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Do M&A Deals Operate with Fixed Pricing or Flexible Adjustments? Exploring Locked Box and Completion Accounts in Detail 

Locked Box and Completion Accounts pictorial presentation

When it comes to selling a business, the true value often lies beyond the headline price. Buyers typically adjust the initial offer based on several financial factors, like profitability, net debt, and working capital. To ensure a fair price is paid, sellers and buyers must agree on a purchase pricing mechanism. Two of the most common options are locked box and completion accounts, each with its own set of advantages and challenges. 

While completion accounts have been the traditional choice for many years, the locked box mechanism is rapidly gaining popularity—particularly in today’s fast-moving M&A environment. It offers a fixed purchase price, set at a specific date, with no adjustments after closing. On the other hand, completion accounts allow for post-closing adjustments, aligning the final price with the target’s actual financials. 

Locked Box and Completion Accounts: Which Should You Choose for Your Next Deal? 

To simplify your decision between locked box and completion accounts, we’ve broken down both approaches based on their background, key considerations, and potential restrictions. 

The Locked Box Mechanism 

The locked box approach is often referred to as a “fixed price deal.” Here’s why: 

  • The financial position of the Target is fixed as of a pre-agreed date, called the locked box date. 
  • The Buyer evaluates enterprise value (EV), net debt, and normalized working capital (NWC) based on the locked box date. 
  • After deal signing, no post-closing adjustments to the purchase price are allowed. 

A crucial aspect is the locked box period—the gap between the locked box date and the Closing date. During this time, the Buyer aims to preserve the Target’s value, while the Seller must adhere to restrictions, such as: 

Value Leakage: Prohibitions on dividends, non-operational payouts, or other cash outflows that might reduce the company’s value. 

Permitted Leakage: Specific transactions agreed upon in the purchase agreement that are excluded from restrictions. 

To compensate for maintaining the business during the locked box period, the Seller may negotiate a value accrual, representing additional cash flow or a fixed interest on equity value. 

Key Considerations: 

  • The locked box date must balance due diligence requirements and risk mitigation. Typically, a date 2–3 months prior to Closing is ideal. 
  • An overly distant locked box date increases the risk of value loss for the Buyer. 

The Completion Accounts 

Unlike the locked box, the completion accounts mechanism allows for post-closing adjustments. This method is dynamic and involves: 

  • Preliminary Balance Sheet: The Seller provides a provisional closing balance sheet before the Closing date, used to estimate the purchase price. 
  • Preliminary Purchase Price: The Buyer pays this amount upon signing. 
  • Final Balance Sheet: After closing, the Buyer prepares the completion accounts to finalize net debt, NWC, and other financial metrics. The Seller reviews and can dispute these accounts. 
  • Price Adjustment: Any difference between the preliminary and final purchase price is settled. 

Key Considerations: 

  • Definitions of cash, debt, and working capital must be explicitly detailed in the acquisition agreement to avoid disputes. 
  • Dispute resolution mechanisms, including appointing an independent accountant, should be agreed upon during negotiations. 

Now that you have a solid understanding of both locked box and completion accounts, let’s dive into a comparison of their advantages and disadvantages to help you choose the most suitable option for your deal. 

Locked Box and Completion Accounts: Breaking Down the Potential Benefits and Drawbacks   

When choosing between the locked box and completion accounts methods, it’s crucial to understand how each affects the overall deal structure. Here’s a brief breakdown of their benefits and potential drawbacks: 

Transaction Complexity: The completion accounts approach is typically more involved, requiring post-closing preparation of the final accounts. This can delay the determination of the purchase price for months and demand significant time and resources from both parties. On the other hand, locked box and completion accounts methods have contrasting benefits, with the locked box simplifying the process by agreeing on a fixed purchase price upfront, allowing the transaction to proceed more smoothly. 

Price Certainty vs. Accuracy: The completion accounts method offers a more precise purchase price since it’s based on the actual financial situation of the company at completion. This can be advantageous if there are concerns about the target company’s financials leading up to the closing. However, locked box guarantees price certainty at signing, eliminating any post-closing surprises. 

Funding Certainty: Buyers prefer a locked box when they seek certainty regarding the funds required for the transaction, as the price is set in advance. In contrast, completion accounts may result in additional payments from the buyer if the final purchase price exceeds the preliminary amount, creating potential funding uncertainty. This risk can be mitigated by setting caps and collars on price adjustments. 

Risk and Leakage: When you choose between locked box and completion accounts, one of the major concerns with the locked box structure is that it doesn’t account for post-signing changes in the target’s financial position, such as value leakage. If the target suffers losses or experiences unexpected financial changes after the locked box date, these risks fall to the buyer. Completion accounts, however, allow for post-closing adjustments to reflect the actual situation at completion, making this approach less risky for buyers in volatile markets. 

Potential for Dispute: Among the locked box and completion accounts, the completion accounts process often opens the door for disputes, particularly if the buyer and seller disagree on the final adjustments. In fact, disagreements over the purchase price and financial metrics are relatively common. In contrast, locked box deals reduce the potential for disputes, as the purchase price is fixed at signing, offering a more straightforward approach for both parties. 

With a clear understanding of both mechanisms, you’re now better equipped to make an informed choice. Whether you’re scaling a company, expanding into new markets, or entering a venture or investment, aligning your decision with your strategic goals ensures greater control and confidence in the process. To choose between locked box and completion accounts, rely on professional M&A advisory services that can align the financial mechanism with your strategic goals, ensuring a seamless and well-informed transaction. 

Craft the Perfect Pricing Structure: MS’s Expertise in Locked Box and Completion Accounts 

At MS, we specialize in providing expert guidance on structuring and implementing purchase price mechanisms tailored to your unique M&A transaction needs. With extensive experience in the UAE and international markets, we offer a comprehensive approach that considers every aspect of the deal, from regulatory compliance and market conditions to your strategic business objectives. Our team of seasoned professionals ensures a seamless process by crafting customized solutions, whether you opt from locked box and completion accounts, to achieve fair and transparent outcomes. By leveraging industry insights and advanced analysis, we help mitigate risks, maximize value, and maintain clarity throughout negotiations 

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Transforming Family Wealth: Key Insights from the MoF Update on UAE Family Foundations

Key Insights from the MoF Update on UAE Family Foundations

The UAE’s recent update on UAE family foundations is a game-changing move for high-net-worth families, offering a wealth of new opportunities. Ministerial Decision No. 261 of 2024, which takes effect retroactively from June 1, 2023, introduces groundbreaking advantages that could completely transform how families manage their wealth, safeguard their assets, and plan for the future. With enhanced tax relief, simplified governance, and greater flexibility, this new framework solidifies family foundations as an indispensable tool for wealth managers aiming to preserve and grow their legacy in the UAE. 

What is a “Family Foundation”? 

A Family Foundation, as defined under the UAE Corporate Tax Law, is a legal entity such as a foundation, trust, or similar structure designed to safeguard and manage the assets and wealth of an individual or family. 

The primary role of a Family Foundation is typically to: 

  • Receive, hold, and invest funds and assets. 
  • Disburse or manage these resources to benefit individual beneficiaries or support a charitable purpose. 

For UAE Corporate Tax purposes, these activities generally do not qualify as a “business” or “business activity” if they are carried out directly by the founder, beneficiaries, or other individuals. 

Let’s dive into the key highlights in the recent MoF update on UAE family foundations. 

Tax Transparent Status for Foundation Entities 

One of the standout features of the MoF’s latest decision is the ability for family foundations to apply for tax transparent status—a move that opens the door to clearer, more predictable tax treatment. Now, there is no need to verify each individual asset holder or member, and families can hold their wealth in the UAE with a new level of simplicity and transparency. 

For those managing complex estates or diverse business interests, this MoF update on UAE Family Foundations is a boon. It streamlines compliance, slashes red tape, and makes tax reporting easy. This newfound clarity empowers families to focus on what truly matters: growing and preserving their wealth with confidence and ease. 

A Family Foundation That Acts Like an Individual 

One of the most striking elements of this new regulation is its treatment of family foundation income. Historically, only certain types of income, like rental and investment returns, were exempt from corporate tax. Now, income generated by wholly owned entities of the foundation—like SFOs—is treated as if it were earned directly by the foundation’s founders or council members. 

What does this mean for families? Simply put, it aligns the treatment of UAE family foundations with the tax benefits traditionally enjoyed by individuals, making it easier to manage assets and investments. The result is a more fluid, flexible wealth management structure, with fewer hoops to jump through when it comes to tax filings. 

Streamlined Succession Planning and Wealth Protection 

Succession planning is one of the major aspects of family foundation structures, and the new MoF update on Family Foundations makes this process smoother than ever. With the new tax transparency provisions, UAE family foundations can focus more on long-term wealth preservation and less on tax compliance requirements. 

By consolidating assets and qualifying for tax exemptions, family foundations offer a secure, efficient way to manage family wealth across generations. Whether you’re looking to safeguard your legacy or ensure a smooth transition of wealth to the next generation, this MoF update on UAE Family Foundations strengthens the foundation’s role as a central pillar in family estate planning. 

Alignment with the UAE’s Corporate Tax Framework 

This decision also strengthens the alignment of family foundations with the UAE’s broader corporate tax framework. By treating UAE family foundations similarly to unincorporated partnerships, the new update makes it easier for families to go through the UAE’s tax landscape. The clarity provided by this regulation ensures that foundations can continue to benefit from favorable tax treatments while operating seamlessly across multiple jurisdictions. 

This MoF update on Family Foundations not only simplifies the legal and tax structures governing family foundations, but it also creates a stable, predictable environment for wealth management—whether you are based in the DIFC, ADGM, or RAK ICC. 

The Perfect Incentive for Asset Consolidation 

The recent MoF update on Family Foundations provides a powerful incentive to consolidate assets under family foundations. By positioning a foundation at the top of the ownership structure, families can achieve tax neutrality for all underlying assets, simplifying wealth management and offering stronger asset protection. 

This change is a win-win for families looking to optimize their asset structures while minimizing corporate tax exposure. Whether you are managing real estate, securities, or private investments, the new framework provides a clear, tax-efficient path forward. 

MoF Update on UAE Family Foundations: Critical Considerations for Implementation 

Families should carefully assess their existing structures and explore the potential benefits of restructuring their assets under a family foundation to fully capitalize on this recent MoF update on Family Foundations. While the opportunities are substantial, meeting the specific conditions outlined in the update is crucial for maximizing tax relief. As of now, the application form for tax transparency has yet to be released by the Federal Tax Authority (FTA). It remains to be seen whether the application will need to be filed annually or just once, which could significantly simplify the process. 

For more complex scenarios, families may need to seek private clarification from the FTA. This could include situations such as a foundation holding assets in the capacity of a trustee of a trust or determining whether tax transparency applies to a purpose foundation. Taking these factors into account will ensure that families are fully prepared to explore this MoF update on UAE Family Foundations and unlock the full potential of their wealth structures. 

Making the Most of the MoF Update on UAE Family Foundations with MS 

At MS, we specialize in guiding family offices and foundations through this transformative evolution, offering tailored support to align with your long-term goals. Our expertise ensures that you can make best use of the new MoF update on Family Foundations with confidence, unlocking opportunities while safeguarding your family’s future. Let us partner with you to build a robust and optimized foundation structure that secures your legacy for generations to come. 

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Purchase Price Mechanisms in M&A: Guide to Completion Accounts v/s Locked Box

Purchase Price Mechanisms in M&A Illustration

In M&A transactions, the price tag isn’t always set in stone. It’s shaped, adjusted, and sometimes even redefined through purchase price mechanisms. These ensure fairness, manage risk, and create alignment between buyers and sellers.

Let’s delve into the importance of purchase price mechanisms in M&A, critical factors that guide the selection of purchase price mechanisms and provide actionable insights to help you choose the optimal strategy for your next M&A deal.

The Importance of Purchase Price Mechanisms in M&A

The primary objective of a purchase price mechanism is to establish a clear and equitable method for determining the final purchase price. This ensures fairness by providing a transparent structure for adjusting the price based on various factors, such as the company’s performance or changes in its financial condition. Key goals of purchase price mechanisms include:

  • Fair Value: Ensuring both parties get a price that reflects the true value of the business.
  • Risk Allocation: Distributing the risks between the buyer and the seller, particularly with respect to future uncertainties.
  • Transparency: Providing clarity on how the price will be adjusted, avoiding disputes post-deal.

Key Components of Purchase Price Mechanisms

  1. Base Purchase Price: This is the agreed-upon price before any adjustments. It serves as the foundation for the deal.
  2. Adjustments: These are price adjustments made based on specific financial metrics at the time of closing, such as:
    1. Working Capital: Ensures the company has the expected level of operating capital.
    1. Debt: Adjustments for any outstanding debts or liabilities.
    1. Cash: Reflects the company’s available cash or cash equivalents at the time of the deal.
  3. Contingent Considerations: These are future payments that depend on certain conditions being met, such as:
    1. Earnouts: Payments contingent on the business reaching certain financial targets post-acquisition.
    1. Milestones: Payments tied to the achievement of specific business goals.

Why Purchase Price Mechanisms in M&A Matter

  • Managing Buyer-Seller Expectations: Clear mechanisms help both parties understand how the price may change, reducing the potential for misunderstandings and disputes.
  • Addressing Financial Uncertainties: Deals are often based on projections, which can be uncertain. Purchase price mechanisms in M&A allow for adjustments that reflect real-time financial performance, reducing risk for both sides.
  • Aligning Incentives Post-Deal: Mechanisms like earnouts align the interests of the buyer and seller, as the seller may still benefit from the business’s success after the deal closes.

Types of Purchase Price Mechanisms

1. Locked Box

In a locked box structure, the purchase price is agreed upfront, with no adjustments at the time of closing. The buyer typically agrees to pay the agreed price based on the financial condition of the business at a specific “locked box” date. This method is often used when the buyer and seller are comfortable with the financial position of the business and want to avoid post-deal adjustments.

  • Advantages:
    • Predictability: Both parties know the final price from the outset.
    • Simplicity: No need for post-deal price adjustments.
  • Risks:
    • Risk to the buyer: If the company’s financial condition worsens post-signing, the buyer cannot adjust the price.
    • Limited flexibility for addressing unforeseen financial issues.

2. Completion Accounts

Under this mechanism, the purchase price is adjusted after the deal closes based on the company’s financial position at completion. The buyer and seller typically agree on how adjustments will be made to account for changes in working capital, debt, and cash. This is common when there is uncertainty about the company’s financial position at the time of signing, and both parties want the final price to reflect the actual performance at closing.

  • Advantages:
    • Fairness: Adjusts the price to reflect the actual financial state at closing.
    • Flexibility: Helps accommodate any changes in the business between signing and closing.
  • Risks:
    • Potential disputes over the financial figures and adjustments.
    • Complexity and delays in finalizing the price.

When it comes to purchase mechanisms in M&A, there other contingent strategies like escrow, earnouts, holdbacks, and milestones are tailored to meet specific transaction goals and adapt to market dynamics.

Factors to Consider When Choosing Purchase Price Mechanisms in M&A

  • Deal Complexity: Larger, more complex deals often need mechanisms like completion accounts or escrow for detailed adjustments.
  • Trust Level: High trust between parties favors simple mechanisms like locked box, while low trust calls for completion accounts.
  • Industry Practices: High-growth sectors often use earnouts, while stable industries lean toward locked box mechanisms.
  • Risk Tolerance: Buyers with low risk tolerance prefer holdbacks or escrows, while sellers may favor upfront certainty.
  • Legal and Tax Considerations: Jurisdictional rules and tax impacts can heavily influence the choice of mechanism.

At MS, we provide expert guidance on structuring and implementing purchase price mechanisms in M&A transactions. Backed by years of experience in the UAE and global markets, we tailor strategies to align with your business objectives, regulatory requirements, and deal dynamics. Partner with MS to secure fair, transparent, and value-driven outcomes in every transaction.

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Common Costly Mistakes in Corporate Tax Filing: Your Guide to the 31st December 2024 Deadline

Common Mistakes in Corporate Tax Filing presentation

If your business was incorporated on or after 1st June 2023 and has a tax period ending on or before 29th February 2024, the clock is ticking! With the first corporate tax return filing deadline set for 31st December 2024, now is the time to ensure your tax filings are accurate and error-free.

Read on to discover the common mistakes in corporate tax filing to avoid as you prepare for this crucial deadline!

1. Inaccurate or Incomplete Financial Statements

One of the most significant mistakes businesses make is submitting inaccurate or incomplete financial statements. This often happens due to poor bookkeeping practices, which can result in miscalculations of taxable income. Incorrect financial statements can lead to either overpayment or underpayment of taxes, potentially triggering audits or penalties.

How to Avoid It:

  • Maintain Detailed Records: Keep comprehensive records of all financial transactions, including invoices, receipts, and bank statements.
  • Categorize Transactions Accurately: Ensure personal expenses are not mixed with business expenses.
  • Retention Period: Retain records for the legally required period (usually five years) to ensure they are available in the event of an audit.

2. Failure to Claim Eligible Deductions and Exemptions

Many businesses fail to claim all the deductions and exemptions available under UAE corporate tax law, which can lead to overpayment of taxes. Companies may overlook tax benefits such as small business relief or sector-specific reliefs, losing out on potential savings.

How to Avoid It:

  • Stay Informed About Deductions: Regularly review available deductions, including sector-specific reliefs and small business exemptions.
  • Consult a Tax Advisor: Work with a tax professional to ensure all applicable benefits are claimed.

3. Improper Classification of Income and Expenses

Another frequent error is the improper classification of income and expenses. Businesses sometimes misclassify personal expenses as business-related or fail to properly distinguish between different types of income. This can lead to an incorrect calculation of taxable income, resulting in errors in tax filings.

How to Avoid It:

  • Accurate Classification: Ensure that all income and expenses are classified correctly in your financial records.
  • Review Regularly: Periodically review income and expenses to ensure they are categorized properly.

4. Lack of Conformity with Transfer Pricing Regulations

For companies involved with related parties (e.g., subsidiaries, directors, or shareholders), failure to comply with transfer pricing regulations can result in tax adjustments and penalties. Incorrect documentation of intercompany transactions can trigger audits.

How to Avoid It:

  • Adhere to the Arm’s Length Principle: Ensure that transactions between related parties are priced similarly to transactions with unrelated third parties.
  • Document Transactions Thoroughly: Keep detailed records of all intercompany transactions to comply with UAE transfer pricing rules.

5. Poor Record-Keeping and Documentation

Inadequate record-keeping and poor documentation practices can make it difficult for a business to substantiate claims for tax deductions and exemptions. Missing invoices, receipts, and contracts can lead to lost tax benefits or errors in tax filings.

How to Avoid It:

  • Organize Documents Properly: Maintain a structured system for storing records related to all financial transactions.
  • Stay Compliant: Keep all relevant documents (e.g., contracts, invoices, receipts) for the legally mandated period.

6. Failure to Register for Corporate Tax or Obtain a Tax Registration Number (TRN)

Companies operating in the UAE must register for corporate tax and obtain a Tax Registration Number (TRN). Failing to do so can result in hefty penalties and interest charges, as it constitutes a violation of tax laws.

How to Avoid It:

  • Register on Time: Ensure that your business is registered for corporate tax as soon as it meets the relevant criteria.
  • Set Reminders: Use tax management tools to help you track important filing and registration deadlines.

7. Misjudging Tax Liabilities

Many businesses miscalculate their tax liabilities by either underestimating or overestimating them. This can result from errors in calculating taxable income, misunderstanding deductions, or applying the wrong tax rate.

How to Avoid It:

  • Engage Tax Professionals: Consult with tax experts to accurately calculate your tax liabilities.
  • Regularly Review Tax Liabilities: Conduct quarterly or annual reviews to ensure accuracy in tax planning and filings.

8. Missing Out on Tax Incentives

The UAE offers various tax incentives, including relief for small businesses, exemptions for free-zone entities, and tax credits for qualifying expenses. However, many businesses fail to take advantage of these incentives, leading to higher tax payments.

How to Avoid It:

  • Stay Updated on Incentives: Regularly review the tax incentives available to your business.
  • Develop a Tax Strategy: Work with a tax advisor to incorporate these incentives into your tax strategy.

9. Overpaying on Transactions Between Related Parties

For transactions between related parties (e.g., payments to directors or shareholders), businesses may overpay or underpay, which can trigger tax audits. The UAE tax system follows the “arm’s length principle,” meaning that related-party transactions should be priced similarly to transactions with unrelated third parties.

How to Avoid It:

  • Follow the Arm’s Length Principle: Ensure that payments to related parties are fair and comparable to those made to independent third parties.
  • Document All Transactions: Keep thorough records of related-party transactions to avoid complications during audits.

What Happens When You Make Mistakes in Corporate Tax Filing

Failing to comply with tax regulations in the UAE can lead to serious consequences for businesses. The penalties for mistakes in corporate tax filing can range from fixed amounts for late submissions to percentages based on unpaid taxes. Interest may also be charged on unpaid taxes, further increasing a business’s financial liability. In addition, mistakes in corporate tax filing can also damage a company’s reputation and relationships with clients, partners, and investors.

How MS Helps You Avoid Mistakes in Corporate Tax Filing

At MS, we make corporate tax filing simple and error-free. Our experienced team will help you avoid mistakes in corporate tax filing like misclassifying expenses, missing out on eligible deductions, or failing to meet transfer pricing requirements. We ensure your financial documents are accurate, calculate your tax liabilities with precision, and guarantee compliance with the latest UAE tax laws. From start to finish, we manage the entire filing process, ensuring your return is submitted on time—so you can avoid the mistakes in corporate tax filing and the associated penalties.

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MoF Rolls Out 15% Domestic Minimum Top Up Tax for Eligible Multinationals, Effective 2025

Simplifying Domestic Minimum Top Up Tax in the UAE and Beyond

The UAE Ministry of Finance has recently announced the confirmation of the Domestic Minimum Top up Tax (DMTT), set to take effect on January 1, 2025, for applicable businesses. This significant update to Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses reflects the UAE’s commitment to fostering economic growth, enhancing global competitiveness, and aligning with international tax frameworks. With this bold reform of confirming the Domestic Minimum Top up Tax in the UAE, the nation continues to strengthen its position as a global leader in economic innovation and regulatory excellence, paving the way for a more transparent and robust tax environment.

Introducing the Domestic Minimum Top Up Tax in the UAE

Following the issuance of Federal Decree Law No. 60 of 2023, the Domestic Minimum Top up Tax in the UAE will apply to multinational enterprises operating in the nation with consolidated global revenues of €750 million (Approx AED 3 billion) or more in at least two out of the four financial years immediately preceding the financial year in which the DMTT applies. The move reflects the UAE’s strong commitment to implementing the OECD’s Two-Pillar Solution, which sets a 15% minimum effective tax rate on profits.

This means MNEs operating in the UAE will need to pay an additional tax on their UAE profits, on top of the existing 9% corporate tax. The Domestic Minimum Top-up Tax in the UAE ensures that the nation is playing its part in creating a fair, transparent global tax system, making the country an even more attractive and compliant place for multinational operations.

Tax Incentives to Fuel Innovation and Growth

But it’s not all about Domestic Minimum Top up Tax in the UAE or other taxes – the nation is also working hard to keep businesses ahead of the curve. The Ministry of Finance is also gearing up to introduce corporate tax incentives designed to boost innovation, investment, and economic growth in the country.

R&D Tax Credit: A Game Changer for Innovators

The UAE is preparing to roll out an ambitious Research and Development (R&D) Tax Incentive in 2026. This initiative offers businesses a 30-50% refundable tax credit on qualifying R&D expenditures, providing a robust platform for fostering innovation and technological advancement.

Designed to align with the globally recognized OECD Frascati Manual guidelines, the program ensures that R&D activities meet international benchmarks. By encouraging investment in high-impact, future-focused projects, the UAE aims to solidify its position as a global leader in research and innovation, driving sustainable growth and attracting top-tier talent and enterprises.

High-Value Employment Tax Credit: Rewarding Top Talent

In another development, the UAE is introducing a tax credit for high-value employment activities starting January 1, 2025. This incentive will reward businesses that employ senior talent, including C-suite executives and senior personnel who drive innovation and deliver significant value to the UAE economy. The credit will be a percentage of the eligible salary costs, supporting businesses in attracting and retaining the best and brightest minds.

Along with the Domestic Minimum Top up Tax in the UAE, these tax updates mark a significant shift in the UAE’s corporate tax landscape, reinforcing the country’s commitment to being a global business powerhouse. The final details of these changes will be shared soon by MoF, but businesses should start preparing now to take full advantage of the upcoming reforms and incentives.

Stay Ahead with MS: Simplifying Domestic Minimum Top Up Tax in the UAE and Beyond

Domestic Minimum Top up Tax in the UAE and R&D Tax Incentives are just one part of the evolving tax reforms in the UAE. At MS, we make it easy for you to stay ahead of these changes. Our expert team helps you understand these changes seamlessly, ensuring compliance while unlocking growth opportunities. We provide tailored solutions that turn tax challenges into a competitive advantage. Partner with MS to stay updated, compliant, and ready for the future.

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Abu Dhabi Business Week 2024: Driving Entrepreneurial Success in a Diversified, Future-Focused Economy

Abu Dhabi Business Week 2024

The 2024 Grand Prix in Abu Dhabi may have come to a close, but its significance extends far beyond the racetrack, reflecting the emirate’s broader evolution. For years, Middle Eastern oil-producing nations have viewed Formula 1 as a strategic tool for economic diversification, and Abu Dhabi has successfully embraced this approach. However, the UAE capital has taken it a step further, shifting from being solely defined by its oil wealth to positioning itself as a global leader across multiple sectors.

High-profile events like Abu Dhabi Business Week and Abu Dhabi Finance Week are just the latest examples of how the emirate is building its reputation as a powerhouse of innovation, finance, technology, and sustainability. With targeted investments and forward-thinking initiatives, Abu Dhabi is well on its way to becoming a diversified, future-ready global hub — where business, technology, and sustainability converge to shape the economy of tomorrow.

Abu Dhabi Business Week – a new era of global business

Under the theme ‘Deliver Value. Create Impact’, the first edition of ADBW brought together influential business leaders, entrepreneurs, and policymakers, all focused on shaping the future of the global economy. The event demonstrated the emirate’s ability to attract international attention, positioning itself as a center for innovation and sustainable finance, while also focusing on the continued diversification of the UAE’s economy.

The event highlighted 4 key announcements as part of its ongoing transformation into the “Powerhouse of Tomorrow”

A Bold New Look: Rebranding of the Abu Dhabi Chamber of Commerce and Industry (ADCCI)

One of the standout moments of Abu Dhabi Business Week was the rebranding of the Abu Dhabi Chamber of Commerce and Industry (ADCCI). Alongside the unveiling of its Roadmap 2025-2027, this initiative reflects a clear shift in how Abu Dhabi is positioning itself for future economic growth. The roadmap, created with input from both the public and private sectors, lays out a comprehensive plan to strengthen the private sector, drive economic diversification, and enhance Abu Dhabi’s global competitiveness.

Core pillars that will guide the emirate’s economic journey:

  • Policy Advocacy: Ensuring the voices of businesses are heard in shaping economic strategies.
  • Market Intelligence: Equipping businesses with data-driven insights to stay ahead in a competitive global market.
  • Ecosystem Building: Strengthening business networks and fostering collaboration across sectors.
  • Innovation Agenda: Embracing digital transformation and sustainability to keep businesses future ready.
  • Market Expansion: Opening doors to international markets and boosting global trade.

Empowering Family Businesses with the Abu Dhabi Family Businesses Council (ADFBC)

Family-owned businesses are the backbone of Abu Dhabi’s private sector, and the launch of the Abu Dhabi Family Businesses Council (ADFBC) made it clear that the emirate is fully committed to supporting them. These businesses are crucial to Abu Dhabi’s economic diversification and sustainability. The ADFBC aims to provide family businesses with the resources they need to grow, including governance training, succession planning, and strategic advisory services.

Simplifying Business Operations with ADRA

The launch of the Abu Dhabi Registration Authority (ADRA) marks a significant step toward simplifying business operations in the Emirate. ADRA is a one-stop platform that streamlines the registration process for businesses in both Abu Dhabi’s mainland and free zones. By reducing bureaucracy, ADRA makes it easier for entrepreneurs to start and grow their businesses, boosting both local and foreign investment.

ADRA complements the existing ADGM RA, which handles financial businesses under common law, while ADRA centralizes registrations. This initiative supports Abu Dhabi’s goal to improve the business climate, enhance global competitiveness, and diversify its economy with efficient, internationally compliant processes.

MZN HUB: Strengthening the Next Generation of Entrepreneurs in Abu Dhabi

MZN HUB, launched by the Khalifa Fund for Enterprise Development, is designed to help startups and entrepreneurs in Abu Dhabi grow and succeed. The hub provides resources, funding, and mentorship to turn ideas into real businesses.

It includes key features like MZN Venture Studios, a Light Manufacturing Unit, and MZN Venture Capital, offering support like sustainable funding, expert advice, and training. The hub also has advanced manufacturing facilities to help startups grow faster.

This initiative is important for keeping Abu Dhabi at the forefront of global innovation and technology.

As Abu Dhabi Business Week wrapped up in the eventful early days of December, the emirate has firmly strengthened its reputation as a global hub for innovation and business. With forward-thinking initiatives in sustainability, family business support, and streamlined operations, Abu Dhabi is paving the way for an innovation-driven economy. The spotlight gradually shifted to the highly anticipated financial gathering, Abu Dhabi Finance Week (ADFW) happening in the second week of December. With this, Abu Dhabi is unstoppable—ready to redefine the limits of finance, technology, and global investment on the world stage.

The future is here, and it’s driven by Abu Dhabi.

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Trusts and Foundations in DIFC Explained: Finding the Right Structure for You

Trusts and Foundations in DIFC Explained

When it comes to managing and protecting wealth in the Dubai International Financial Centre (DIFC), the choice between trusts and foundations can have a significant impact. These two structures offer distinct benefits, from asset protection to long-term family wealth planning, but their legal frameworks, control mechanisms, and tax advantages vary.

Let’s break down the key differences between Trusts and Foundations in DIFC, helping you make an informed decision about the best path for securing your assets and ensuring your legacy.

Key Differences Between Trusts and Foundations in DIFC

1. Legal Personality

Trusts in DIFC:
Trusts under the DIFC Trust Law are legal arrangements where the trustee holds and manages assets for the benefit of beneficiaries. A trust itself is not a separate legal entity.

DIFC Foundations:
DIFC Foundations are independent legal entities with their own corporate status. They are established under the DIFC Foundations Law, with a charter and by-laws governing their operations.

2. Control and Governance

Control:

In a DIFC trust, control over the assets lies with the trustee, which may limit the settlor’s direct involvement. But in a DIFC foundation, the founder can retain influence by serving on the foundation council, ensuring alignment with the founder’s vision and offering more control compared to trusts.

Governance:

Trusts are governed by the trust deed, which defines the rights and responsibilities of the trustee and beneficiaries. DIFC Foundations have a flexible governance structure, allowing for the establishment of advisory committees or specific management roles tailored to the foundation’s purpose.

3. Purpose and Functionality

Trusts in DIFC:
Trusts are designed for:

  • Asset protection
  • Estate planning
  • Beneficiary-focused wealth management
  • They offer flexibility for distributing assets in line with the settlor’s wishes.

DIFC Foundations:
DIFC Foundations cater to:

  • Philanthropic purposes
  • Family wealth management
  • Corporate structuring
  • They are particularly suitable for long-term planning and activities with a broader purpose beyond individual beneficiaries.

4. Regulatory Framework in DIFC

Trusts:
The DIFC Trust Law provides a robust and internationally recognized legal framework, offering flexibility for trust formation and operation.

Foundations:
Governed by the DIFC Foundations Law, foundations are required to register with the DIFC Registrar of Companies. This law supports both private and charitable purposes, providing strong protections and flexible structuring options.

6. Tax Considerations in DIFC

Trusts:
DIFC trusts may offer tax-neutral advantages depending on the residency of the settlor and beneficiaries.

Foundations:
Under the revised Ministerial Decision No. 261 of 2024, family foundations and their wholly owned subsidiaries, including single-family offices (SFOs), can qualify for tax transparency if their activities are limited to investments and asset management, excluding business activities like personal investments in UAE shares, securities, and real estate. Foundations earning revenue from eligible activities, along with their subsidiaries, may benefit from corporate tax exemptions, potentially extending to all consolidated assets and holdings. This offers significant tax relief for family wealth and investment management structures.

7. Transparency and Confidentiality

Trusts:
DIFC trusts are private arrangements. Details about the trust, its assets, and beneficiaries are not publicly accessible, ensuring confidentiality.

Foundations:
While DIFC foundations are registered legal entities, only limited information (such as the name and purpose) is publicly available. Beneficiary and asset details remain confidential.

Trusts and Foundations in DIFC: How to Choose the Best Structure for You?

When deciding between Trusts and Foundations in DIFC, consider what aligns best with your objectives. If your focus is on asset protection, estate planning, and maintaining privacy, a trust is often the better choice, especially if you prefer a simpler structure where the trustee manages assets on behalf of beneficiaries. However, if you seek more control over your assets, the ability to engage in philanthropy, or manage long-term family wealth with greater flexibility in governance, a DIFC Foundation might be more appropriate. Foundations also offer advantages like tax transparency for investment-focused entities such as single-family offices. Ultimately when choosing between trusts and foundations in DIFC, your decision should be based on your specific goals for asset management, control, and governance.

Establish Your DIFC Foundation with Ease

MS simplifies the entire process of setting up your DIFC Foundation, providing expert support from start to finish. We guide you through the legal framework under the DIFC Foundations Law, ensuring your foundation is structured to meet your specific goals—whether that’s wealth management, setting up a single-family office, or pursuing philanthropy. As you’ve already grasped the difference between trusts and foundations in DIFC, the focus now shifts to execution and achieving clarity in practice with MS.

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Hiring Your Next C-Suite Leader? 10 Executive Hiring Mistakes You Can’t Afford to Make 

Executive Hiring Mistakes

Hiring an executive talent for your organization is not always a straight shot. Between rushing the process, missing the cultural vibes, and setting unrealistic expectations, it’s easy to fall into some serious traps. 

Let’s break down those classic executive hiring mistakes and show you how a well-thought-out executive search can help you find a leader who’s ready to level up your business. 

Common Executive Hiring Mistakes That Can Derail Your Success 

1. Misalignment Among Stakeholders 

Starting a search without internal consensus is a fast track to confusion. When management and the board aren’t aligned on the role’s priorities, candidates are evaluated against shifting expectations. This not only wastes time but also risks alienating top talent. Before beginning the process, ensure everyone agrees on the strategic goals, required skills, and cultural fit. 

2. Rushing to Fill the Role 

The pressure to quickly plug a leadership gap often leads to hasty decisions. Hiring the wrong executive in a rush can result in long-term damage, from misaligned strategies to team disruption. Strike a balance: act with urgency, but don’t shortcut essential steps like in-depth interviews, reference checks, and cultural assessments. 

3. Overlooking Cultural Compatibility 

An executive’s credentials and experience might dazzle on paper, but if they clash with your company culture, the fallout can be disastrous. Cultural fit isn’t about finding someone who’s “nice to have around”—it’s about ensuring the new hire can lead effectively within your unique organizational environment. Misaligned values or leadership styles are one of the common executive hiring mistakes for early departures, so prioritize this in your evaluation. 

4. Limiting Your Talent Pool 

The executive talent pool is already competitive, and focusing solely on active job seekers narrows your options even further. Many high-caliber leaders are passive candidates—they’re not actively searching but are open to compelling opportunities. Tapping into this hidden market often requires partnerships with experienced executive search firms that can access a global network of talent. 

5. Underestimating Employer Branding 

In today’s competitive hiring landscape, candidates are scrutinizing you as much as you’re evaluating them. A weak employer brand can turn off top candidates before they even consider your offer. Showcase your company’s culture, growth potential, and values to stand out. Remember, how you treat candidates during the process can significantly impact their perception of your organization. 

6. Letting Bias Cloud Judgement 

Unconscious bias is a silent saboteur in hiring. Whether it’s gravitating toward candidates with similar backgrounds or relying on “gut feelings,” bias can lead to poor decisions. Implement structured interviews and objective evaluations to ensure fairness for avoiding those executive hiring mistakes. Additionally, train decision-makers to recognize and mitigate their own biases. 

7. Chasing Perfection Over Potential 

It’s easy to become fixated on finding the “perfect” candidate—someone with every qualification, skill, and experience. But in a tight talent market, this perfectionism can lead to endless delays and missed opportunities. Often, a candidate with strong potential and cultural alignment is a better long-term fit than someone with a glittering resume but limited adaptability. 

8. Neglecting Transparency 

Trying to present your organization in an overly polished light can backfire. Concealing challenges or weaknesses during the hiring process may lead to mismatched expectations and wasted efforts. Be upfront about your company’s realities—it’s better to find candidates who are excited to tackle challenges than to surprise them later. 

9. Dragging Out the Process 

While rushing is a mistake, so is prolonging the search unnecessarily. A drawn-out hiring process frustrates candidates and increases the risk of losing top talent to competitors. Once you’ve identified a strong candidate, move decisively. The best executives often have multiple offers on the table and won’t wait forever. 

10. Skipping Post-Hire Integration 

One of the common executive hiring mistakes is assuming the work ends with the offer letter. In reality, the onboarding phase is critical. Without proper support and integration, even the best hires can struggle to align with your organization and deliver results. Prioritize a structured onboarding process to set your new executive—and your organization—up for success. 

From Pitfalls to Perfect Hires: How Strategic Executive Search Prevents Costly Executive Hiring Mistakes 

The path to hiring exceptional executive talent is a minefield of potential pitfalls— one wrong turn, and you’re stuck with mismatched priorities, cultural clashes, or leaders who don’t deliver. An executive search done right goes far beyond filling a position but to tackle these executive hiring mistakes. By deeply understanding your vision and culture, the process ensures you don’t just hire a set of skills, but a dynamic leader capable of driving innovation, inspiring teams, and steering the organization toward lasting success. A strategic executive search can help you dig deeper, accessing untapped talent pools, ensuring a seamless fit, and avoid costly mistakes and secure leaders who will shape your future. 

Don’t Let Executive Hiring Mistakes Cost You —MS Helps You Get It Right 

At MS, we understand that pitfalls like misaligned priorities, rushed decisions, or cultural mismatches can affect even the best hiring intentions. That’s why our approach is designed to anticipate and tackle these executive hiring mistakes head-on. From aligning stakeholder expectations to conducting in-depth cultural assessments, we leave no stone unturned in finding leaders who are the perfect fit. With access to untapped talent pools, data-driven insights, and a strategic, thorough process, MS ensures you avoid costly missteps and secure executives who deliver real, lasting impact. 

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VAT Penalties Explained: How Non-Compliance Can Cost Your Business in the UAE?

VAT Penalties in uae

VAT compliance in the UAE doesn’t have to be a headache if you know where the pitfalls are and take proactive steps. Small mistakes like missing deadlines or submitting incorrect returns can quickly lead to hefty VAT penalties. These penalties can add up quickly, making it challenging for businesses to stay on top of their finances. However, there’s some good news: the UAE’s Federal Tax Authority (FTA) has introduced a grace period where businesses can benefit from a waiver of VAT penalties for updating the records, offering them a valuable opportunity to reset and get back on track without incurring hefty fines.

As per Cabinet Decision No. (74) of 2023, registered taxpayers must notify the FTA of any changes to their information within 20 working days using the FTA’s approved form and process. By taking advantage of this waiver, businesses can correct mistakes, file missing returns, or deregister from VAT without facing financial penalties. It’s an excellent chance to avoid further penalties and ensure that your business stays compliant with the law.

Most common VAT penalties you can avoid

VAT Registration Penalties

If a business fails to complete VAT registration within 30 days after exceeding the threshold, a fixed fine of AED 10,000 (~USD 2,750) will be imposed.

Deregistration for VAT

Businesses must apply for VAT deregistration within 20 business days if their taxable supplies fall below AED 187,500 annually or if they cease operations. The penalties for non-compliance are:

  • AED 1,000 for the first offence.
  • AED 1,000 for each additional month of delay, capped at AED 10,000.

Late VAT Filing

VAT returns must be filed within 28 days of the end of each tax period. Missing the deadline results in:

  • AED 1,000 for the first late filing.
  • AED 2,000 for repeated delays within 24 months.

Late VAT Payments

VAT payments are due within 28 days after the end of each tax period. Delayed payments are penalized as follows:

  • 2% of the unpaid VAT immediately after the due date.
  • An additional 4% fine if the VAT remains unpaid after 7 days.
  • A daily 1% penalty thereafter, up to 300% of the unpaid VAT amount.

Incorrect VAT Returns

Submitting inaccurate returns can lead to VAT penalties:

  • AED 3,000 for the first error.
  • AED 5,000 for subsequent errors within 24 months.

Failure to Maintain Proper Records

Businesses are required to maintain detailed records, such as invoices and tax calculations, for at least five years. Failure to comply results in:

  • AED 5000 for the first instance of improper recordkeeping.
  • AED 10.000 for repeated violations.

Failure to Issue VAT Invoices

VAT-registered businesses must issue valid invoices for taxable transactions. Penalties for non-compliance are AED 5,000 for each missing or incorrect invoice.

Non-Compliance in Designated Zones

Goods transferred within UAE Designated Zones must adhere to specific VAT rules. Penalties for non-compliance include AED 50,000 or 50% of the unpaid VAT, whichever is higher.

Submission of Incorrect Information

Providing false or incorrect details during VAT registration, filing, or updates can result in:

  • AED 3,000 for the first instance.
  • AED 5,000 for repeated inaccuracies within 24 months.

Voluntary Disclosures

If a business discovers errors in its VAT returns, it must submit a voluntary disclosure to correct the mistake:

  • Errors under AED 10,000 can be adjusted in the next VAT return.
  • Errors above AED 10,000 require notification to the FTA within 20 working days using a disclosure form.

VAT Penalties for non-compliance:

  • AED 1,000 for the first voluntary disclosure.
  • AED 2,000 for subsequent disclosures.

Additional fines may apply for underpaid taxes or during FTA audits.

Late Penalty Payments

Penalties issued by the FTA must be paid within 20 days. If unpaid, further fines are imposed:

  • A 4% monthly fine on the unpaid amount.
  • Total fines may reach up to 300% of the original penalty.

VAT Penalties Waiver: FTA’s New Initiative to Support Businesses in the UAE

The FTA has introduced a new initiative to help VAT-registered businesses in the UAE update their records without facing penalties, effective from January 1, 2024, to March 31, 2025. Any VAT-related penalties imposed between January 1, 2024, and the start of the grace period will be automatically reversed. Businesses that have already paid these penalties will receive refunds credited back to their tax accounts, without needing to take further action. This initiative supports VAT compliance by easing the burden of past penalties and encouraging accurate record-keeping.

Avoid VAT Penalties Effectively with MS

Managing VAT compliance doesn’t have to be overwhelming if MS is there to handle it for you. Our team of tax experts is equipped to assist with VAT registration, accurate filings, voluntary disclosures, and recordkeeping, ensuring your business stays compliant with FTA regulations without incurring any VAT penalties. With the recent penalty waiver initiative, now is the ideal time to resolve any past compliance issues and optimize your VAT processes.  Let us simplify VAT compliance for you.

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Term Sheets and LOI: Understanding the Difference to Keep your deal on track – Read More!

Got an M&A deal on the table? Now, it’s time to know your initial documents inside out. Many dealmakers mistakenly swap the Term Sheets and LOIs, treating them like they’re the same. This misunderstanding can lead to confusion, missteps, and even setbacks. The truth is, these documents are different, and knowing how to leverage each one at the right time is crucial to driving your deal forward smoothly.

Let’s break down how these two documents and understand the difference between Term Sheets and LOIs for your deal’s success!

Breaking Down the Roles of Term Sheets and LOIs in M&A

1. What is the Purpose?

Term Sheet:

Acts as a roadmap, giving a detailed picture of the proposed deal. For instance, it specifies working capital adjustments, indemnification terms, and representations and warranties. Its goal is to provide a clear foundation for further negotiations and identify potential deal-breakers early.

LOI:

Signals intent to proceed. It’s the handshake that assures both parties as they are on the same page before diving into exhaustive due diligence and drafting the final agreement.

2. When to Draft These Documents?

Term Sheet:

Appears right after initial discussions, allowing both parties to test compatibility on key deal elements. It saves time by clarifying terms before costly processes like financial audits or legal reviews.

LOI:

Finalizes the intent to proceed, based on the term sheet. By this stage, the parties are serious about the deal and ready to formalize negotiations.

3. How Detailed Are Term Sheets and LOIs in M&A Deals?

Term Sheet:

Goes deep into specifics. For example, it defines whether an earn-out payment will be based on revenue or EBITDA. This document minimizes ambiguity, especially for complex deals involving multiple variables like stock options, employee retention, or escrow amounts.

LOI:

Covers high-level terms like the deal structure (e.g., asset purchase vs. stock purchase) or confidentiality. It doesn’t delve into details like working capital adjustments but establishes intent.

4. What are the Binding Provisions of Term Sheets and LOIs?

Term Sheet:

Mostly non-binding but include critical binding clauses like exclusivity, which prevents the seller from negotiating with other buyers for a set period. These clauses safeguard the buyer’s position while they conduct due diligence.

LOI:

Similar in binding nature to the term sheet. For example, its confidentiality clause ensures sensitive information shared during the M&A process isn’t leaked or misused.

5. What is the Strategic Role of these in the deals?

Term Sheet:

Ensures there’s a shared understanding of deal specifics, reducing friction during due diligence. For instance, it aligns both parties with adjustments to the purchase price.

LOI:

Acts as a trust-building mechanism. By formalizing the buyer’s intention to proceed, it fosters a collaborative atmosphere, ensuring smoother negotiations.

How The Term Sheets and LOIs Work Together?

When dealmakers recognize and respect the differences between Term sheets and LOIs, the deal process flows smoother, negotiations become more efficient, and costly missteps are avoided. Mistaking Term Sheets for LOIs—or vice versa—is a common slip, but one that can cost you time, clarity, and sometimes the deal itself. For founders, sellers, and buyers, mastering the Term Sheets is essential. The details within these documents need careful handling as they set the tone for final negotiations. Knowing when and how to use both Term Sheets and LOIs can save you from future headaches, streamline the process, and keep your deal on track.

M&A Made Simple: Mastering Term Sheets and LOIs with MS

At MS, we make M&A seamless. Whether it’s drafting a detailed term sheet or creating a rock-solid LOI, our expertise ensures clarity, minimizes risk, and sets your deal up for success. Our team provides expert guidance to clarify critical deal terms, including pricing, payment structures, and due diligence, helping you avoid common pitfalls and costly oversights. With a focus on minimizing risk and maximizing value, we ensure that both buyers and sellers are well-prepared to proceed confidently and close deals efficiently.