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Family Foundation Tax Guide - UAE

Background

The UAE Federal Tax Authority (FTA) has issued an updated Corporate Tax (CT) Guide on the Taxation of Family Foundations in June 2026, replacing the earlier version issued in May 2025.

Family Foundations are commonly used by families for succession planning, asset protection, wealth preservation and inter-generational transfer of assets. Under the UAE CT, a foundation, trust or similar entity may apply to the FTA to be treated as an Unincorporated Partnership (UIP), provided the relevant conditions under Article 17 of the UAE CT Law are satisfied.

Where such application is approved, the Family Foundation is treated as fiscally transparent for UAE CT purposes. In simple terms, this means that the Family Foundation itself is not taxed separately. Instead, the income, expenditure, assets and liabilities are treated as arising directly to the beneficiaries in accordance with their respective shares.

The updated guide does not fundamentally change the overall tax framework for Family Foundations. However, it provides important clarifications on practical matters such as multi-tier structures, asset transfers into Family Foundations, acquisition or sale of entities by Family Foundations, and the Corporate Tax treatment of family offices.

Key Updates in June 2026 Guide

The June 2026 guide updates Sections 2.5, 3.3, 3.4, 6 of the earlier guide and adds Sections 7.8, 7.9 and 7.10.

1. Legislative References Updated

The updated guide includes additional legislative references, including Free Zone-related decisions. These references are particularly relevant where Family Foundation structures involve Free Zone entities or family offices carrying out wealth management, investment management or fund management activities.

2. Trust-related Wording Clarified

The updated guide refines the description of trusts and clarifies the role of the settlor, trustee and beneficiaries. This is largely a legal drafting clarification and does not appear to change the underlying Corporate Tax treatment.

3. Clarification on LLCs and Similar Entities

The updated guide expressly clarifies that an LLC is not considered a ‘similar entity’ to a foundation or trust.

Therefore, an LLC cannot itself apply to be treated as fiscally transparent on the basis that it is a Family Foundation.

However, an LLC may still be eligible to apply for fiscally transparent treatment where it is wholly owned and controlled by a qualifying Family Foundation and satisfies the applicable conditions.

4. Multi-tier Structures Expanded

The updated guide provides more detailed guidance on the treatment of multi-tier Family Foundation structures, particularly where a Family Foundation holds assets through one or more underlying companies, SPVs or holding entities.

Where the Family Foundation owns one or more underlying juridical persons, the eligibility of each entity in the ownership chain must be assessed separately. In other words, an underlying SPV or holding company will not automatically be treated as fiscally transparent merely because it is owned by a qualifying Family Foundation.

For a juridical person in a multi-tier structure to apply for fiscally transparent treatment, it must be wholly owned and controlled by a Family Foundation that is treated as an Unincorporated Partnership. This ownership and control may be direct or indirect. However, where the ownership is indirect, it must be through an uninterrupted chain of entities that are themselves fiscally transparent for UAE Corporate Tax purposes. The updated guide specifically confirms that each juridical person in the structure must meet the relevant conditions separately.

The guide further clarifies that the relevant conditions should be met continuously throughout the Tax Period of the juridical person. If the conditions are not met continuously during the relevant Tax Period, the concerned juridical person, and any juridical persons wholly owned and controlled by it, will no longer be treated as an Unincorporated Partnership from the beginning of that Tax Period. The guide also clarifies that entities within the uninterrupted ownership chain are not required to have the same Financial Year.

A key clarification in the June 2026 guide relates to structures where an underlying entity is held by more than one Family Foundation. The earlier May 2025 guide had taken the position that where an SPV was owned partially by two Family Foundations, SPV was not considered wholly owned and controlled by one Family Foundation. Accordingly, SPV was not eligible to apply under Article 17(1) of the CT Law to be treated as fiscally transparent, and the income derived by SPV would have been subject to Corporate Tax.

The June 2026 guide now revises this position. In the updated example, Family Foundation 1 and Family Foundation 2 are both juridical persons that have been approved by the FTA to be treated as Unincorporated Partnerships. They jointly incorporate a real estate investment SPV, with Family Foundation 1 holding 80% and Family Foundation 2 holding 20%. The updated guide clarifies that a juridical person can be ‘wholly owned’ by more than one Family Foundation. Accordingly, SPV is considered wholly owned, jointly, by two Family Foundations, and the ownership condition is met where both Family Foundations are treated as Unincorporated Partnerships.

This is a significant practical clarification. It means that the ownership condition is not restricted to cases where a single Family Foundation owns 100% of the underlying entity. A jointly held SPV may also qualify, provided it is wholly owned by one or more qualifying Family Foundations and the control condition is satisfied.

5. New Guidance on Transfers to Family Foundations

The updated guide introduces a new section on transfers of assets to a Family Foundation.

Where a founder or settlor transfers assets to a Family Foundation, the CT implications will depend on the status of the transferor and the nature of the assets transferred.

Where the transferor is a Taxable Person, the transfer may give rise to CT implications. Further, where the transfer is between Related Parties, the arm’s length principle need to be adhered to.

However, where a natural person transfers assets that qualify as Personal Investments or Real Estate Investments, such transfer should generally remain outside the scope of UAE Corporate Tax.

This clarification is particularly relevant for families planning to transfer shares, investment portfolios, real estate or other assets into a Family Foundation structure.

6. New Guidance on Acquisition or Sale of Entities by Family Foundations

The updated guide also includes new guidance on the treatment of juridical persons acquired or sold by a Family Foundation.

Where a juridical person becomes wholly owned and controlled by a qualifying Family Foundation, it may be eligible to apply for fiscally transparent treatment, provided the relevant conditions are met.

Conversely, where such entity ceases to be wholly owned and controlled by the Family Foundation, it may lose its fiscally transparent status and become subject to Corporate Tax in its own right.

Importantly, the guide clarifies that a change in tax status from fiscally opaque to fiscally transparent, or vice versa, does not result in any adjustment to the base cost of assets held by that entity. Therefore, a Family Foundation structure should not be viewed as creating a tax-free uplift or reset in the tax base cost of assets.

7. New Guidance on Family Offices

The updated guide introduces a new section on Single Family Offices and Multi Family Offices.

The FTA clarifies that family offices are generally expected to carry on Business or Business Activities, particularly where they provide management, administrative, investment or support services. As a result, family offices are unlikely to meet the conditions for fiscally transparent treatment as a Family Foundation.

Accordingly, a family office would generally be subject to UAE CT on its income, including management fees or other service income. Where services are provided to Related Parties or Connected Persons, transfer pricing and arm’s length considerations should also be assessed.

Where a family office is established in a Free Zone, it may potentially benefit from the 0% Corporate Tax rate on Qualifying Income, provided all relevant Free Zone conditions are satisfied. However, the updated guide indicates that merely holding a licence should not be considered sufficient; the activity and regulatory oversight requirements should also be reviewed.

Key Takeaway

The June 2026 update is particularly relevant for families, founders, trustees, family offices, wealth managers and advisors using Family Foundations, trusts, SPVs or holding companies for succession planning, asset protection and wealth management.

Existing and proposed structures should be reviewed to assess:

  • whether the Family Foundation continues to meet the conditions for fiscally transparent treatment;
  • whether each underlying SPV or holding company independently satisfies the relevant conditions;
  • whether jointly held entities meet the ownership and control requirements;
  • whether transfers of assets into the Family Foundation could trigger Corporate Tax or transfer pricing implications;
  • whether the acquisition or sale of underlying entities affects the tax status of the structure;
  • whether there is any expectation of base cost uplift, which the updated guide clarifies should not arise merely due to a change in tax status; and
  • whether a family office should be treated as a taxable service entity rather than a fiscally transparent Family Foundation.

The updated guide does not overhaul the UAE Corporate Tax treatment of Family Foundations. However, it provides important practical guidance on areas that are commonly encountered in private wealth and succession planning structures.

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UAE E-Invoicing Practical Business Challenges

The Ministry of Finance (MoF) has announced targeted amendments to the regulations governing the UAE’s e-invoicing framework, including an extension of the deadline for appointing an Accredited Service Provider (ASP).

Under the amended Ministerial Decision No. 244 of 2025, the deadline has been extended from 31 July 2026 to 30 October 2026. The revised timeline applies to entities with annual revenues exceeding AED 50 million.

The extension provides businesses with additional time to evaluate and select suitable Accredited Service Providers while ensuring adequate preparation for compliance ahead of the mandatory go-live deadline on 1 January 2027.

E-Invoicing: Beyond Compliance - Managing Real Business Challenges

E-invoicing in the UAE is no longer something businesses can consider as a future requirement. It is rapidly becoming a critical transformation that will directly impact invoicing practices, operational workflows, VAT compliance, ERP systems, and data management across organizations.

As the UAE moves toward a structured Peppol-based e-invoicing framework, businesses are beginning to realize that implementation is not simply about generating electronic invoices. It requires businesses to reassess existing processes, identify operational and technical gaps, improve data accuracy, and redesign internal workflows.

This is why conducting a detailed e-invoicing gap analysis has become one of the most important preparation steps for businesses operating in the UAE.

Why E-Invoicing Gap Analysis is Critical?

In simple terms, a gap analysis helps businesses understand:

  • Where they stand today?
  • What changes are required?
  • Whether current systems are compliant?
  • Which operational processes need modification?
  • How prepared they are for implementation?

Many organizations assume their current ERP or accounting system is already sufficient because invoices are generated digitally. However, once detailed reviews begin, businesses often identify gaps in:

  • Invoice structure
  • Invoice and Credit note formats
  • Data fields
  • Approval workflows
  • Customer master data
  • Tax treatments etc

Identifying these issues early helps to avoid operational disruption and last-minute implementation pressure.

Major E-Invoicing Challenges Businesses Are Facing in UAE

1. Data Mapping and ERP Integration Challenges

One of the biggest practical issues during implementation is data mapping.

In many businesses, data is spread across:

  • ERP systems
  • Warehouse management systems
  • CRM platforms
  • Excel workings

Bringing all this information into a single structured e-invoice format becomes highly complex.

Common issues include:

  • Missing customer and Supplier TRNs
  • Incorrect VAT mapping
  • Different product descriptions across systems
  • Inconsistent unit measurements
  • Duplicate customer records
  • Manual invoices

Without proper mapping and standardization, invoices may fail validation or create reconciliation issues later.

2. Warehouse and Delivery Note Timing Issues

A major operational challenge arises where warehouses and finance teams operate separately.

In many trading and logistics businesses:

  • Warehouse teams issue delivery notes immediately once goods move
  • Finance teams issue invoices later after approvals or pricing confirmation

This creates delays between:

  • Physical movement of goods
  • Delivery note generation
  • Invoice issuance

Under UAE e-invoicing requirements, real time invoice issuance becomes extremely important.

Practical Example

Goods may leave the warehouse today, but the finance team may issue the invoice only after:

  • Customer confirmation
  • Management approval
  • Final pricing review
  • Freight confirmation

Such delays can create VAT compliance issue. Businesses will need to redesign operational workflows to ensure invoices are generated on real time basis as per E-invoicing requirement’s.

3. High Sea Sales and Price Difference Challenges

Businesses involved in High Sea Sales or international trading often face pricing complexities.

In many cases:

  • Goods are shipped directly from supplier to customer
  • Freight cost is finalized later
  • Exchange rate fluctuations impact final value
  • Supplier invoices arrive after shipment
  • Landed cost changes after dispatch

As a result, the initial invoice amount may differ from the final commercial value.

Under e-invoicing, businesses must establish proper mechanisms for:

  • Commercial invoices
  • Credit notes
  • Price amendments

Without proper system configuration, businesses may face reconciliation issue between:

  • Accounting records
  • VAT returns
  • Reported e-invoice data

4. The Precious Metals Industry and Unfixed Transaction Complexity

The precious metals industry faces some of the most complicated e-invoicing challenges.

One major issue is unfixed transactions & Common Industry Practice

In many precious metals transactions:

  • Quantity is fixed initially
  • precious metals rate is fixed later
  • Final invoice value depends on future market price

For example:

  • Goods may be delivered today
  • precious metals price may be fixed after 5–7 days
  • Final invoice value changes based on market fluctuations

This creates significant complexity in:

  • Invoice timing
  • VAT determination
  • Reporting accuracy
  • Debit and credit adjustments
  • Final invoice reconciliation

Traditional practices followed within the precious metals industry may therefore require substantial redesign under structured e-invoicing systems.

Under e-invoicing, businesses must establish proper mechanisms for:

  • Tax invoices
  • Tax Credit notes

5. Complex Commercial Arrangements

Businesses also face challenges in handling non-standard transactions such as:

  • Principal-agent arrangements
  • Promotional discounts
  • Free-of-cost supplies
  • Intercompany recharges
  • Composite supplies
  • Consignment stock

Each of these transactions has unique VAT implications and documentation requirements.

If not properly evaluated during implementation, businesses will face difficulties in the following

  • Invoice rejection
  • Incorrect VAT treatment
  • Compliance exposure
  • Audit risk

E-invoicing systems depend heavily on accurate and structured master data.

Businesses will need to ensure:

  • Correct Customer/Supplier names
  • Valid TRNs
  • Accurate VAT classification
  • Proper product coding
  • Consistent invoice descriptions
  • Correct address details

Even small inconsistencies will result in invoice rejection or reporting errors.

E-Invoicing is Not Just a Finance Project

A common misconception is that e-invoicing only concerns finance or tax teams.

In reality, implementation impacts multiple departments:

  • Finance
  • Tax
  • IT
  • Procurement
  • Warehouse operations
  • Sales
  • Logistics
  • Compliance teams

Successful implementation requires:

  • Clear ownership
  • Defined responsibilities
  • Proper coordination
  • Internal process alignment

Without cross-functional collaboration, businesses may struggle during implementation.

The Importance of a Structured Action Plan

The biggest value of a gap analysis is that it provides businesses with a clear implementation roadmap.

A proper assessment helps to identify:

  • System enhancement requirements
  • ERP modification if any
  • Areas to redesign the process
  • ASP onboarding readiness
  • Compliance gaps

This allows businesses to move toward implementation in a controlled and well-planned manner instead of reacting under pressure later.

Practical Recommendations for UAE Businesses

Businesses should begin preparation early rather than waiting for mandatory implementation dates.

Recommended Steps:

  • Conduct detailed e-invoicing gap assessments
  • Review ERP and invoicing capabilities
  • Standardize customer and supplier master data
  • Evaluate industry-specific transaction complexities
  • Engage with Accredited Service Providers (ASPs)
  • Train finance, tax, warehouse, and IT teams
  • Eliminate manual invoicing processes
  • Establish clear invoice issuance timelines

Conclusion

E-Invoicing gap analysis provides management with a clear roadmap for implementation. Instead of making last-minute changes, businesses can plan upgrades, allocate budgets, and prepare employees in a more organized way.

The key value of a gap analysis lies in the actionable roadmap it delivers, as it not only identifies existing gaps but also highlights areas requiring improvement and provides clear recommendations on system upgrades and implementation steps. It further supports effective coordination with ASP providers, ensuring a smoother and more efficient transition when the system goes live.

Overall doing an e-invoicing gap analysis gives businesses control and clarity. Instead of reacting at the last moment, it allows you to prepare in advance, reduce risks, and move into the new system with confidence and proper planning.

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UAE Pillar Two Top Up Tax Registration is Now Open on EmaraTax Portal

The UAE Federal Tax Authority (FTA) has officially enabled the Pillar Two Top-up Tax Registration on the EmaraTax portal. This represents a significant compliance requirement for Multinational Enterprise (MNE) groups operating in the UAE.

Under the new Domestic Minimum Top-up Tax (DMTT) framework—effective for financial years starting on or after January 1, 2025 in-scope MNEs with global consolidated revenues of €750 million or more are required to maintain a minimum effective tax rate of 15% on their UAE profits.

With the first active reporting cycle taking place in 2026, eligible entities must begin the registration process. The EmaraTax portal currently offers two pathways for registration:

  • Domestic Designated Filing Entity (DDFE) Registration: A single constituent entity is appointed to register and file centrally on behalf of the entire UAE domestic group. While this approach centralizes reporting, it requires preliminary steps, including mapping out domestic group entities and securing the necessary internal authorizations.
  • Individual Entity Registration: In cases where a central filing body is not appointed, individual constituent entities or joint ventures can register directly to manage their compliance independently

Required Information for Registration

Before proceeding with the formal EmaraTax registration, applicants are required to complete an initial profiling questionnaire. Your organization should have the following information prepared:

  • The selected registration strategy (DDFE versus Individual Entity).
  • Confirmation of group eligibility based on the €750 million global revenue threshold.
  • Details regarding whether the Pillar Two requirements apply due to recent structural changes, such as a merger, acquisition, or demerger.
  • The precise group classification for registration and reporting purposes.

Recommended Next Steps

Multinational groups with operations in the UAE should proactively assess their Pillar Two readiness by determining the most appropriate filing approach, aligning compliance responsibilities across relevant entities, and evaluating the impact on their existing structures.

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]]> 26218 UAE E-Invoicing Accredited Service Provider (ASP) Deadline Extended To 30 October 2026  https://fame.ae/uae-e-invoicing-accredited-service-provider-asp-deadline-extended-to-30-october-2026/ Tue, 12 May 2026 09:57:46 +0000 https://fame.ae/?p=26114
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UAE E-Invoicing Accredited Service Provider (ASP) Deadline Extended to 30 October 2026

The UAE Ministry of Finance has announced targeted amendments to the UAE E-invoicing framework, including an extension of the deadline for appointing an Accredited Service Provider (ASP).

What Has Changed?

Entities subject to the UAE e-invoicing system with annual revenues exceeding AED 50 million will now have until 30 October 2026 to appoint an Accredited Service Provider (ASP), extending the previous deadline of 31 July 2026. 

Reason for the Extension

According to the Ministry of Finance, the extension was introduced following, 

  • An Assessment of market readiness 
  • Feedback from businesses requesting broader technical options 
  • The Need to encourage more competitive pricing within the ASP ecosystem 

Approved Accredited Service Provider (ASP)

The ministry announced that 32 service providers have been accredited so far, with a large number of service providers in the final stages of the accreditation process, stressing that this step will contribute to building a more integrated and competitive technology system. 

Empowering Local Businesses

To support and empower local businesses, the Ministry amended Ministerial Resolution No. (64) of 2025, allowing service providers to offer technical solutions through partnerships with third-party providers. This enables local companies to collaborate with international providers, enhance technical expertise, and deliver solutions that meet UAE requirements, further accelerating the country’s digital transformation. 

Key Important Clarification

  • While the ASP appointment deadline has been extended, the mandatory implementation timeline remains unchanged.  
  • Businesses with annual revenues exceeding AED 50 million must still fully implement the E-Invoicing system by 1st January 2027 

Key Takeaway

The extension provides businesses with additional time to evaluate and select suitable Accredited Service Providers while ensuring adequate preparation for compliance ahead of the mandatory go-live deadline on 1 January 2027. 

Below is the link to the official announcement issued by the Ministry of Finance.  

https://mof.gov.ae/en/news/ministry-of-finance-announces-targeted-amendments-to-einvoicing-system-decisions/ 

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]]> 26114 FTA Clarification CTP010: Director vs Officer in UAE Corporate Tax (Article 36 Explained) https://fame.ae/fta-clarification-ctp010-director-vs-officer-in-uae-ct/ Thu, 30 Apr 2026 12:52:08 +0000 https://fame.ae/?p=26085
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FTA Clarification CTP010: Director vs Officer in UAE Corporate Tax

The Federal Tax Authority has clarified the meaning of “director” and “officer” for payments to Connected Persons under Article 36 of the Corporate Tax (CT) Law. The interpretation goes beyond job titles and is based on actual authority and decision-making power. The purpose of this clarification is to explain exactly what “director” and “officer” mean beyond the title.

Article 36(1) states that any payment or benefit given by a Taxable Person to a CP is deductible only if:

  • It matches the Market Value of the service, benefit, or anything else provided by the CP, and
  • It is incurred wholly and exclusively for the purposes of the company’s business.

A “Connected Person” (CP) under Article 36(2)(b) includes a director or officer of the company. Additionally, under Article 55(1), of the CT law states that the FTA may require the company to disclosure in its CT Return, covering all transactions and arrangements with CPs. Currently, the FTA requires payments or benefits to CPs to be disclosed in the CT return if they exceed AED 500,000.

These rules ensure that payments to directors or officers are:

  • Deductible only if they do not exceed Market Value, and
  • Properly disclosed.

Who is a Director as per the public clarification (CTP010)?

A “director” is a person who holds a position on the board of directors. This includes:

  • Executive directors
  • Non-executive directors
  • Temporary directors
  • Permanent directors
  • Alternative directors

as long as they are appointed on the board of directors, including any member of a board committee.

If the company does not have a board of directors, then “director” refers to a person holding a position on any equivalent governing body — including but not limited to:

  • Board of trustees
  • Board of governors

as determined under the applicable law governing the company’s incorporation, or the company’s constitutional documents, including but not limited to:

  • Memorandum of association
  • Articles of association
  • Partnership deed
  • Trust deed

Just having the word “director” in a job title does not make someone a director for the purposes of Article 36(2)(b).

If a person’s job title includes “director” but they do not hold a position on the board or equivalent governing body as per the company’s incorporation or constitutional documents, they are not considered a “director”.

However, it is still necessary to check whether that person could be considered an “officer.”

Who is an Officer as per the public clarification (CTP010)?

An “officer” includes any person who meets at least one of the following three criteria:

  1. The person has the authority and responsibility for planning, directing, and controlling the
    activities of the Taxable Person, in accordance with the framework of International Accounting
    Standard 24 on Related Party Disclosures.

  2. The person has the authority to make strategic decisions related to the financial, operational,
    or commercial matters of the Taxable Person.

  3. The person has the authority to enter into agreements or approve actions that legally or
    contractually bind the Taxable Person.

Officer does not include a person who does not have the ultimate strategic decision-making or binding authority. An officer may include, but is not limited to:

  • Chief Executive Officer (CEO)
  • General Manager (GM)
  • Chief Financial Officer (CFO)
  • Chief Operating Officer (COO)
  • Chief Commercial Officer (CCO)
  • An authorised representative with discretionary authority

together referred to as “C-suite.”

A formal appointment or job title may be used as an indicator when assessing whether someone is an officer but it should not be relied upon as the sole criterion.

If a person does not have a formal appointment or C-suite job title, but through their actual conduct effectively has:

  • The authority and responsibility for planning, directing, and controlling, or
  • The authority to make strategic decisions, or
  • The authority to take or approve actions that legally or contractually bind the company

that person is still considered an “officer.”

The concept of “officer” applies to all Taxable Persons, including trusts, foundations, and unincorporated partnerships that are treated as fiscally opaque for Corporate Tax purposes.

  • Only a natural person can be a “director” or “officer” of a Taxable Person.
  • If a person is considered both a Related Party and a CPs of a Taxable Person, that person will be treated only as a Related Party for Corporate Tax purposes.

Examples

Sl No.
Role
Officer Status (✓/✗)
1
GM of an LLC
✓ – if they have authority and responsibility for overall management of the company
2
Head of a division
✓ – if they make ultimate strategic decisions.

✗ – if they only operate within frameworks set by higher authority
3
Head of HR
✓ – if they have ultimate authority over strategic HR decisions.

✗ – if limited to routine HR functions
4
Employee named on trade icence / board resolutions
✓ – if this gives authority to approve actions that legally or contractually bind the company
5
Holder of Power of Attorney
✓ – if PoA grants discretionary and strategic decision-making authority.

✗ – if limited to predefined tasks
6
Third-party secondees/ outsourced personnel
✓ – if they have authority to make strategic decisions or bind the company

✗ – if only executing pre-agreed terms.
7
GM of a Permanent Establishment
✓ – if responsible for planning, directing, and controlling activities of the PE
8
Interim CEO titled “consultant”
✓ – if they perform CEO role with authority to plan, direct, and control activities
9
GM appointed by natural-person Taxable Person
✓ – if they have authority and responsibility for managing the business
10
Trustee of a trust (Taxable Person)
✓ – if they have authority to plan, direct, and control activities of the trust
11
Court-appointed trustee / administrator
✗ – if only carrying out court-assigned duties without discretionary authority

Key Takeaways

The classification of a “director” or “officer” is determined by substance over form. What matters is the actual authority to plan, direct, and control the business, rather than the title held. Accordingly, individuals who may not formally hold the title of director or officer could still fall within this scope if they exercise significant decision-making powers.

Businesses should therefore carefully assess roles and responsibilities in practice to ensure that payments to CPs are correctly evaluated and remain compliant with the CT Law. Companies should also revisit and clearly identify who qualifies as a director or officer based on their functional roles, and ensure that appropriate benchmarking is undertaken for any payments made to such persons.

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]]> 26085 Amendments to the VAT Guide on Input Tax Apportionment – VATGIT1 https://fame.ae/amendments-to-the-vat-guide-on-input-tax-apportionment-vatgit1/ Wed, 22 Apr 2026 07:25:07 +0000 https://fame.ae/?p=26063
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Amendments to the VAT guide on Input Tax Apportionment – VATGIT1

The Federal Tax Authority (FTA) in the United Arab Emirates (UAE) has amended Input tax apportionment guide – VATGIT1 on 30th September, 2025. We have summarised the key highlights below –

Input Tax Apportionment

Input tax apportionment is a process of calculating how much input tax you are allowed to claim back when expenses are partly for taxable supplies and partly for exempt or non-business use.

Specified Recovery Percentage (SRP)

SRP is a new method introduced by FTA, under this method business are allowed to use a fixed recovery rate based on the prior year’s actual recovery rate. A taxable persons can submit an application to the FTA to adopt a fixed recovery percentage this approach helps reduce the effort of recalculating the recovery ratio for every tax period.

Eligibility to apply for SRP:

  • Applicants must have been registered for VAT for a minimum of 12 months.
  • Applicants must be making taxable supplies , exempt supply such as financial services and supplies that are made outside the UAE which would have been considered taxable had they been made in the UAE.
  • Application is made to the FTA by either the authorized signatory, tax agent or by the legal representative.

Requirements for submitting an application for Special Input Tax apportionment to the FTA

Applicants are required to provide the following information as part of the request:

  • A cover letter that contains:
    • Detailed description of the Business activities of the Applicant,
    • The special Input Tax apportionment method to be used, and
    • The reasons for applying for a special Input Tax apportionment method.

  • Historical calculations of Residual Input Tax apportionment in Excel format using the standard method of apportionment. The calculations should be for the period of 12 months preceding the application (as applicable or a shorter period if the business has been conducted for less than 12 months)

  • Calculations of the Residual Input Tax apportionment in Excel format for the same period as above but using the special method requested by the Applicant.

  • Where an application is submitted for a sectoral method, the Applicant is required to provide the special apportionment method calculations separately for each sector included in the request, along with a clear description of the activities and nature of each sector.

  • Applicants must ensure that all figures and details included in the calculations are fully aligned and reconciled with the Tax Returns that have been filed with the FTA for the respective Tax Periods.

Response times highlighted

FTA’s standard response times remain unchanged:

  • 40 business days for non-sectoral method requests
  • 60 business days for sectoral method requests

Applicants are required to reply to any queries raised by the FTA within 40 business days.

Validity of Approved SRP

Approval for special input tax apportionment methods is valid for:

  • 4 years for non-sectoral methods
  • 2 years for sectoral methods

Notifying FTA in case of any variance

Registrants must inform the FTA if the actual recovery percentage for the entire tax year differs by more than 10% from the percentage originally reported. Notification to the FTA must be made within 20 business days from the date the variance is identified.

Additional information to be provided as part of the notification includes:

  • Confirmation of the variance and the date it was detected.
  • An explanation outlining the reason for the difference.
  • Information on any changes in business activities.
  • Details and nature of such changes, if applicable.
  • Full-year recovery rate calculations, including an Excel-based annual washup.

If a Registrant does not inform the FTA of a variance greater than 10% within 20 Business Days, or fails to reply to the FTA’s request within 40 Business Days, the FTA may decide that the approved special method is no longer applicable from the date the variance was first identified.

Conclusion

This update issued by Federal Tax Authority marks a significant step forward by introduction of the Specified Recovery Percentage (SRP) to reduces administrative burden and closely monitor variance and recovery rates. Businesses must adopt a proactive approach in assessing their eligibility, preparing application and complying on going reporting obligations.

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]]> 26063 GCC Tax And Regulatory Communique March 2026 https://fame.ae/gcc-tax-and-regulatory-communique-march-2026/ Mon, 13 Apr 2026 13:55:38 +0000 https://fame.ae/?p=26052
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]]> 26052 Profit Margin Scheme under UAE VAT: A Comprehensive Guide for Businesses  https://fame.ae/profit-margin-scheme-under-uae-vat/ Mon, 30 Mar 2026 10:07:24 +0000 https://fame.ae/?p=26022
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Profit Margin Scheme under UAE VAT

The UAE VAT regime generally requires VAT to be charged on the full value of taxable supplies. However, for certain categories of goods, this approach can lead to unfair double taxation, particularly where VAT incurred earlier in the supply chain cannot be recovered. To address this, the Federal Tax Authority (FTA) has introduced a special optional mechanism known as the Profit Margin Scheme.

This article provides a practical and detailed overview of the Profit Margin Scheme under UAE VAT, including eligible goods and transactions, calculation methods, invoicing and record-keeping requirements, and common examples to help businesses apply the scheme correctly. 

What is the Profit Margin Scheme?

The Profit Margin Scheme is an optional VAT accounting method available to resellers of certain goods. Instead of charging VAT on the total selling price, VAT is calculated only on the difference between the selling price and the purchase price. 

When Can the Profit Margin Scheme be Applied?

The Profit Margin Scheme may be applied in the following circumstances: 

  1. Resale of eligible goods acquired from:
    • A non-VAT registered person, or
    • A VAT-registered supplier who already applied the Profit Margin Scheme

  2. Sale of goods where input VAT recovery was blocked under Article 53 of the VAT Executive Regulations, such as motor vehicles available for private use.

The scheme can only be applied if the goods were previously subject to VAT. It does not apply to goods that have never been subject to VAT. 

Importantly, the scheme is optional and can be applied on a supply-by-supply basis, provided all conditions are met. 

Eligible Goods under the Profit Margin Scheme

The scheme applies only to specific categories of goods: 

1. Second-Hand Goods 

Second-hand goods are tangible movable items that are suitable for further use as they are, or after repair, without changing their original function. 

Common examples include: 

  • Used cars 
  • Mobile phones 
  • Furniture 
  • Electronic equipment

2. Antiques 

Antiques are goods that are more than 50 years old, such as antique furniture, artwork, or collectibles. Businesses must retain sufficient evidence to prove: 

  • The age of the goods, and 
  • That VAT was previously imposed on them 

3. Collector’s Items 

Collector’s items include: 

  • Stamps 
  • Coins and currency 
  • Items of scientific, historical, or archaeological interest 

These goods typically derive value from rarity and collectability. Proper documentation is essential to support their eligibility under the scheme. 

Importation of Goods – Key Considerations

As a general rule, the Profit Margin Scheme does not apply to imported goods, because import VAT is usually recoverable under normal VAT rules. 

However, if import VAT recovery is blocked under Article 53, the scheme may be applied on resale. 

Eligible goods & applicability of the Profit Margin Scheme

Example
Scenario
Applicability
Repairs without change in nature
“Company A” a used car dealer purchases a vehicle from a private individual “Mr. B”, carries out servicing and minor repairs, and resells it
Since the car retains its original purpose, it qualifies as a second-hand good under the scheme. “Company A” can apply the scheme.
Goods not previously subject to VAT
“Company A” purchased a used car from a private individual ” Mr. B” who acquired it on 2017.
Since, the car was purchased before the implementation of VAT, the car has never been subject to VAT & hence “Company A” cannot apply the scheme.
Goods previously subject to VAT
“Company A “purchased a used furniture from a non-registrant ” Mr. B” in 2019. Mr. B has bought the furniture by paying VAT with proper Tax invoice.
If Mr. B provide the copy of tax invoice with company A, then Company A has proof that the furniture was previously subject to VAT & can apply the scheme when reselling the furniture, provided all the other conditions are met.
Seller applied scheme
“Company A” purchases second hand goods from a non-registrant & sold some of these goods to “Company B” a registrant by applying the Scheme.
“Company B” can apply the scheme if he is reselling the goods provided all the other conditions are met.
Resale of imported good
“Company A” a taxable antique dealer imports antiques into UAE and pays import VAT.
“Company A” cannot apply the scheme when reselling the antiques as the import VAT is recoverable by company A in accordance with the normal Input Tax recovery rules.

Calculating VAT under the Profit Margin Scheme

Step 1: Determine the Profit Margin 


Profit Margin = Selling Price – Purchase Price 

  • The purchase price includes the cost of the goods and any directly related costs such as transport and installation cost. 
  • The selling price includes all consideration received for the supply. 

Step 2: Calculate VAT on the Profit Margin 

VAT is calculated using the VAT fraction: 


VAT = Profit Margin * (5/105)              

Computation of VAT on Profit Margin Scheme

Example
Scenario
Computation
VAT Amount
Eligible goods sold for profit
A used car dealer buys a car for AED 100,000 and sells it for AED 200,000.
Purchase Price (A) = AED 100,000 Selling Price (B) = AED 200,000 Profit Margin (C= B-A) = AED 100,000 VAT on Profit Margin = C*(5/105) = AED 4,761.90
4,761.90
Purchase price including costs
A business purchases a car for AED 100,000 and incurred AED 5,000 as transportation costs. They sold the car for AED 250,000.
Purchase Price (A) + associated costs = AED 105,000 Selling Price (B) =AED 250,000 Profit Margin (C= B-A) = AED 145,000 VAT on Profit Margin = C*(5/105) = AED 6,904.76
6,904.76
Goods with Blocked Input VAT (Article 53)
A Company buys a luxury car for the business & its CEO’s personal. The price of the car is AED 500,000 Plus AED 25,000 VAT. VAT was not recovered due to Article 53(1)(b) of VAT Executive Regulations. Company sells the car for AED 530,000
Purchase Price (A) = AED 525,000 Selling Price (B) = AED 530,000 Profit Margin (C= B-A) = AED 5,000 VAT on Profit Margin = C*(5/105) = AED 238.10
238.10

Goods Sold at a Loss or Break-Even

If eligible goods are sold: 

  • At a loss, or 
  • With no profit 

No VAT is payable under the Profit Margin Scheme. However, losses cannot be offset against profits from other transactions. 

Computation of VAT on Profit Margin Scheme for goods sold at loss or no profit

Scenario
Computation
VAT Amount & Justification
“Company A” a used car dealer, sold four cars & applied the scheme on all of them.”
Car Selling Price Purchase Price Profit Margin VAT
Car 1 10,000.00 5,000.00 5,000.00 238.10
Car 2 20,000.00 10,000.00 10,000.00 476.19
Car 3 25,000.00 25,000.00 – –
Car 4 5,000.00 20,000.00 (15,000.00) –
Total 60,000.00 60,000.00 – 714.29
Even though, there is no profit during the whole period, the company has to account for VAT on the two cars that was sold on profit. i.e., AED 714.29. Since Cars 3 & 4 are not sold for profit, no output tax needs to be reported for the same. The loss made on the supply of car 4 cannot be settled off against the profits made on the supply of cars 1 & 2.

Invoicing and Record-Keeping Requirements

When applying the scheme: 

  • A valid tax invoice must be issued 
  • The tax invoice must clearly state that VAT is charged under the Profit Margin Scheme 
  • The VAT amount must not be shown separately with the note mentioning in the tax invoice that vat is charged under profit margin scheme 

Record-Keeping

Businesses must maintain: 

  • A stock register for goods sold under the scheme 
  • Purchase invoices or self-issued purchase documents for non-registrants 
  • Evidence that goods were previously subject to VAT 
  • Seller details, dates, consideration, and signatures where applicable 

Proper documentation is critical in case of an FTA audit. 

VAT Return Reporting

When applying the Profit Margin Scheme: 

  • The relevant checkbox must be selected in the VAT return 
  • Box 1 should include: 
    • Selling price net of VAT on the margin 
    • VAT amount relating to the profit margin 
  • Box 9 should include: 
    • Purchase price of goods intended for resale under the scheme 
    • No VAT amount 
    • Purchase price of the goods intended to be sold under the scheme should be reported in the Tax period these goods are acquired. 

Goods sold at a loss are still included in the selling price figure, but no VAT is reported for them. 

Example – Reporting in the VAT return 

Company A purchased a mobile phone for AED 1,500 from Mr. B in January 2025 and sold it to Mr. C in March 2025 for AED 1,710. Company A files VAT returns on a monthly basis. 

The purchase of the mobile phone should be reported in Box 9 of the VAT return for January 2025 with an amount of AED 1,500. 

The sale of the mobile phone should be reported in Box 1 of the VAT return for March 2025, showing AED 1,700 in the amount column and AED 10 as VAT on the profit margin. 

Conclusion

The Profit Margin Scheme is a valuable VAT relief mechanism for businesses dealing in second-hand goods, antiques, collector’s items, and assets with blocked input VAT. When applied correctly, it prevents VAT cascading and ensures that VAT is charged only on the true value added by the reseller. 

However, the scheme comes with strict eligibility conditions, detailed documentation requirements, and specific reporting obligations. Incorrect application can expose businesses to penalties and reassessments by the FTA. 

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]]> 26022 Research and Development (R&D) Tax Incentive: A UAE Ministry of Finance Initiative https://fame.ae/research-and-development-tax-incentive-a-uae-ministry-of-finance-initiative/ Wed, 25 Mar 2026 06:43:19 +0000 https://fame.ae/?p=26001
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Research and Development (R&D) Tax Incentive: A UAE Ministry of Finance Initiative

In 2025, the UAE Ministry of Finance indicated that, to encourage Research and Development (R&D) activities, foster innovation, and support economic growth in the UAE, an R&D tax incentive was being considered, with effect proposed for tax periods commencing on or after 1 January 2026.

Pursuant to this policy signal, the UAE issued Cabinet Decision No. 215 of 2025 (CD 215 of 2025) on R&D Tax Credit on 31 December 2025. Thereafter, the Ministry of Finance announced the launch of Phase 1 of the UAE’s R&D Tax Incentives Programme on 18 March 2026, which has now been operationalised through Ministerial Decision No. 24 of 2026 (MD 24 of 2026).

Under Phase 1 a non-refundable R&D tax credit of up to 50% is available on qualifying R&D expenditure, subject to a cap of AED 5 million of qualifying spend per Qualifying Entity or Tax Group per Tax Period, resulting in a maximum potential credit of AED 2 million.

The settlement methodology for R&D tax credit lies in Federal Decree-Law No. 28 of 2025.

CD 215 of 2025 introduced the concept of R&D Tax Credit as a tax credit available to a Qualifying Entity in respect of Qualifying R&D Expenditure.

Applicability

CD 215 of 2025 and MD 24 of 2026 apply to tax period commencing on or after 1 January 2026.

Qualifying entity

CD 215 of 2025 provides, that for an entity to be considered a qualifying entity, the requirements are:

  1. It should be a juridical person, which is either a UAE juridical person, including a Free Zone Person,that is subject to CT and/or top-up tax and carries on Qualifying R&D Activities, or foreign juridical persons undertaking such activities through a UAE permanent establishment. 

  2. It should carry on R&D activities

  3. It should be subject to CT and/ or Top-up Tax.

For a Qualifying Free Zone Person (QFZP) to be considered a qualifying entity, CD 215 of 2025 imposes additional condition i.e. QFZP shall be subject to 9% CT on the relevant taxable income derived from qualifying R&D activities or it shall be subject to top-up tax in the relevant fiscal year.

The following entities shall not be considered as qualifying entities:

  1. An entity that is neither subject to CT nor Top-up Tax

  2. An entity that has opted for Small Business Relief

Qualifying R&D expenditure

CD 215 of 2025 categories Qualifying R&D Expenditure as below:

  1. Staff costs
  2. Consumable costs
  3. Subcontracting fee
  4. Arm’s length share of contributions under cost contribution arrangements,
  5. Any other category of expenditure that may be specified by the Minister.
  6. Certain capitalised costs relating to internally generated intangibles arising from qualifying R&D activities may fall within the scope of qualifying expenditure

Further, MD 24 of 2026, defines the above categories and provides specific conditions for inclusions and exclusions. For example, in staff cost a 30% upliftment is to be applied, it shall not include employee stock option plans, it shall not include intra-group recharges etc.

CD 215 of 2025 also lay down baseline conditions for such expenditure to qualify. In particular:

  • the expenditure must be incurred wholly and exclusively for qualifying R&D activities;
  • must amount to at least AED 500,000 (excluding upliftment) per R&D project in the relevant tax period or fiscal year;
  • must constitute deductible expenditure under CT law;
  • must not be funded by a government grant, to the extent recorded in financial statement; and
  • must not already benefit from any other incentive, credit, exemption or relief under the CT Law or any other legislation in the UAE.

Qualifying R&D Activities

The R&D tax credit is available in respect of Qualifying R&D Activities carried out by a Qualifying Entity. For this purpose, an activity will be regarded as a Qualifying R&D Activity only where it is undertaken in the UAE as part of an R&D Project and satisfies all the below mentioned five prescribed conditions:

  1. Novel – aims to produce new findings
  2. Creative – involves original concepts or hypotheses
  3. Uncertain – the outcome or means of achieving it are not known in advance
  4. Systematic – follows a plan and budget
  5. Transferable or reproducible – results can be applied or replicated in other contexts

MD 24 of 2026 expressly states that this assessment should be made with reference to the OECD Frascati Manual. Activities in the fields of social sciences, humanities and the arts are excluded.

Conditions to Claim the R&D Tax Credit

A Qualifying Entity may claim the R&D tax credit for Qualifying R&D Expenditure only where it satisfies the following conditions:

  1. The Qualifying Entity meets the minimum number of employees engaged in Qualifying R&D Activities

  2. The Qualifying Entity obtains the necessary pre-approvals from the Council and complies with ongoing compliance requirements

  3. The Qualifying Entity bears the financial burden of carrying out the Qualifying R&D Activities

  4. The Qualifying Entity is beneficially entitled to a share in the returns derived from exploiting the intangibles or other results of the Qualifying R&D Activities

  5. The relevant R&D Project has a specified objective to increase the stock of knowledge or devise new applications of available knowledge, and the Qualifying R&D Activities are directly undertaken with the purpose of addressing such objective

R&D Tax Credit

MD 24 of 2026, prescribes a progressive tax credit structure for the R&D tax credit, wherein the tax credit rates are as follows:

Maximum Qualifying R&D Expenditure (AED)
Average number of R&D Staff
Tax Credit Rate
First 1 million
At least 2
15%
> 1 million < 2 million
At least 6
35%
> 2 million < 5 million
At least 14
50%

MD 24 of 2026 clarifies:

  • That the credit is non-refundable.

  • The credit is calculated by applying the relevant rate to the portion of expenditure falling within each corresponding band.

  • To qualify for a specific rate, a Qualifying Entity or Tax Group must satisfy both the relevant expenditure threshold and the minimum average R&D staff threshold. If either threshold is not met, the credit rate is adjusted downward to the highest rate for which both thresholds are satisfied.

  • For Tax Groups with more than one Qualifying Entity, both the Qualifying R&D Expenditure and R&D Staff are aggregated for threshold purposes.

Carry-forward, transfer and claw-back

MD 24 of 2026 also sets out that unutilized R&D tax credits can be carried forward, transferred within a qualifying group, or passed in certain business restructuring cases, subject to continuity and anti-abuse conditions. Carry-forward is generally allowed only where there is at least 50% continuity of ownership, or where the entity continues to carry on the same or similar business despite a major ownership change. An exception applies to entities listed on a Recognised Stock Exchange.

Unused R&D tax credits may also be transferred to another juridical person, provided both the entities are at least 75% commonly owned (directly or indirectly), or one owns the other by that percentage, and the ownership condition is maintained from the period in which the credit arose until the period in which it is utilised. However, the transferee may use the transferred credit only against its current CT and/or Top-up Tax liability, and the transferred credit cannot itself be carried forward or re-transferred.

In the case of business restructuring, unused R&D tax credits may move to the transferee, provided the transferred business, including the associated qualifying R&D activities, continues for at least two years and the relevant restructuring conditions are satisfied. If the qualifying R&D activities are discontinued within two years, the regime provides for a claw-back, under which utilised credits must be repaid, unused credits are forfeited, and penalties may apply.

Key points to note:

  1. No time limit has been prescribed for carry-forward

  2. Current Tax Period credit must be utilized before any surplus is carried forward

Claim process

CD 215 of 2025 provides that a claim for the R&D tax credit must be submitted as part of the Tax Return or top-up tax Return and must be accompanied by specified supporting documents. These include proof of pre-approval from the Emirates Research and Development Council, a signed declaration by senior management confirming the accuracy of the information provided, a breakdown of qualifying R&D expenditure, audited financial statements, and any other documents that may be specified by the Minister.

Claims submitted after the due date for filing the Tax Return or Top-up Tax Return will not be considered unless accepted by the Authority in exceptional circumstances.

Record Keeping

MD 24 of 2026 provides that the qualifying entity shall maintain technical documentation for a period of 7 years following the end of the tax period to which they relate. Further, technical documentation includes -written, visual, and electronic records detailing the objectives, processes, methodologies, experiments, and findings associated with the qualifying R&D activities.

Anti-Abuse and Artificial Separation

If the Authority determines that one or more persons have artificially split their business or business activities to access or enhance the R&D tax credit, and the combined qualifying R&D expenditure across the wider business exceeds the relevant threshold, such arrangement may be treated as a tax advantage arrangement under Article 50 of the CT Law. In such cases, the Authority may counteract the arrangement, claw back any utilised R&D tax credit, and forfeit any unutilised credit.

Where any arrangement, contract or procedure is entered into mainly or partly to obtain or increase an R&D tax credit in a manner inconsistent with the economic substance or the genuine nature of the qualifying R&D activity, the Authority may adjust or disregard it, claw back any utilised credit, and forfeit any unused credit.

If, within five years from the end of the Tax Period or Fiscal Year in which the R&D tax credit was last claimed, the Qualifying Entity ceases to be a Taxable Person, becomes a Qualifying Free Zone Person, elects Small Business Relief, enters liquidation, or redomiciles outside the UAE, any utilised credit may be clawed back and any unused credit forfeited.

Key take-away

In summary, the UAE has now moved from policy intent to implementation of a structured R&D tax credit regime. CD 215 of 2025 of 2025 lays down the legal and conceptual framework for the credit, while MD 24 of 2026 operationalises Phase 1 by prescribing the applicable rates, staffing thresholds, qualifying activity criteria, and rules for utilisation, carry-forward, transfer and claw-back. The regime offers a potentially meaningful incentive for businesses undertaking genuine UAE based R&D activities, however, the access to benefit is subject to strict eligibility, pre-approval, documentation and continuity conditions.

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