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Reviving M&A in 2024: How to Conduct Smart Due Diligence

Reviving M&A in 2024: How to Conduct Smart Due Diligence
Reviving M&A in 2024: How to Conduct Smart Due Diligence

Heading into the second half of 2024, there are encouraging signs of recovery in Mergers and Acquisitions (M&A) activity. This comes after M&A activity fell to its lowest level in ten years in 2023 and due to high interest rates and macroeconomic volatility.

The recent surge in deal activity underscores a renewed optimism in the market. This presents a strategic opportunity to revisit best practices for conducting due diligence. By ensuring a robust due diligence process, investors can approach opportunities with increased agility and conviction.

Given the inherent volatility and shifting market dynamics, thorough research and validation of potential investments are important. Comprehensive due diligence minimizes information gaps, identifies potential risks and red flags, and ultimately fosters a competitive advantage in capital deployment.

Let’s explore some of the most pertinent qualitative and quantitative criteria to incorporate into your due diligence checklist.

1. Cracking the Financial Code:

  • Evaluate the audited financial statements (3-5 years’ worth) for a clear understanding. Analyze cash flow, assets, liabilities, and profitability trends to understand the target company’s financial health.
  • Identify outstanding debt, unrecorded liabilities, and financing details. Knowing the company’s financial commitments is crucial for informed decision-making.

2. Unveiling the Operational Engine:

  • Examine agreements with subsidiaries, joint ventures, and partnerships. Uncover any potential hidden costs or complexities.
  • Review contracts with key personnel and affiliates.
  • Understand the company’s supply chain and any potential restrictions. Identify vulnerabilities or bottlenecks that could impact operations.

3. Shedding Light on Sales & Marketing:

  • Analyze competitor strengths, weaknesses, and market position. A clear understanding of the competitive landscape is essential.
  • Evaluate current marketing programs, budgets, and distribution channels. Assess the effectiveness of the company’s sales engine.
  • Gauge customer satisfaction and retention strategies. A loyal customer base is a valuable asset.

4. Examining the Workforce:

  • Review employee headcount, salaries, and compensation trends. Analyze turnover data and employee morale surveys to understand the company’s human capital.
  • Identify any union affiliations and understand the company’s approach to employee benefits programs.

5. Safeguarding Intellectual Property:

  • Unearth all patents, trademarks, copyrights, and trade secrets. Intellectual property is a cornerstone of many businesses.
  • Review licensing agreements and potential IP infringement claims. Ensure the company has measures in place to protect its intellectual property.

6. Legal Loopholes:

  • Scrutinize pending litigation, judgments, and regulatory inquiries. Uncover any potential legal headaches.
  • Review insurance policies, licenses, permits, and compliance documentation. Ensure the company is operating within legal boundaries.
  • Analyze board and shareholder meeting minutes for any red flags that might indicate past issues.

7. Property & Real Estate: Brick by Brick:

  • Understand the company’s ownership of physical assets.
  • Map out the company’s real estate holdings and ownership structure. Identify any potential liabilities or limitations.

8. Illuminating the Cyber Health:

  • Assess the company’s IT infrastructure, security protocols, and disaster recovery plans. Evaluate its preparedness for potential IT disruptions.
  • Review data security measures and the company’s history of cyber breaches. Ensure the company has robust defenses in place.
  • Examine software licensing agreements and compliance standards. Identify any potential software-related risks.

Thorough due diligence is critical for successfully navigating the exciting, yet potentially challenging, landscape of M&A transactions. These resources can uncover essential business information, provide valuable industry and company insights, and equip you with the knowledge needed to make informed investment decisions.

Make smarter M&A decisions with MS

Our team of experts provides in-depth due diligence services, giving you the information you need to confidently navigate the UAE’s unique business environment. We minimize risks and identify opportunities to help you achieve successful Mergers and Acquisitions, propelling your business growth. Partner with MS and unlock the potential of profitable M&A deals.

Making deals work for you!

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UAE: A Half Year of Growth – A Look Ahead after H1 2024

UAE: A Half Year of Growth

As we hit the halfway mark of 2024, the UAE is powering ahead as an economic frontrunner, driven by relentless innovation, strategic investment, proactive policies and expansive growth across key sectors. In 2023, the country’s GDP soared to Dh1.68 trillion, showing a growth rate of 3.6 percent. This strong momentum has continued into 2024, with favourable trends seen across all key economic indicators. The UAE economy has shown remarkable resilience and growth potential amidst global uncertainties. The national economy is expected to grow by 4 percent in 2024 lead by strong activities in sectors like tourism, construction, manufacturing and finance. Clearly, the UAE isn’t just keeping up—it’s leading the charge in the global economic landscape.

The Current Economic Landscape

GDP Growth: Achieved 3.6% growth in 2023, with forecasts indicating further growth in 2024. The Central Bank of the UAE (CBUAE) initially projected a 4.2% economic growth for 2024 but revised it down to 3.9%, indicating a slight slowdown expected. Looking to 2025, they foresee a substantial acceleration in growth to 6.2%, driven by increased oil production and ongoing expansion in non-oil sectors.

Key Sector Contributions to the UAE Economy

1) Oil Sector: the UAE’s oil and gas sector, constituting 40% of the GDP, will continue to serve as a critical economic pillar. The country aims to ramp up oil production to 5 million barrels per day by 2027 to meet global energy needs, with a projected growth in oil output of 5.8% expected in 2024.

2) Non-Oil Sector– The UAE’s non-oil GDP, adjusted for inflation, reached Dh1.25 trillion, marking a 6.2% growth rate by the end of first half. This places the country fifth globally in terms of real GDP growth (according to the 2023 ranking).

-Tourism

Leading tourists’ destination: The UAE is a top tourist destination in the Middle East, contributing Dhs220 billion to its GDP in 2023, representing 11.7% of its economy. Ranked 18th globally in the World Economic Forum’s Travel & Tourism Development Index (TTDI), the UAE stands first in the MENA region.

The UAE expects tourism to contribute Dh236 billion to its economy in 2024, with plans to reach Dh450 billion by 2031 under the National Tourism Strategy 2031. This initiative aims to elevate the UAE as a premier global tourism destination in the coming decade.

-Financial Sector

The financial sector significantly boosted the UAE’s GDP last year, with total assets exceeding AED 4 trillion, marking an 11.1 percent growth. Banking, amid ongoing digital transformation, remained a pillar of strength, demonstrating robust fundamentals through strong capitalisation, profitability, and ample liquidity.

Diversification from Oil Dependence: The finance sector actively encourages diversification away from oil-dependent revenues, thus promoting a more resilient and sustainable economy.

Regulatory stability: The UAE’s Central Bank and regulatory bodies maintain a stable financial environment with effective regulations, fostering investor confidence, attracting foreign investment, and ensuring financial stability.

-Aviation

The aviation sector plays a crucial role in boosting the UAE’s economy by enhancing tourism, trade, and investment flows, both domestic and international. The UAE civil aviation sector soared in the first quarter of 2024, boasting a remarkable 14.7% increase compared to the corresponding period last year.

As a global hub, it facilitates seamless connectivity, supporting the nation’s economic ambitions. Additionally, the sector’s capabilities in areas such as engine maintenance, financing, leasing, air traffic management, and airport security contribute significantly to overall economic growth.

Dubai and Abu Dhabi, as two of the most powerful emirates in the UAE, equally contribute to the country’s economy. Dubai leads the UAE in greenfield FDI projects, hosting a substantial 81% of the country’s new investments in this category. Meanwhile, Abu Dhabi has risen as the MENA region’s fastest-growing startup hub, enhancing its ecosystem value by 28%. These achievements not only attract global investments but also stimulate local innovation, significantly bolstering the UAE’s economic influence on a global scale.

The UAE has risen to the top 10 globally in several GDP-related competitiveness indicators, achieving sixth place in the GNI Index of the UNDP’s 2024 Human Development Index Report. Economic diversification remains pivotal for reducing reliance on oil revenue, leveraging significant contributions from non-oil GDP and successful Foreign Direct Investment.

As we enter the next phase, the UAE is set to take the lead with its strong non-oil sector, strategic investments, and smart initiatives driving stability and innovation. Positioned for regional and global prominence, the nation sets a compelling example of economic resilience and forward-thinking leadership.

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UAE Input VAT: The Hidden Benefit Businesses Missing Out in the VAT Landscape

UAE VAT Registration: 5 Pitfalls to Avoid for Your Successful Compliance

The recent introduction of corporate tax in the United Arab Emirates (UAE) has sharpened the focus on the existing Value Added Tax (VAT) system. It’s crucial to understand the distinction between these two taxes. VAT, implemented in 2018, applies to most goods and services in the UAE at a standard rate of 5%. There’s a twist, businesses registered for VAT can claim input tax credits, significantly reducing their overall VAT burden.

As many are already familiar with this aspect, let’s brush up on the key insights of the Input VAT.

What is Input VAT?

Input VAT refers to the VAT a business pays on its purchases of goods and services used for taxable supplies. This mechanism ensures that businesses only pay VAT on the value they add at each stage of the supply chain.

How Input VAT Recovery Works

In the UAE, input tax recovery allows VAT-registered businesses to reclaim credit for the VAT paid on eligible business-related purchases and expenses.

  • Registration Thresholds: Businesses are required to register for VAT within 30 days if their annual taxable income exceeds AED 375,000. Voluntary registration is an option for businesses with turnovers between AED 187,500 and AED 375,000 to take advantage of input tax recovery.
  • Claiming the Credit: Registered businesses can claim credit for the VAT paid on all taxable purchases, reducing their overall VAT burden and ensuring a transparent system where the final consumer pays the VAT.

Steps to Recover Input VAT in the UAE

Recovering input VAT in the UAE involves a few key steps:

  1. Eligibility Check:
  • Only businesses registered as taxable persons under UAE VAT regulations can claim input tax recovery (mandatory registration for exceeding AED 375,000 annual taxable sales or voluntary for turnovers between AED 187,500 and AED 375,000).
  • The purchased goods and services must be exclusively used for making taxable supplies (not personal use or exempt supplies).

2. Maintain Proper Records:

  • Retain valid tax invoices for every business purchase, clearly showing
  1. Supplier’s VAT registration details
  2. Description of purchased goods or services
  3. Taxable value of the purchase
  4. Applicable VAT
  • A system to organize these documents (digital or physical) is crucial for a smoother claim process and reduces audit stress.

3. Calculate Input Tax:

  • Businesses managing accounts manually need to carefully review each invoice to identify the VAT amount and calculate the total input tax claimable for that tax period.
  • Consider using a spend management solution to streamline this process by tracking expenses, storing invoices securely, and automating VAT calculations.

4. Submit VAT Return and Claim Recovery:

  • The UAE FTA mandates that registered businesses file a VAT Return within 28 days after the tax period’s end.
  • This return should detail your taxable supplies, output VAT collected from customers, and input tax paid on purchases. Ensure accurate mention of the total input VAT to avoid discrepancies.
  • The claimed input tax is typically refunded directly to your registered bank account by the FTA within a few weeks of filing the return.

Timeframe for Recovery

You can claim input tax in your first VAT return as soon as you have:

  • A valid tax invoice.
  • The intention is to make payment against the invoice within six months of the agreed payment date.

Correcting Past Returns

The FTA’s ‘Voluntary Disclosure’ provision allows businesses to correct errors or omissions in submitted VAT returns without penalties. This can be done by completing an online form on the FTA website, detailing the errors, and providing the correct information.

Maximizing Input VAT Recovery

For a smooth input tax recovery process, follow this checklist:

  • Ensure purchased goods and services are used for taxable sales as per the UAE VAT Law.
  • Always request a Tax Invoice for purchases where you plan to claim input tax.
  • The tax invoice should have all the details for input tax recovery consideration.
  • You must pay or intend to pay the full amount due for the supplies, aiming to settle the invoice within 6 months.

Be VAT Compliant in the UAE with MS

MS takes the complexity out of VAT regulations and ensures your business is fully compliant in the UAE, so you can focus on what matters most – growing your business. Our team will streamline your processes, making everything smooth and collaborative. With MS, you get more than just a service. You get a partner who understands your specific business in the ever-changing UAE market. We’ll support your growth and success every step of the way.

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UAE Tax Registration Number: Eligibility, Application Process, and Benefits for Businesses

UAE Tax Registration Number: Eligibility, Application Process, and Benefits

When it comes to managing a business in the United Arab Emirates (UAE), understanding the ins and outs of Corporate Tax registration is essential. While the UAE has traditionally been known for its tax-friendly policies, recent changes have implemented specific regulations for corporate tax compliance in the Emirates. The recent arrival of corporate tax in the UAE has generated a lot of confusion for businesses throughout the country. Regardless of whether your company is located on the mainland or operates within a free zone with special tax benefits, such as Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC), it’s vital to understand and comply with the registration requirements.

Among the various requirements, getting a Tax Registration Number (TRN) is crucial. For both the registration of Value Added Tax (VAT) and Corporate Tax, having a TRN is mandatory. Let’s explore more about TRN.

What is a Tax Registration Number in the UAE?

A Tax Registration Number in the UAE (TRN) is a unique identification number assigned by the Federal Tax Authority (FTA) to businesses and individuals in the UAE. It’s like a social security number for your business, used to track your tax obligations and ensure compliance with UAE laws.

Who Needs a Tax Registration Number in the UAE?

Every business operating in the UAE needs to comply with VAT regulations. There are two registration thresholds:

  • Voluntary Registration (AED 187,500): Businesses with a turnover exceeding AED 187,500 but below AED 375,000 can choose to register for VAT.
  • Mandatory Registration (AED 375,000): Businesses with a turnover exceeding AED 375,000 in the last 12 months or expected to exceed it in the next 30 days must register for VAT.

Benefits of Having a Tax Registration Number in the UAE

  • Charge VAT on your services: Only businesses with a TRN can legally charge VAT to their customers.
  • Comply with tax laws: A TRN helps ensure you’re following UAE tax regulations and avoiding penalties.
  • Accurate financial tracking: The TRN helps the government track your transactions for accurate record-keeping.

How to Apply for a Tax Registration Number in the UAE

  1. Register on the EmaraTax portal: You’ll need a UAE ID pass to create an account.
  2. Log in and choose the registration option: Select “VAT, Excise, or Corporate Tax Registration” based on your needs.
  3. Verify eligibility and gather documents: Ensure you meet the eligibility criteria and have all the necessary documents like trade license, bank details, etc.
  4. Complete the application form: Fill out the online application form carefully. Consider using a tax agent for assistance.
  5. Submit the application: Once you’ve completed the form and uploaded the required documents, submit your application.

Processing Time and Approval

The FTA typically processes applications within 20 business days. They may request additional information if needed, which can extend the processing time.

Where to Find Your Tax Registration Number in the UAE

After approval, you’ll receive a VAT (Tax) Certificate containing your TRN, a Generated International Bank Account Number (GIBAN), and a downloadable registration certificate from your EmaraTax account.

MS for Corporate Tax Compliance in the UAE

UAE Corporate Tax registration can be a daunting task for both Free Zones and mainland businesses. Don’t wait! Early registration streamlines the process and keeps you compliant. This protects your company and contributes to the UAE’s economic growth. For a stress-free and compliant registration, consider partnering with MS. We’ll tailor our services to your specific needs, ensuring you meet all legal requirements with ease.

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Smart Regulations, Smart Investments: UAE’s transformation into A Digital Asset Hub

Digital Asset Hub

In 2009, an anonymous programmer foresaw a revolutionary shift hidden in the dark web that would rewrite the rules of finance and technology worldwide – marking the birth of cryptocurrency. Led by Bitcoin and a flurry of alternative coins, these digital assets surged in popularity, captivating global investors. However, the market faced a cold snap in November 2022 when FTX, a leading exchange once valued at over $30 billion, collapsed. This event caused disruption across the industry, leading Bitcoin prices to drop to levels last seen in 2020.

Following the turbulent events of 2022, the cryptocurrency market has staged an impressive recovery, defied earlier doubts, and demonstrated its resilience. Bitcoin, the poster child of digital currencies, has soared close to record highs, marking a remarkable 160% increase in its price by March 2024.

How is the UAE adopting digital assets?

The UAE has become a trailblazer in digital asset regulation, showcasing its commitment to innovation and technology. With a unified approach across its Emirates, the UAE has established a robust yet flexible regulatory framework. This framework aims to attract global businesses while safeguarding consumer interests and financial stability. By adapting swiftly to the evolving digital landscape, the UAE has emerged as a pivotal player in shaping the future of digital economies worldwide.

Emirates – contributions

Abu Dhabi

Abu Dhabi Global Market (ADGM), through its Financial Services Regulatory Authority (FSRA), has been at the forefront of digital asset regulation since 2018. They set a global benchmark by introducing guidelines for cryptocurrencies and digital assets, which have been constantly updated to adapt to the evolving landscape.

Recently, ADGM introduced the world’s first DLT (Digital ledger technology) Foundations Regime, a groundbreaking move that provides a legal framework for blockchain foundations and decentralized autonomous organizations (DAOs). The world’s first-of-its-kind, this regime supports innovative governance methods such as token voting and smart contracts, reinforcing ADGM’s role as a leader in fostering digital asset native activities.

ADGM is home to some of the top blockchain-based companies, including Binance, SEBA Bank, Securrency, M2, Burjx, FNS, Himalaya, BitOasis, Matrix, and Midchains.

MEAACBA

The Middle East Africa and Asia Crypto and Blockchain Association (MEAACBA), backed by ADGM, is a non-profit organization uniting industry leaders in the Middle East, Africa, and Asia to tackle industry challenges and integrate digital assets into vital economic sectors. It aims to accelerate the blockchain and cryptocurrency developments in the region.

ADGM X HACKEN

Abu Dhabi Global Market (ADGM) and Hacken, a global leader in blockchain security auditing, have signed an MoU to work together on setting new standards for blockchain security and compliance. This collaboration focuses on developing security benchmarks and monitoring tools under ADGM’s DLT Foundations framework. This collaboration will highlight ADGM’s innovation in regulatory frameworks and Hacken’s dedication to enhancing global blockchain security.

Dubai

The Dubai International Financial Centre, with its tax-free status and 100% foreign ownership, has become a hub for financial services, including digital assets. The Dubai Financial Services Authority (DFSA) is proactive in developing a balanced regulatory framework that promotes innovation alongside risk management in the digital asset industry.

Recently, DIFC proposed a new Digital Assets Law and Security regime to define how digital assets like Bitcoin, Ether, Litecoin, Toncoin, and Ripple are managed within its jurisdiction. Dubai also launched the Virtual Asset Regulatory Authority in 2022 to oversee virtual asset provision and exchange across the emirate. The DFSA’s consultation paper on Security Tokens in the DIFC is a key step towards establishing a comprehensive Digital Assets Regime, paving the way for innovative fintech applications using DLT. These steps show Dubai’s dedication to becoming a global leader in digital asset innovation and regulation.

VARA – Dubai’s Virtual Assets Regulatory Authority

Virtual Assets Regulatory Authority (VARA) is the world’s first regulator dedicated exclusively to virtual assets. VARA aims to play a crucial role in Dubai’s D33 Economic Agenda. The VARA rulebook sets clear guidelines for virtual asset operators in Dubai, ensuring they follow specific rules when engaging in virtual asset activities.

DIFC License

The Dubai AI and Web 3.0 Campus in the Dubai International Financial Centre will provide subsidized licenses for AI and Web3 activities, including Distributed Ledger Technology (DLT) services.

Ras Al Khaima

Ras Al Khaimah is emerging as a prime destination for blockchain businesses with its pioneering RAK DAO, the UAE’s first Web3-focused free zone.

Crypto Majlis

Through proactive regulatory initiatives and collaboration with industry leaders, Ras Al Khaimah is showcasing a progressive approach to fostering innovation in the crypto sector by establishing crypto majlis. RAK Digital Assets Oasis further solidifies its commitment to advancing digital assets and blockchain technology through collaborative efforts.

Why are global Investors and top talents heading to the UAE

  • Blockchain ventures are gaining attention as sectors like real estate in Dubai adopt digital currencies such as Bitcoin for buying and selling properties.
  • Bitcoin’s role as digital gold and a hedge against inflation is also becoming more popular amidst global economic uncertainties.
  • Gaming ventures are another hot spot for crypto investments due to their strong appeal to consumers in the digital currency space.

Future of Crypto in the UAE

The UAE has strategically positioned itself as a rising star in the global crypto industry by implementing smart regulations, fostering financial innovation, and investing in top-notch infrastructure. The UAE’s clear policies, entrepreneur-friendly environment, and robust digital backbone are attracting wealth and talent. While it’s early to declare it the crypto capital, the UAE’s adoption of Web3 and blockchain promises efficiency, transparency, and security advantages for businesses, paving the way for continued growth and innovation in finance.

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Are UAE Free Zone businesses required to prepare & maintain Audited Financial Statements?

Are UAE Free Zone businesses required to prepare & maintain Audited Financial Statements?

The United Arab Emirates (UAE) Free Zone regime offers a platform for businesses seeking tax benefits and operational flexibility. These zones offer a compelling combination of tax benefits, streamlined regulations, and world-class infrastructure, making them ideal for establishing and growing a business. However, understanding the financial reporting requirements within this framework can be complex.

Understanding Free Zone Company Types

FZCs fall under two classifications:

  • Qualifying Free Zone Company (QFZ): These entities fulfill specific criteria, including demonstrating genuine economic activity and adhering to the arm’s length principle in transactions. Consequently, QFZs qualify for a coveted 0% Corporate Tax rate on Qualifying Income generated within the Free Zone.
  • Non-Qualifying Free Zone Company (Non-QFZ): While Non-QFZs don’t meet the stringent QFZ requirements, they still benefit from operating within a Free Zone. However, they are subject to the standard corporate tax rate and are not eligible for the 0% tax perk.

Why Audited Financial Statements for the UAE Free Zones?

For Free Zone Companies (FZCs) in the UAE, understanding the complexities of audited financial statements is a critical step towards success. Firstly, it ensures compliance with UAE regulations and avoids any potential penalties for non-adherence. This keeps your business on the right side of the law and avoids any unwelcome financial surprises. Secondly, audited financial statements act as a badge of trust and transparency. Investors, creditors, and potential business partners view them favourably, making it easier to secure funding and forge valuable partnerships. Finally, the audit process itself offers a valuable risk management tool. By identifying weaknesses in internal controls and accounting practices, FZCs can proactively address them, ultimately improving operational efficiency and mitigating financial risks. In short, understanding audited financial statements empowers FZCs to operate compliantly, attract investment, and navigate the UAE’s Free Zone landscape with confidence.

Audited Financial Statements for the UAE Free Zones: Obligation or Exemption?

The requirement for audited financial statements hinges on the FZC category:

  • QFZs and Audited Financial Statements: QFZs, enjoying the privilege of a 0% Corporate Tax rate, are mandated to prepare and maintain audited financial statements. This ensures transparency and upholds the integrity of the tax system. There is no minimum revenue threshold for QFZs regarding this obligation.
  • Non-QFZs and Audited Financial Statements: As per Ministerial Decision No. 82 of 2023, Non-QFZs are exempt from the requirement for audited financial statements. Since they are subject to 9% regular corporate tax, this exemption simplifies their compliance procedures.

The Intertwined Relationship Between Tax and Audits in the UAE Free Zones

The connection between QFZ status and audited financial statements is well-defined. The substantial tax benefit enjoyed by QFZs necessitates a higher level of financial scrutiny through independent audits. This safeguards the system from potential misuse. Conversely, non-QFZs, already subject to corporate tax, do not require audited statements. This streamlines their compliance obligations. Also, those businesses which opt to select the 9% regular corporate tax do not require audited financial statements.

The critical takeaway is that comprehending the difference between QFZ and Non-QFZ status is crucial. This distinction determines your responsibility for audited financial statements and your overall tax implications.

MS for timely corporate tax compliance in the UAE

Audited financial statements are essential for qualifying Free Zone companies to avail the corporate tax benefit. MS can optimize your UAE Corporate Tax filing process, ensuring precision and efficiency. Our team of specialists is well-versed in UAE tax laws and can assist you through every stage, from registration to submission. We begin by thoroughly analysing your company’s financial situation to accurately calculate your taxable income, incorporating all relevant exemptions and deductions. By leveraging our expertise, you can save significant time and resources, confident that your corporate tax filing is expertly managed.

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How does the Local Currency Settlement system enhance the cross-border transactions between the UAE and India?

How does the Local Currency Settlement system enhance the cross-border transactions between UAE and India?

India and the UAE have forged ahead with a Local Currency Settlement System (LCSS), marking a pivotal shift in their economic collaboration. This pioneering initiative enables bilateral trade transactions to occur directly in Indian Rupees and UAE Dirhams, reducing dependence on the US Dollar. By cutting transaction costs and accelerating settlement times, LCSS sets the stage for a more agile and cost-effective trade ecosystem between these dynamic economies.

Breaking Down Local Currency Settlement System

The Local Currency Settlement System (LCSS) is a bilateral agreement between nations aimed at boosting cross-border transactions and economic ties.

Domestic Currency Transactions: LCSS allows exporters and importers from both countries to conduct business using their own currencies—Indian Rupees and UAE Dirhams. This eliminates the need for conversions into a third currency like the US Dollar.

Cost and Time Efficiency: By bypassing intermediary currencies, the Local Currency Settlement System(LCSS) reduces transaction costs significantly. It also speeds up processing times, making transactions more efficient for businesses.

Flexibility in Payment Currency: Traders under LCSS have the flexibility to choose whether to pay or receive payments in Indian Rupees or UAE Dirhams, depending on what suits them best for each transaction.

UPI and IPP Integration

India and the UAE are improving financial connectivity with the integration of India’s Unified Payments Interface (UPI) and the UAE’s Instant Payment Platform (IPP). This partnership allows fast secure, and cost-effective cross-border transfers between the two countries. By linking card switches, they also ensure that domestic cards are accepted mutually, simplifying transactions for users. Supported by agreements signed by the RBI and the Central Bank of UAE, this collaboration aims to further streamline payments by exploring integration between India’s Structured Financial Messaging System (SFMS) and UAE’s messaging system.

Economic benefits

  • Reduced Transaction Costs: Direct transactions in Indian Rupees and UAE Dirhams minimize the average two percent transaction cost currently incurred by Indian exporters to the UAE.
  • Elimination of Foreign Exchange Requirements: LCSS removes the need for foreign currency exchanges, reducing additional costs and complexities for small and medium exporters.
  • Improved Transparency and Efficiency: LCSS promotes greater price transparency and quicker settlement times, streamlining trade processes and enhancing economic cooperation.
  • Support for Small Businesses: The system supports inclusivity by allowing smaller players to participate more effectively in international trade.

Local Currency Settlement System impact and Market boost

The Local Currency Settlement System (LCSS) holds the potential to significantly boost the UAE’s food security goals and position it as a regional manufacturing hub. Indian companies could establish operations to target the GCC market under this system. The initiative particularly benefits small and medium enterprises (SMEs), aligning with the UAE’s focus on developing the MSME sector. Initially, LCSS will prioritize larger corporations to ensure stability before expanding to smaller businesses, recognizing the need for gradual adoption due to initial complexities. This strategic approach aims to enhance economic collaboration and competitiveness between India and the UAE.

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Corporate Tax in the UAE: How Free Zones can optimize your UAE business

Corporate Tax in the UAE: How Free Zones can optimize your UAE business

The United Arab Emirates (UAE) has emerged as a global hub for business and innovation, and a significant contributor to this success story is the strategic role played by Free Zones (FZs). These designated areas offer a multitude of advantages for businesses, making them particularly attractive for startups and established companies looking to expand their reach. One of those advantages is the 0% Corporate Tax structure for businesses with certain criteria operating in the Free Zones including Corporate Tax for Abu Dhabi Global Market (ADGM) including Al Reem Island and Dubai International Financial Centre (DIFC).

Before that, let’s glance at the other benefits of UAE Free Zones.

Why Choose a Free Zone in the UAE?

Compared to the UAE mainland, FZs provide a compelling environment for businesses to thrive. Here are some key benefits:

  • Full Foreign Ownership: Unlike the mainland, FZs allow complete foreign ownership, eliminating the need for a local partner. This simplifies the set-up process and offers greater control for international investors.
  • Streamlined Business Setup: Setting up a business in a Free Zone is a breeze. The process is fast, and efficient, and removes unnecessary bureaucratic hurdles.
  • Premium Infrastructure: Free Zones boast state-of-the-art infrastructure, including advanced communication networks, business centers, and logistics facilities. This ensures a smooth operation and a competitive edge.
  • Wider Legal and Commercial Options: FZs offer a wider range of legal and commercial structures for businesses to choose from, allowing for greater flexibility and customization based on specific needs.

The Corporate Tax in the UAE and Free Zone Advantages

The UAE’s recent implementation of a Corporate Tax regime acknowledges the critical role played by FZs in the nation’s economic growth. Recognizing this, the government offers a highly attractive benefit – a 0% Corporate Tax rate for qualifying Free Zone companies and branches (QFZPs) engaged in designated Qualifying Activities and transactions.

These Qualifying Activities typically involve:

  • Business is conducted solely between QFZPs and Free Zone Persons (where the Free Zone Person is the ultimate beneficiary of the transactions).
  • Specific activities performed within the designated geographical areas of a Free Zone or a specific zone for distribution activities.

Free Zone Perks: Unlocking the 0% Corporate Tax Rate in the UAE

So, you’ve set your sights on the UAE’s Free Zones (FZs) and their tempting offer of a 0% Corporate Tax rate. But hold on, there are a few hurdles to clear before you claim this. Here’s a breakdown of the key conditions you’ll need to meet to qualify as a Qualifying Free Zone Person (QFZP).

Who qualifies as a Free Zone Person?

First things first, you need to be a resident of the Free Zone. This means being a company whether it is holding, operational, or other types incorporated, established, or registered within a Free Zone. It can also be a branch of a non-resident company or even a UAE company that’s registered in a Free Zone. The important part is that only the qualifying income earned by your Free Zone business gets 0% tax treatment.

The substance is key: Proving your presence

The UAE wants to see a real commitment from you, not just a mailbox address in a Free Zone. You’ll need to demonstrate that you have a substantial presence within the zone. This means having enough employees, assets, and operational expenses to carry out your core business activities. Outsourcing is allowed, but only within the Free Zone and with proper supervision to ensure you’re still in control.

Where your income comes from matters

Not all income is created equal in the eyes of the UAE taxman. To qualify for the 0% rate, your income needs to come from approved sources:

Transactions within the Free Zone: But there’s a catch – they can’t be involved in excluded activities, and they must be the true beneficiaries of the transactions.

Qualifying Activities: Make sure your core business falls under the list of approved activities.

Qualifying Intellectual Property: Owning or exploiting intellectual property that meets specific criteria can also bring you a 0% tax advantage.

Other Income: If your non-qualifying income stays below the de minimis threshold (explained later), you’re still good to go.

Beware the Excluded List

Some income sources are strictly off-limits for the 0% tax rate. These include income from locations outside the Free Zone, unrelated property holdings, and intellectual property that doesn’t meet the qualifying criteria.

Choosing your tax path wisely

Don’t opt for the standard corporate tax regime if you want the 0% rate. This is a one-way street, and switching back to QFZP benefits comes with a four-year waiting period.

Playing by the Arm’s Length Principle

The UAE wants to ensure fair play – your Free Zone company’s profits should reflect its actual contribution, not some artificial arrangement with affiliated businesses. This is where the arm’s length principle comes in. If you have significant transactions with related parties according to the transfer pricing regulations, be prepared to maintain documentation that proves they were conducted at arm’s length.

Keeping the books in order

Regardless of your income level, audited financial statements are a must for QFZP status.

Corporate Tax De Minimis Rule: A little Non-Qualifying Income is okay

The UAE understands that starting a business might involve some non-qualifying activities. The de minimis rule allows QFZPs to have a small amount of non-qualifying income (the lower of AED 5 million or 5% of total revenue) without losing the 0% tax benefit.

The Free Zone Person’s non-qualifying income in a tax period is revenue derived from:

  • Excluded Activities: Activities that do not meet the qualifying criteria.
  • Activities with Non-Free Zone Persons: Transactions where the other party is not a Free Zone Person.
  • Non-Beneficial Transactions: Transactions with a Free Zone Person where the Free Zone Person is not the beneficial recipient of the relevant services or goods.

By meeting these requirements, you can unlock the door to the UAE’s Free Zone tax haven and enjoy the benefits of a competitive business environment. Remember, staying informed and compliant is key to keeping your QFZP status and maximizing your tax advantages.

How can MS help you with Corporate Tax in the UAE?

MS can streamline your UAE Corporate Tax filing process, ensuring accuracy and efficiency. We have a team of experts well-versed in UAE tax regulations who can guide you through the entire procedure, from registration to filing. We’ll begin by thoroughly analyzing your company’s financial standing to accurately determine your taxable income, taking into account any applicable exemptions and deductions. By leveraging our expertise, you can save valuable time and resources by knowing your corporate tax filing is handled by professionals.

Disclaimer

Please be advised that the conditions specified in the register are subject to revisions based on any modifications made to the schedule of contraventions by the UAE authorities. These revisions may arise due to updates in regulatory requirements, policy amendments, or other factors deemed necessary by the UAE Government.

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Futuristic Finance: The Emergence of Neobanks and Digital Banking in the UAE

Futuristic Finance: The Emergence of Neo banks and Digital Banking in the UAE

Technology has totally changed our lives- everything’s just a tap away now. From entertainment, and healthcare to banking, the digital age has reshaped the landscape. As society increasingly embraces digital solutions, traditional banking models have undergone a seismic shift, more open to digital tools and technologies. Now it’s all about convenience, as banks are jumping into digital options, our phones are becoming our wallets. Thus, the stage is set for the digitalization of finance, where mobile-first approaches and innovative startups are leading the charge, transforming how we save, spend, and invest.

Role of Neo banking in the UAE Economy

Neo-banking is still in its infancy stage in the Middle East, yet its potential in the region is significant, evident from the increasing investment in the sector. COVID-19 accelerated the digital readiness mindset of UAE residents. Regulators are keen to align the UAE’s digital agenda with the country’s banking industry to progress towards a completely digital world. These newly developed digital banks are focusing on streamlining operations to conduct high-volume digital transactions to cater to the rising demand for digitization. Banks are also molding their business strategies to act as a platform to connect various forms of digital transactions.

Digital banking v/s Neo banking

Digital banking and neo-banking are not quite the same. Even though both these mention digital operations, digital banking typically refers to the online services offered by traditional banks, allowing customers to manage their finances digitally.

Neo-banking, however, goes a step further. Neo-banks operate exclusively online, without any physical branches. They often emerge independently or in collaboration with traditional banks.

 Case study – Wio

In the competitive landscape of digital banking within the world, UAE’s Wio Bank has emerged as a notable success story. Established in September 2022, it swiftly garnered attention with its sophisticated app and innovative services. Wio Bank distinguishes itself through a range of customer-centric features, including fee-free international money transfers, zero accounting maintenance fees, early salary access, and an enticing loyalty program. Its inaugural year of full operation in 2023 yielded impressive financial results, boasting a profit of Dh 2 million and revenues totaling Dh266.4 million and in 2024, it Became One of the Fastest ‘Neo-Banks’ Globally to Hit a Profit.

With a strategic focus on digital-first solutions and a commitment to transparency, Wio Bank has attracted discerning consumers and cultivated significant growth. As it continues to expand, Wio Bank is poised to become a premier digital-only banking institution not only in the UAE but globally.

The Future Role of Digital and Neo Banks

The neo-banking revolution has just begun, the emergence of neo-banks and digital banking in the UAE represents a significant shift in the way people access financial services. These changes offer exciting opportunities for individuals and businesses alike. By collaborating with traditional banks, utilizing advanced technology such as AI, and focusing on personalized services, neo-banks are transforming the banking experience. This shift isn’t just about money; it’s about connecting people to a more accessible and convenient financial future. It’s an exciting time, promising a brighter, more inclusive banking landscape for all.

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Streamline your finances, drive growth: Why Bookkeeping in the UAE matters the most

DEWS in DIFC Advantage: A Modern Approach to End-of-Service Benefits

The UAE business landscape is a dynamic and ever-evolving scene. While the potential for growth is undeniable, navigating the complexities of running a business here can be hectic. One crucial aspect that often gets relegated to the backburner is bookkeeping in the UAE.

Bookkeeping goes beyond simply recording income and expenses. It’s the meticulous process of capturing, categorizing, and analyzing all your financial transactions. This vital practice ensures your company maintains a clear and accurate record of its financial health, providing a strong foundation for informed decision-making, tax compliance, and attracting investors.

However, in the fast-paced world of UAE business, traditional bookkeeping methods can become a significant hurdle. There are certain common challenges businesses face with bookkeeping in the UAE, and how overcoming them through accurate and streamlined practices can unlock a treasure trove of benefits for your company’s financial health and future success.

Challenges of Bookkeeping in the UAE

Time Consumption

Bookkeeping is crucial, but it can consume valuable time that could be better spent on core operations and growth strategies. By outsourcing your bookkeeping needs, you can reclaim this time and direct your efforts toward activities that drive your business forward.

Compliance Challenges

Navigating local accounting regulations, language formats, and filing requirements in foreign markets can be complex and frustrating. Expert bookkeeping services are well-versed in international accounting standards, ensuring your business remains compliant across all markets.

Lack of Expertise

Not every business has the in-house knowledge or resources to handle bookkeeping tasks accurately and efficiently. Experienced professionals provide the expertise you need, reducing the risk of errors and ensuring your financial records are always up-to-date and accurate.

Data Inaccuracy

Manual data entry and record-keeping are prone to errors, leading to unreliable financial information. Leveraging advanced technologies to automate and streamline these processes can significantly reduce the risk of errors and enhance the reliability of your financial data.

Integration Issues

Integrating bookkeeping with existing local or global accounting systems can be a difficult hurdle. Seamless integration solutions ensure that your bookkeeping processes are harmonized with your overall financial systems, providing a unified and efficient approach to managing your finances.

Hidden Costs

Hiring and training bookkeeping staff can be expensive, and there’s always a risk of errors leading to penalties or fines. Outsourcing your bookkeeping eliminates these hidden costs and minimizes the risk of costly mistakes, providing you with peace of mind and financial clarity.

From Chaos to Clarity: The Power of Precise Bookkeeping in the UAE

By overcoming these challenges and embracing accurate bookkeeping practices, you unlock a doorway to a world of financial clarity and informed decision-making. Here’s how:

  • Cash Flow Optimization: Meticulous income and expense tracking paint a clear picture of your cash flow. This empowers you to make strategic financial plans and investment decisions with confidence.
  • Forecasting for future fortunes: Accurate financial data becomes the bedrock for reliable forecasts. Anticipate future needs, plan for growth with a clear vision, and make well-informed business decisions with the power of foresight.
  • Performance measurement: Analyze your financial records to gain valuable insights into your business’s performance. Identify areas for improvement, track progress towards set goals, and ensure your company is on the right trajectory for sustainable success.

Streamlined bookkeeping isn’t just about ticking boxes; it’s about empowering your business with the financial clarity it needs to thrive in the dynamic UAE market. By overcoming the challenges and embracing accurate record-keeping practices, you gain control over your cash flow, forecast for future success, and make data-driven decisions that propel your business towards its full potential.

MS for accurate Bookkeeping in the UAE

In the UAE’s fast-paced financial environment, don’t let bookkeeping slow you down. Our expert bookkeeping services in the UAE ensure clear and compliant financials, empowering you with data-driven decisions and risk management. This goes beyond just accurate reports. It builds trust with stakeholders, boosts investor confidence, and sets the stage for long-term business success. Our in-depth bookkeeping goes beyond meeting reporting requirements. We effectively manage cash flow, identify potential tax liabilities and deductions, ultimately maximizing your profitability. Focus on your core business and let us handle the books.

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