearer picture of a company’s worth. 

Final Valuation Calculation 

Ultimately, the final valuation of startups is computed as a weighted average of the selected methodologies. The default weights applied reflect the significance of each method based on the company’s maturity and financial track record. 

Valuation of Startups: Methods Explored 

1. Scorecard Method: Evaluating Potential 

Originally developed by American business angels in 2001 and popularized by the Kauffman Foundation in 2007, the Scorecard Method evaluates potential based on key factors. Here’s how it works: 

  • Establishing a Baseline: Begin with the average pre-money valuation of similar companies within the same industry and stage. 
  • Evaluative Factors: Score the startup against criteria such as: 
  • Team Strength: Experience and track record of the founding team. 
  • Market Opportunity: Size and growth potential of the target market. 
  • Product/Technology: Uniqueness and competitive advantage. 
  • Sales and Traction: Current revenue and customer acquisition metrics. 
  • Business Model: Sustainability and scalability. 
  • Adjusting the Baseline: Based on the scores, adjust the baseline valuation to arrive at a range of potential valuations. 

2. Checklist Method: A Structured Approach 

Proposed by venture capitalist Dave Berkus in 1996 and refined in 2016, the Checklist Method uses a systematic approach to evaluate startups. 

  • Creating a Checklist: Develop a comprehensive checklist covering factors like market conditions, competitive landscape, and financial health. 
  • Scoring System: Assign points to each criterion, establishing thresholds that impact the overall valuation. 
  • Assessment: Evaluate the startup against the checklist to identify strengths and weaknesses, leading to a more structured and objective valuation. 
  • Evaluating Strength of IP: Assess the quality and robustness of the startup’s IP portfolio, including patents, trademarks, and proprietary technologies. Strong IP not only serves as a cornerstone of competitive advantage but also creates significant barriers to entry for competitors, contributing to a startup’s economic moat. 
  • Final Adjustment: Adjust the valuation based on the overall score from the checklist. 

3. DCF with Long-Term Growth: Forecasting Success 

The DCF with Long-Term Growth method estimates future cash flows and discounts them back to present value, assuming a constant growth rate. This method is vital for companies with a proven track record. 

  • Cash Flow Projections: Forecast cash flows for 5-10 years based on expected revenue growth. 
  • Terminal Value Calculation: Estimate the terminal value reflecting the business’s worth beyond the forecast period. 
  • Discount Rate: Select an appropriate discount rate, often using the weighted average cost of capital (WACC). 
  • Present Value Calculation: Discount projected cash flows and terminal value to arrive at the total valuation. 

4. DCF with Multiple: Leveraging Comparables 

This method is similar to the Long-Term Growth DCF in valuation of startups but utilizes industry multiples to estimate terminal value. 

  • Cash Flow Projections: Start with projected future cash flows. 
  • Exit Multiple: Apply an industry-specific exit multiple to the projected cash flows in the terminal year. 
  • Discounting Back: Discount the cash flows and terminal value back to present value using the same discount rate as the traditional DCF method. 

5. Venture Capital Method: Aiming for Returns 

In valuation of startups, this method estimates the expected return on investment for venture capitalists, focusing on exit valuations. 

  • Target Return Calculation: Determine the desired return (e.g., 3x or 5x) over a specific horizon (usually 5-10 years). 
  • Exit Valuation: Estimate the expected exit value based on revenue and industry multiples. 
  • Post-Money Valuation: Calculate the post-money valuation by dividing the expected exit value by the target return multiple. 
  • Pre-Money Valuation: Subtract the investment amount from the post-money valuation to determine the pre-money valuation. 

Diving into the world of early-stage companies reveals a mix of exciting opportunities and challenges. To truly understand their value, we need to use different valuation methods that fit their unique situations. By looking closely at their changing risk profiles and using both qualitative and quantitative approaches in the valuation of startups, we can uncover the hidden potential in these startups. As these companies continue to shape our economy and culture, it’s crucial for investors and stakeholders to appreciate their real worth. With the right valuation of startups, we can support innovation and help the next wave of creators thrive. 

How MS can aid in Valuation of Startups 

At MS, we understand that the journey of early-stage companies is filled with both challenges and immense potential. Our expertise in valuation of startups methodologies equips them with the insights needed to tackle the complexities of their unique risk profiles. By employing dynamic valuation approaches tailored to the specific circumstances of each venture, we help founders, entrepreneurs, and investors uncover the true value of their innovations. From leveraging qualitative methods like the Scorecard and Checklist Methods to employing robust quantitative techniques such as DCF analysis, we offer a comprehensive suite of services designed to enhance your strategic decision-making. Let’s embark on this journey together and shape the future one start-up at a time. 

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What’s New in the UAE VAT Update: Implications for Digital Assets, Tax invoices and More!

This new UAE VAT update is under Cabinet Decision No. 52 of 2017

For the first time since the introduction of VAT in 2018, the Federal Tax Authority (FTA) of the UAE has made extensive revisions to Executive Regulations of the Law through Cabinet Decision 100 of 2024. This new UAE VAT update is under Cabinet Decision No. 52 of 2017 and introduces important changes that will take effect on November 15, 2024. These amendments reflect the FTA’s commitment to adapt to the evolving business landscape in the UAE.

UAE VAT Update:  Key Amendments and Their Implications

Financial Services

One of the most notable revisions to the UAE VAT update is the introduction of a Digital Asset definition under Article 1. Digital assets are now recognized as “digital representations of value that can be traded or transferred digitally and used for investment purposes, excluding fiat currencies or securities.”

Additionally, Article 42 (2) has been amended to include several services under the definition of financial services:

  • Providing investment fund management services independently for a fee for funds licensed by a competent authority in the state.
  • Transferring ownership of digital assets, including cryptocurrencies.
  • Converting digital assets.
  • Safeguarding and managing digital assets.

Furthermore, Article 42 (3) now specifies that the following services are exempt from VAT:

  • Investment fund management services.
  • Transferring ownership of digital assets.
  • Converting digital assets.

Notably, the last two exemptions will be applicable retrospectively from January 1, 2018. This is a significant development that clarifies the taxation of digital assets, an area of growing interest and investment in the UAE according to the new UAE VAT update.

Exception to Supply and Deemed Supply

The Exception to Supply definition in the UAE VAT update now includes the transfer of ownership or disposal rights of government buildings and real estate assets between government entities. This amendment simplifies the asset transfer process for government entities, ensuring that such transactions are not subject to VAT, effective from January 1, 2023.

Moreover, the Deemed Supply Exception provision has been extended in the UAE VAT update, allowing up to AED 250,000 for suppliers who are government entities or charitable organizations, provided the recipient is also a government entity or charitable organization within a twelve-month period. This extension offers relief to charitable organizations and government entities, enabling them to operate without the additional burden of VAT.

Profit Margin Scheme

According to the new UAE VAT update, Article 29 has clarified that the purchase price under the Profit Margin Scheme includes all costs and fees incurred to purchase the goods. This removes ambiguity and provides businesses with clear guidance on calculating the purchase price under this scheme.

Proof for Export of Goods

In the current UAE VAT update, for the Export of Goods, Article 30 now specifies the necessary documents to prove that an export has occurred, thus making it eligible for treatment as a zero-rated supply. Acceptable documents include:

  • Customs declaration and commercial evidence proving the export.
  • Shipping certificate and official evidence proving the export.
  • Customs declaration proving customs suspension if the goods are under customs suspension.

The clarifications surrounding “official evidence” and “commercial evidence” will facilitate smoother export processes for UAE exporters who have faced challenges in obtaining Exit Certificates.

Zero-rated Services

Article 31 for the Export of Services according to the new UAE VAT update specifies that services will not be zero-rated if their place of supply is within the UAE, according to certain scenarios outlined in Articles 30 and 31 of the UAE VAT Law. This change requires businesses to conduct detailed analyses to understand the implications on their operations and ensure compliance with the new regulations.

Composite Supply

The amendment to Article 46 (1) now states that tax treatment should be based on the overall nature of the supply if no main component is included in a composite supply. This change provides clarity on treating composite supplies for VAT purposes.

Input VAT

Article 53 in the current UAE VAT update now allows for the recovery of input VAT for health insurance, including enhanced health insurance for employees and their dependents within the limits of one spouse and three children under the age of eighteen. This amendment is a significant relief for businesses, enabling them to recover VAT on essential employee benefits.

Additionally, Article 55 in the UAE VAT update clarifies the end of the tax year in various scenarios, including tax registration cancellation and changes in tax group membership. For input VAT apportionment calculations, if the tax year is less than twelve months, the AED 250,000 limit for actual use should be proportionately adjusted. Taxable persons can request FTA approval to use a fixed apportionment percentage based on the previous tax year, benefiting businesses with consistent annual profiles.

Tax Invoices

The timeline for issuing Tax Invoices has been adjusted in the UAE VAT update, particularly for simplified and summary tax invoices. A simplified tax invoice must be issued on the date of supply, while a summary tax invoice must be issued within 14 days from the end of the calendar month that includes the date of supply. These changes require businesses to comply with invoicing requirements promptly, thereby reducing the risk of non-compliance.

The amendments to the UAE VAT framework represent a significant evolution in the taxation landscape. Taxpayers must carefully review these changes and assess their impact on their operations and compliance obligations. Navigating these amendments will require thorough analysis and informed decision-making to ensure adherence to the new regulations. Understanding these updates is crucial for businesses operating in the UAE as they adapt to the evolving VAT landscape.

How MS Can Assist You with the Latest UAE VAT Update

At MS, we help businesses stay compliant with the latest UAE VAT updates. Our team provides expert guidance on the new regulations, ensuring you understand how they affect your operations. We offer support in key areas like VAT exemptions, input VAT recovery, and tax invoicing. With our ongoing compliance services, we make sure your business remains up to date with the evolving VAT framework.