Tag: Insights

Research and Development (R&D) Tax Incentive: A UAE Ministry of Finance Initiative

Insights

March 25, 2026

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:

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.
It should carry on R&D activities
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:

An entity that is neither subject to CT nor Top-up Tax
An entity that has opted for Small Business Relief

Qualifying R&D expenditure

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

Staff costs
Consumable costs
Subcontracting fee
Arm’s length share of contributions under cost contribution arrangements,
Any other category of expenditure that may be specified by the Minister.
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:

Novel – aims to produce new findings
Creative – involves original concepts or hypotheses
Uncertain – the outcome or means of achieving it are not known in advance
Systematic – follows a plan and budget
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:

The Qualifying Entity meets the minimum number of employees engaged in Qualifying R&D Activities
The Qualifying Entity obtains the necessary pre-approvals from the Council and complies with ongoing compliance requirements
The Qualifying Entity bears the financial burden of carrying out the Qualifying R&D Activities
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
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:

No time limit has been prescribed for carry-forward
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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Summary of UAE Electronic Invoicing Guidelines

Insights

March 16, 2026

This document, issued by the UAE Ministry of Finance, provides comprehensive guidance on the implementation of the Electronic Invoicing System in the UAE. It aligns with national visions like “We the UAE 2031” to enhance digital infrastructure, tax compliance, and economic efficiency. The guidelines cover the framework, scope, exclusions, rollout, preparation steps, invoice categories, scenarios, tax codes, penalties, and appendices for readiness. Below is a structured summary, with tables used for key enumerations and comparisons as per the document’s content.

Scope and Purpose

The guide targets commercial businesses, government entities, and tax/technology advisors. It explains the rules under Ministerial Decisions (MD) No. 243, 244, and 64 of 2025, and Cabinet Decision (CD) No. 106 of 2025. The purpose is to help understand impacts on processes, emphasizing that Electronic Invoicing is mandatory for UAE businesses (regardless of VAT status) unless excluded.

Highlights:

Mandatory for any Person conducting Business in the UAE unless the MD No. 243 of 2025.
Phased rollout per MD No. 244 of 2025.
Participant Identifier: Tax Identification Number (TIN, first 10 digits of TRN).
Unregistered entities must obtain TIN via FTA.
Tax Group members use individual TINs.

Key Terms

The document defines over 40 terms related to Electronic Invoicing. Here’s a summarized table of essential ones:

Term	Description
5-Corner Model	Framework for issuing/distributing Electronic Invoices: Supplier, Supplier’s ASP, Buyer’s ASP, Buyer, FTA.
Accredited Service Provider (ASP)	Service Provider accredited by Ministry to handle Electronic Invoicing.
Electronic Invoice	Structured XML document issued/transmitted via the system for automatic processing.
Participant Identifier	Unique ID (0235 + 10-digit TIN) for Peppol network identification.
Peppol	Pan-European framework adopted for UAE interoperability.
Tax Invoice	Includes Electronic Invoice for Taxable Supplies.
TIN	10-digit identifier for all FTA-registered entities.
UUID	A Universally Unique Identifier that is a unique 128-bit number generated by an algorithm in the Electronic Invoicing System for distinguishing each Tax Invoice. This is generated in addition to the Electronic Invoice sequential number.

Benefits

The system supports tax compliance, reduces errors, speeds up processes, and aids policy-making. Benefits include:

Government: Real-time data for audits, shrinking tax gaps, sustainability.

Businesses: Faster payments, fewer disputes, cost savings on processing/archival, streamlined VAT refunds.

Framework

UAE uses a decentralized 5-corner model based on Peppol PINT-AE specifications. Electronic Invoices are XML-only (no QR codes). Key aspects:

Process Flow: Supplier submits data to ASP; ASP validates/converts to XML, sends to buyer’s ASP and reports Tax Data to FTA; buyer’s ASP validates and delivers.

Responsibilities: Table summarizing general duties:

Activity	Supplier	Buyer	ASP
Exchange/report Electronic Invoices	✓	✓ (self-billed only)	✗ (but facilitates)
Calculate invoice values	✓	✗	✗
Secure transmission	✗	✗	✓
Agree data security with ASP	✓	✓	✗
Gather buyer’s Peppol ID	✓	✗	✗
Lookup supplier’s Peppol ID	✗	✗	✓
Generate UUID	✗	✗	✓

Time Period for Storage of records:

As per Article 3(1) of the Tax Procedures Executive Regulation, records related to the issuance, transmission, and receipt of Electronic Invoices must be retained for the following periods:

Taxable Persons: Data must be retained for 5 years from the end of the relevant Tax Period to which the records relate.

Persons other than Taxable Persons: Data must be retained for 5 years from the end of the calendar year in which the relevant document was created.

Real Estate Records: These must be retained for 7 years from the end of the calendar year in which the document was created.

In addition to the above retention periods, Taxable Persons are required to maintain the relevant data for an additional 4 years in cases where there is a dispute with the Federal Tax Authority (FTA), an ongoing tax audit, or where the FTA has issued a notification of its intention to conduct a tax audit.

Furthermore, where a Voluntary Disclosure is submitted within the fifth year from the end of the relevant tax period, the related records must be retained for an additional period of 1 year from the date of submission of the voluntary disclosure.

Scope of E-Invoicing in Specific Scenarios:

Persons: All conducting Business in UAE, regardless of VAT status or establishment. Use one ASP for sending/receiving.

Transactions: B2B, B2G, G2B, G2G. Excludes B2C/G2C (consumer supplies).

Special Scenarios:

Investment Holding Companies

Investment holding companies are usually established as legal entities to hold assets that generate passive income. If the income of such a company is derived only from passive sources (Dividend/Interest etc) and it does not carry out any business transactions, it would generally fall outside the scope of Electronic Invoicing.

However, in certain situations an investment holding company may recharge operational expenses such as management costs or other charges to related parties or third parties. These types of recharges are considered business transactions. In such cases, the investment holding company would be required to register for Electronic Invoicing and issue Electronic Invoices for those transactions in accordance with the phased implementation plan.

Tax Groups

Ministerial Decision No. 243 of 2025 outlines the scope and key obligations under the Electronic Invoicing System. As per this decision, business transactions carried out between members of the same VAT group are still considered within the scope of Electronic Invoicing. These transactions are not excluded simply because they occur within the same VAT group.

Temporary Grace period for VAT Group

A 24-month grace period (from 1 January 2027) applies to intra-group transactions within the same VAT group. During this period, electronic invoicing requirements under MD No. 243 of 2025 will not apply to such transactions

The grace period affects the timing of and does not exclude intra-group transactions from the scope of the Electronic Invoicing System. All applicable Electronic Invoicing obligations will apply in full to such transactions upon expiry of the grace period, in accordance with the mandatory implementation phase.

Non-UAE persons:

Where a person who does not have a place of residence in the UAE is required to issue Tax Invoices in accordance with the VAT Decree-Law, such invoices must be issued in the form of Electronic Invoices.

Exclusions from E-Invoicing

Sovereign activities by Government Entities (not competing with private sector).
Airline supplies: Passenger (Electronic Ticket/Misc Document); Goods (Airway Bill, temporary 24-month exclusion).
Exempt financial services (including zero-rated exports to non-residents).
Others as determined by Minister.

Phased Implementation

Rollout starts July 2026:

Pilot: Voluntary, invited participants from July 2026.
Voluntary: All from July 2026 (no penalties until mandatory).
Mandatory: Based on revenue/Government status.

Entity Type	Annual Revenue	Last Date to Appoint ASP	Last Date to Implement
Person	≥ AED 50M	31 Jul 2026	1 Jan 2027
Person	< AED 50M	31 Mar 2027	1 Jul 2027
Government	N/A	31 Mar 2027	1 Oct 2027

Invoice Categories, Scenarios, and Tax Codes Categories:

Electronic Tax Invoice,
Electronic Tax Credit Note.
Self-billed Electronic Tax Invoice.
Self-billed Electronic Tax Credit Note.
Commercial Invoice.
Electronic Credit Note

Electronic Invoice Scenarios:

No	Scenario	Description	Examples	Additional Considerations	Applies to Commercial Invoices
1	Free Zone	Transactions involving a Free Zone entity (supplier, buyer, or beneficiary) or supplies made within or from a Free Zone.	Supply to or from a Free Zone entity Supply of goods within a Free Zone Export of goods from a Free Zone	Electronic Invoice must include beneficiary details when the customer is a Free Zone entity. Customer = entity issuing the purchase order/contracting party. If the end user differs from the buyer, beneficiary details must be included.	Yes
2	Deemed Supply	Supplies treated as taxable under VAT law even without consideration.	• Free-of-charge supplies • Gifts exceeding threshold • Private use of business assets • Goods/services owned at VAT deregistration date	• Buyer electronic address must be 0235:9900000097. • If no invoice is issued to recipient, only reporting to FTA via ASP is required.	No
3	Margin Scheme	VAT is charged only on the supplier’s margin (difference between purchase and resale price).	• Used car sold under profit margin scheme • Gallery reselling artwork purchased from private collectors	• VAT amount does not need to be displayed. • VAT value should be recorded as “0” in the Electronic Invoice.	No
4	Summary Invoice	Multiple transactions with the same customer during a specific period consolidated into a single invoice.	• Bank issuing monthly invoice summarizing multiple services	• Certain invoice-level fields can be zero or positive for Peppol validation. • If total payable is negative, issue an Electronic Credit Note instead.	Yes
5	Continuous Supply	Supplies provided on an ongoing or recurring basis with periodic invoicing.	• Monthly advisory retainer • Delivery of materials in installments • Milestone-based payments	• For retention amounts, issue a separate commercial document showing milestone calculations. • Retention should not appear on the Electronic Invoice. • When retention becomes payable, issue separate electronic Tax Invoice with VAT.	Yes
6	Agent Billing	A disclosed agent issues invoices on behalf of a principal.	• Insurance broker collecting premiums on behalf of an insurance company	• Responsibility to issue Electronic Invoice remains with the supplier (principal) even if issued by the agent.	Yes
7	Supply through E-Commerce	Supplies made through an Electronic Commerce Medium as defined under Ministerial Decision No. 26 of 2023.	• Retailer selling goods through its website • Goods sold via an e-commerce marketplace	• Supplier remains responsible for issuing the Electronic Invoice, even if the platform generates it.	Yes
8	Exports	Goods or services supplied to customers outside the UAE.	• UAE wholesaler exporting cosmetics to Kuwait • UAE IT firm providing services to a client in France	• Tax Invoice must be issued as an Electronic Invoice and may be provided to Customs. • If buyer has no Peppol ID, use endpoint 0235:9900000099.	No

Tax categories

Tax Category	Description
Standard Rate	Taxable Supply at 5% VAT.
Exempt from VAT	In-scope but exempt (e.g., financial services).
Out of Scope	Place of supply outside UAE or exclusions.
Reverse Charge	Domestic supplies of certain goods (e.g., electronics, metals).
Zero Rated	Subject to 0% VAT (e.g., exports).
Margin Scheme	VAT on margin (e.g., second-hand goods).

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UAE Corporate Tax Update: Introduction of Advance Tax Payments

Insights

January 28, 2026

The Federal Tax Authority (FTA) has introduced an option for taxpayers to make advance Corporate Tax (CT) payments. Advance tax payments are applicable from financial year 2026 and may be adjusted against the next CT return or applied towards future outstanding tax liabilities.

This initiative is a welcome development, as it enables taxpayers to avoid last-minute payment challenges, and reduce the risk of late payment penalties.

Taxpayers may now make advance payments by selecting one of the following three options on the FTA portal:

Payment towards the next tax return filing: Under this option, companies with financial year ending in 2026 shall be eligible to make the advance CT payments. The advance tax amount paid will be kept on account until the next CT return is filed. Once the return is processed, the payment will be adjusted against the tax payable, and any excess will automatically be used to settle any remaining outstanding balances.

Payment towards future outstanding liabilities: Under this option, the advance payment is kept on account and will be automatically adjusted against any future tax liabilities that may arise on your FTA account.

Instalment Plan – Down Payment: This option allows taxpayers to make an advance payment specifically towards a penalties instalment plan. To proceed, taxpayers must select the relevant instalment plan application and make the required payment as instructed by the FTA. This payment helps activate the penalties instalment plan.

This development supports more proactive Corporate Tax payment planning and cash flow optimisation.

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Navigating the New Era of UAE Tax Compliance: A Guide to Cabinet Decision No. 129 of 2025 & Cabinet Decision No. 106 of 2025

UAE Tax Compliance 2026: Cabinet Decision No. 129 of 2025 & Cabinet Decision No. 106 of 2025

Insights

January 13, 2026

Two important regulations issued in October 2025 have reshaped the UAE’s tax enforcement system, shifting it away from punitive penalties toward a fairer and more accurate digital approach.

1. Administrative Penalty Reform (Cabinet Decision No. 129 of 2025)

This decision is effective from 14th April 2026; it has replaced the long-standing Cabinet Decision No. 108 of 2021. It marks a shift toward transparency by replacing heavy, compounding fines with a system rewarding voluntary disclosure and proactive correction.

2. The E-Invoicing Enforcement Framework (Cabinet Decision No. 106 of 2025)

As the UAE introduces phase wise e-invoicing from FY 2026 onward, creating a fully digitized ecosystem. Cabinet Decision No. 106 establishes penalties for non-compliance with the e-invoicing system. This framework ensures a smooth and accurate transition from traditional paper or PDF invoices to structured XML/JSON formats. The new penalties highlight the critical importance of technical readiness and real-time data integrity.

Key Highlights of the Reform

Key amendments in the New Decision involve:

Decoupling from Compounding Rates: The complex “2% + 4%” late payment model is substituted by a more straight forward annual percentage.

24-Month Rule: The repeat violations are strictly defined to be the ones which have taken place within a window of 24 months from the previous breach.
Reduced Fixed Penalties: Substantial reduction in fixed penalties for administrative errors such as failure to submit records in Arabic or late update of registration.
The “Voluntary” Grace Period: If your business adopts e-invoicing voluntarily before your mandatory phase begins, you are exempt from these penalties.
Recipient Accountability: For the first time ever, buying organizations have a legal responsibility to know whether the systems they are using are healthy or not. If you are not getting e-invoices from an obligated supplier, you’ll need to report the failure to avoid daily fines.

Old Provisions vs. New Provisions: Comparison Table

The following table outlines the most key adjustments that companies should be paying attention to prior to the effective date of April 2026.

Violation Type	New Provision (CD 129/2025)	Old Provision (CD 108/2021)	Key Shift
Record Keeping	AED 10,000 for each Violation; AED 20,000 if repeated within 24 months	AED 10,000 (In the first instance); AED 20,000 (In the second instance)	Window of 24 months introduced from the previous offense
Arabic Submission	AED 5,000	AED 20,000 for failure to submit records in Arabic	Major relief for administrative lapses.
Late Payment of Tax	Monthly penalty of 14% per annum on unpaid tax; calculated monthly from due date	2% immediate + 4% monthly (Capped at 300%)	Removal of maximum 300% penalty on payable tax.
Incorrect Tax Return	AED 500, unless corrected within filing deadline or through Voluntary Disclosure (VD) without tax difference	AED 1,000 (1st time); AED 2,000 (repeat)	Simplified Fixed Fines:
Voluntary Disclosure (VD)	1% per month (or part thereof) on the tax difference from the original due date until the VD is submitted.	Tiered: 5% to 40% based on age of error	Incentivizes immediate self-correction.
Audit Discovery (No VD)	15% fixed penalty + 1% monthly or part of the month	50% fixed penalty + 4% monthly or part of the month	Dramatic reduction in “punitive” audit costs.
Taxable Person Amendment	AED 1,000 (1st time) AED 5,000 (if repeated within 24 months from the date of the last violation.)	AED 5,000(1st time) AED 10,000(if repeated)	Alignment with administrative reality.
Legal Representative Notification	AED 1,000	AED 10,000	Alignment with administrative reality.

Practical Examples of the Penalties

Violation Type	Scenario	New Penalty	Old Penalty	Key Benefit/Impact
Late Payment Penalty	VAT of AED 100,000 unpaid for 6 months	14% p.a. × 6/12 = AED 7,000	2% for one month (AED 2,000) + 4% monthly for 5 months (AED 20,000) = AED 22,000	AED 15,000 saving due to shift from compounding monthly penalties to a flat annual rate
Voluntary Disclosure (VD) filling	Error of AED 50,000 discovered after 10 months	1% per month (AED 5,000)	5% as VD filled within 1 year= AED 2,500	Variable Penalty has been increased

E-Invoicing Penalty Framework

Unlike general VAT penalties, e-invoicing fines are structured to address technical implementation, real-time transmission, and system integrity. Following are a breakdown of the violations and their respective penalties:

Violation Type	Penalty Amount	Cap / Frequency
Failure to Implement EIS (or appoint an Accredited Service Provider)	AED 5,000	Per month (or part thereof)
Failure to Issue/Transmit E-Invoice	AED 100	Per Electronic invoice (Max AED 5,000/ month)
Failure to Issue/Transmit E-Credit Note	AED 100	Per Electronic credit note (Max AED 5,000/month)
Failure to Notify FTA of System Failure	AED 1,000	Per day of delay or part thereof (Applies to Issuer & Recipient)
Failure to Notify ASP of Data Changes	AED 1,000	Per day of delay or part thereof (Applies to Issuer & Recipient)

Practical Examples of the Penalties

Example	Scenario	Penalty	Key Benefit/Impact
Implementation Delay (Large Taxpayer)	ERP–ASP integration delayed by 2.5 months beyond 1 Jan 2027	AED 5,000 per month × Jan, Feb & part of March = AED 15,000	Penalty linked to duration of delay, not transaction value
High-Volume Transaction Errors	Failure to transmit 80 structured e-invoices in a month	80 × AED 100 = AED 8,000 → Capped at AED 5,000 per month Final penalty will be AED 5,000	Monthly cap protects high-volume businesses
System Failure not reported to FTA	API down for 5 business days; failure not reported to FTA	AED 1,000 per day × 5 days = AED 5,000	Penalty applies to both seller & buyer if aware and not reported

To understand this in depth financially, it’s important to see how these rules apply in practical applications:

In Conclusion: The Cabinet Decision No. 129 and 106 of 2025

The Cabinet Decision No. 129 of 2025 can be considered in the UAE’s tax journey-from a system that would focuses on fair compliance. Penalties have relaxed, but the FTA attention to accuracy remains sharp as ever.

Thus, businesses have until its effective date 14th April 2026, to review their past filings and current accounting systems. Professional oversight is required in transitioning into this new framework to ensure that your business will remain compliant and make sure to benefit from the reduced penalty rates.

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Advance Pricing Agreement in UAE

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January 6, 2026

The Advance Pricing Agreement (‘APA’) programme offers a voluntary mechanism for a Person to enter into an agreement for determining the Arm’s Length Price of Controlled Transactions over a period of time and preventing the risk of TP disputes and litigation.

APA is an agreement by the Authority with a Person, which sets the criteria to determine the Arm’s Length Price in relation to Controlled Transactions entered or to be entered by that Person with its Related Party/Parties, over a fixed period of time.

Key Benefits of an Advance Pricing Agreement

Predictability
Facilitated collaboration
Reduced Disputes
Prevention of double taxation
Prevention from risk of TP disputes
Streamlined compliance

Key Aspects of an Advance Pricing Agreement

Applicability
Eligibility & Materiality Threshold
APA Period
APA Fees
APA Application Timeline

Types of APAs:

An APA can be of the following types:

UAPA: A UAPA is an agreement between a Person and the FTA for domestic and cross border Controlled Transactions. The UAPA shall be binding only on the FTA, and the Person that is a party to the UAPA, to provide tax certainty exclusively from a UAE Corporate Tax Law perspective. The UAPA is not binding on any foreign taxpayer or foreign tax administration that may be the counterparty to the Controlled Transactions covered by the UAPA.

Bilateral APA (‘BAPA’): A BAPA is an agreement between competent authorities of two jurisdictions reached through a MAP. A BAPA provides tax certainty in relation to Controlled Transactions in the UAE and the relevant foreign jurisdiction.

Multilateral APA (‘MAPA’): A MAPA is a set of agreements between competent authorities of more than two jurisdictions reached through a MAP.

Stages of APA

Stage 1 – Pre-filing consultation

A Person proposing to enter into an APA must make a request to the FTA for a pre filing consultation. The purpose pre-filing consultation is to enable the FTA and the Person to understand the possibility of entering into an APA. Only a Tax Agent registered for Corporate Tax purposes with the FTA can submit the APA Request on behalf of the Person in the prescribed form. Communication with the FTA on the APA programme can be submitted from 30 December 2025. FTA aims to conclude pre-filing consultations within 6–9 months of receiving the request.

A pre-filing consultation does not bind the FTA to enter into an APA and does not constitute an APA application. The FTA may reject a Person’s request, for any of the following reasons:

Indication of a tax avoidance strategy
Limited scope of APA
ALP can be determined beyond significant doubt
Forecast of significant restructurings
Unsatisfactory rationale to include Transactions
Unpredictable business

Stage 2 – Filing of an APA application

A Person may submit an APA application upon receiving notification to proceed. The application must be filed within 2 months of the FTA notification or at least 12 months prior to the commencement of the first Tax Period to be covered under the APA, whichever is earlier.

Indicative UAPA timelines (assuming January – December as the tax period)

APA pre-filing	APA pre-filing approval by FTA (assumed as six months)	APA application	APA covered tax periods
1-Jan-2026	30-Jun-2026	31-Aug-2026	2028-2032
1-Apr-2026	30-Sep-2026	30-Nov-2026	2028-2032
1-Jul-2026	31-Dec-2026	28-feb-2027	2029-2033

The FTA may reject an APA application under certain circumstances, including but not limited to:

Materiality threshold not met
APA doesn’t cover pre-filing consultation issues
Significant discrepancies between contracts and actual business
Changed Circumstances or Delayed Responses for requested information
Analysis is inadequate or unreliable
Application contains wrong or misleading information.

Stage 3 – Evaluation and negotiation

Once site visits, interviews, meetings, and the collection of all required information and documents are complete, the FTA will commence its evaluation and analysis. FTA shall prepare a Transfer Pricing analysis that addresses manner and key criteria of determining ALP, any other terms and conditions, including critical assumptions

The Person must provide written feedback on the FTA’s TP analysis within 30 Business Days. The FTA may allow a discussion of the TP analysis upon the Person’s request. If no mutual agreement is reached after negotiations, the APA may be closed without conclusion, with no refund of fees.

Stage 4 – Conclusion and Implementation of APA

The FTA shall discuss the implementation of the agreement with the Person. The FTA and the Person shall sign the APA agreement based on terms mutually agreed. A Person may withdraw an APA application anytime before conclusion. Withdrawal without valid justification, especially at an advanced stage, is discouraged. No refund of fees will be provided.

An APA is binding on signatories to the APA with respect to the Controlled Transactions for the Tax Periods covered under an APA. APA does not establish a precedent for any other Tax Periods of the Person, nor for any other Person that is not covered under the APA.

Advance Pricing Agreement Annual Declaration

A Person with an APA agreement must file an APA Annual Declaration for each covered Tax Period, in the format prescribed by the FTA. The APA Annual Declaration must be filed by the later of the following:

Within 90 Business Days of signing the APA, or
The due date for filing the Tax Return.

Revision, Cancellation, Revocation of APA

FTA May Revise an APA under following circumstances:

Change in UAE Corporate Tax affecting Controlled Transactions.
Change in business, economic, or other conditions requiring reassessment of critical assumptions.
Exceptional circumstances notified by the Person.

If revision is not feasible or no mutual agreement is reached, APA may be cancelled prospectively from the Tax Period in which the event occurred, remaining valid for prior periods.

FTA May Revoke or Cancel an APA under following circumstances:

Material misrepresentation in APA application or Annual Declaration.
Failure to comply with material terms and conditions.
Breach of critical assumptions.

APA may be revoked from the first Tax Period covered; previously governed Controlled Transactions become subject to Corporate Tax Law and Tax Procedures Law. Depending on severity, FTA may cancel APA prospectively, starting from the Tax Period of breach and applying to subsequent periods.

Renewal of APA

Application of renewal of APA may be made by the Person if there are no material changes to facts of the Controlled Transactions and the critical assumptions remain valid.

Renewal application shall be made at least three months before the expiry of the existing APA. Renewal request shall follow same procedures as filing of APA application, with the exception that a pre-filing consultation is not required.

In Conclusion: Advance Pricing Agreement

The APA programme provides an effective framework for achieving transfer pricing certainty and minimizing disputes by allowing taxpayers to agree in advance on arm’s length pricing for Controlled Transactions. With clearly defined eligibility criteria, timelines, and compliance requirements, APAs promote predictability, transparency, and alignment with OECD best practices. For eligible taxpayers, the programme serves as a valuable tool to manage transfer pricing risks and ensure sustained compliance under the UAE Corporate Tax regime.

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Bahrain Government Introduces Fiscal Reforms

Insights

January 2, 2026

Bahrain Government Introduces Fiscal Reforms

The Government of Bahrain has announced a series of initiatives aimed at improving the country’s financial situation while ensuring continued support for citizens. The measures, approved by the Cabinet, focus on optimizing government spending, increasing revenue, and promoting sustainable economic growth. The initiatives include:

Corporate Revenue Law

A new law will impose a 10% tax on profits exceeding BHD 200,000 or on companies with revenues over BHD 1 million.
This law aims to diversify income sources and is expected to be applied in 2027 after legislative approval.
To protect local employment, key sectors affecting national jobs will be exempt, and incentives will encourage hiring Bahraini workers.

Reducing Administrative Expenses

All government entities will cut administrative costs by 20% while maintaining the service quality of services provided to citizens.

Increasing Contributions from State-Owned Companies

Government-owned companies will contribute more to the state budget.

Selective Tax on Soft Drinks

A law will be referred to the legislature to increase selective taxes on soft drinks, promoting healthier consumption, improving public health, and optimizing healthcare resources.

Investment Land Fees

Monthly fees of BHD 0.100 per square meter will apply to undeveloped investment lands with full infrastructure services starting January 2027.
The categories include mixed-use buildings, tourism and entertainment areas (hotels, resorts, restaurants, cafés), commercial zones (malls, showrooms, commercial blocks), and service areas (education, healthcare, sports, fuel stations, parking).
Fees will be collected when applying for a building permit or when selling the property.

Sewerage Service Fees

To maintain infrastructure sustainability, new sewerage fees will be introduced in January 2026.
The first residential property will be excluded, and fees will be 20% of water consumption costs.

Work Permit Fees for Foreigners

To prioritize Bahraini employment, work permit fees will gradually increase starting January 2026.
The fee for issuing work permits will rise from BHD 105 to BHD 125, monthly fees will increase from BHD 10 to BHD 30.
Healthcare fees for foreign workers will go from BHD 72 to BHD 144 over a four-year period.
Domestic workers will remain exempt.

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UAE VAT Update: Introduction of Reverse Charge Mechanism on Metal Scrap Trading

UAE VAT Update: RCM on scrap metal trading

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December 29, 2025

UAE VAT Update: Introduction of Reverse charge mechanism on Metal Scrap Trading among registrants in the state for the purpose of VAT (Effective From 14th January 2026)

The Federal Tax Authority (FTA) has introduced an important update on the VAT treatment of metal scrap supplies through Cabinet Decision No. 153 of 2025, issued on November 14, 2025, and effective from January 14, 2026. The decision mandates the application of the Reverse Charge Mechanism (RCM) on metal scrap transactions between VAT-registered persons.

Under the decision, the reverse-charge mechanism will apply to eligible supplies between registrants within the metal-scrap sector.

Prior to this decision, supplies of metal scrap were treated as normal taxable supplies for UAE VAT purposes and were subject to either the standard rate or zero rate, depending on the nature of the supply, such as whether it was a local supply or an export.

Key Difference: Old rule vs new rule

Particulars Type	Old rule (Before 14 Jan 2026)	New rule (After 14 Jan 2026)
VAT charged on Invoice	Standard Rated (5%)/ Zero rated (0%)	No VAT Charged
Invoice Type	Tax Invoice	Tax Invoice (RCM Reference)
Responsibility of VAT Reporting	Supplier	Buyer (Under RCM)
Declaration	Not Required	Mandatory
Compliance Risk	Normal	Higher (Due to documentation Requirement)

Compliance Responsibilities

Buyer (Prior to supply)

The buyer shall provide a written declaration confirming that the scrap is intended for resale or processing.
The buyer shall provide a written declaration confirming that the buyer is registered for Value Added Tax (VAT).

Supplier (Prior to supply)

Must obtain and retain both declarations received from the buyer.
Verify the recipient VAT registration through FTA-approved means
Issue an invoice explicitly stating the reverse charge mechanism

Failure to meet these requirements will result in the application of normal VAT rules.

*Declaration Format not issued by FTA specifically for the Metal Scrap sector till now.

Practical Implications for Businesses

Cash Flow: Buyers will no longer need to pay VAT on purchases, and suppliers will not be required to charge output VAT on supplies.

Compliance Responsibility: Both suppliers and buyers are required to maintain and obtain proper documentation

Changes in Business Process: Business must update the invoicing system, internal controls and contracts before January 2026.

Recommended Action Plan

Identify transactions related to metal scrap trading
Update invoice templates
Strengthen or alter contract clauses related to VAT responsibilities
Declaration format for Buyer
Configure the accounting system for RCM

Conclusion

The Introduction of the reverse charge mechanism on metal scrap trading mark a significant shift in the UAE VAT framework. These changes transfer the VAT accounting responsibility from the supplier to VAT-registered buyers, while placing greater emphasis on documentation and verification procedures.

Businesses involved in metal scrap transactions must take proper steps to assess the impact of this change, update their system and contacts and ensure that all required declarations and controls are in place.

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UAE VAT Reforms 2025: Federal Decree – Laws 16 & 17 – Key Changes in VAT Compliance Requirements

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December 19, 2025

The Ministry of Finance issued two key legislative updates in October 2025:

Federal Decree-Law No. 16 of 2025 – Amending selects provisions of Federal Decree-Law No. 8 of 2017 (VAT Law)
Federal Decree-Law No. 17 of 2025 – Amending provisions of Federal Decree-Law No. 28 of 2022 (Tax Procedures Law)

Effective date of the amendments: January 01, 2026

Key VAT Law Amendments (Federal Decree-Law 16 of 2025)

Article 48(1) – Reverse Charge

Overview of the Amendment:

Taxable Person imports Goods or Services for the purposes of his Business, then he shall be treated as making a Taxable Supply to himself. It is therefore responsible for calculating and paying the VAT liable on this supply. The Key change is that the company does not have to send itself a tax invoice for these imported goods or services.

It is important to note that despite the amendment, self-invoicing may still be required in certain cases to facilitate recovery (where supplier invoice/documents may not be available).

Implications:

Lightens the administrative workload and enables efficient accounting practice.
Applies stronger importance on the compliance of supporting paperwork, such as contracts, supplier invoices, and proof of supply.

Article 54 – Recoverable Input Tax (New anti-tax-evasion provisions introduced)

Overview of the Amendment:

Input tax deductions will be disallowed if the supply is part of a chain linked to tax evasion and the Taxable Person was aware of this relation upon deducting the Recoverable Input Tax.
Input tax deductions may also be denied if the taxpayer ‘should have known’ based on the circumstances of the supplies related to Tax Evasion.
For the purposes of applying the provisions of Clause 2 of this Article, a Taxable Person shall be deemed to be aware of the tax evasion in the supply chain if they fail to verify the validity and integrity of supplies before claiming input tax in accordance with the conditions, procedures and measures determined by the FTA.

Implications:

Strong internal control & approval is required for tax invoices to claim the input VAT.
Appropriate & sufficient documentation is required for Input VAT claims and to reduce fines.

Article 74(3) – Excess Recoverable Tax.

Overview of the Amendment:

Excess input tax may be carried forward for a period of five years from the end of the tax period in which it arose.
After the expiry of five years from the end of the relevant tax period, such input tax credit can no longer be utilized, offset against output tax, or claimed as a refund.

Implications:

Finance teams should ensure that these excess credits have been claimed by reconciling past VAT balances by filing VAT refund application.

Transitional Provision allowing one year window until December 31, 2026

Overview of the Amendment:

Taxpayers whose five-year claim period has expired or will expire within one year of the Decree-Law’s effective date can still request a refund or apply credit balances toward tax due or penalties.

With the introduction of the amendments (including transitional relief), businesses have a limited window until 31 December 2026 to claim refunds for tax periods 2018–2020. After this date, the right to recover these amounts will permanently expire.

Business Implications:

Businesses should promptly review VAT records for FY 2018–2020, as any unclaimed input tax must be recovered by 31 December 2026. Amounts not claimed by this deadline will be permanently lost, adversely impacting cash flow.

Illustrations 1

Scenario

ABC Trading LLC filed its VAT return for the quarter Jan to March 2018.
Due to capital expenditure, the company reported excess input VAT of AED 120,000.
No refund application was submitted, and the balance was carried forward in subsequent VAT returns till Dec 2025.

Application of the Amendment

The five-year period starts from the end of the tax period (31 March 2018).
The excess input VAT should be utilized, offset, or claimed as a refund on or before 31 March 2023. As five years to claim the input tax credit period is already expired, the FTA granted the transitional relief and permitted the submission of the VAT refund application on or before 31 December 2026.
If ABC Trading LLC does not submit the VAT refund application by 31 December 2026, the excess input VAT of AED 120,000 will lapse and cannot be utilized, offset, or refunded in any future VAT return.

Illustrations 2

Scenario

XYZ VAT Group consists of Parent Co and Subsidiary A.
In the VAT return for Q2 2022 (Apr–Jun 2022), the VAT Group reported excess input VAT of AED 300,000, mainly arising from Subsidiary A.
The excess credit was carried forward in the VAT Group’s subsequent returns and not claimed till December 2025.

Application of the Amendment

The five-year limitation period begins from 30 June 2022.
The VAT Group should utilize, offset, or submit a refund application by 30 June 2027.
If the VAT Group does not submit the VAT refund application by 30th June 2027, the excess input VAT of AED 300,000 will expire and cannot be refunded, even if the relevant group member is later de-registered or removed from the VAT Group.

Article 79 (bis)

This law has been officially repealed and is no longer applicable.

VAT-Relevant Tax Procedures Law Amendments (Federal Decree-Law No. 17 of 2025)

Article 9 (3) -Determination of Payable tax

Overview of the Amendment:

Taxable Person pays an amount in excess of the Payable Tax, or has a credit balance with the Authority, the Authority may apply such excess or credit balance to settle any outstanding tax or liabilities due to it, within a period not exceeding five (5) years from the end of the relevant Tax Period.

Business Implications:

It helps in reconciling accurately and timely.
This supports effective cash flow management

Article 10(5) -Voluntary Disclosure

Overview of the Amendment:

If a Taxpayer discovers an error or omission in a Tax Return submitted to the authority that does not result in any difference in the amount of Due Tax, such errors are required to be corrected through a Voluntary Disclosure only in the cases specified by the Authority. In all other cases, the Taxpayer may rectify the error in the subsequent VAT return.

Business Implications:

Minimising administrative burden and compliance risk.

Article 38(1-2)- Application for refund of credit balance

Overview of the Amendment:

Refund claims (which are in excess of due tax and penalties) must be submitted within five years of the relevant tax period.

Article 38(3-6)- Application for refund of credit balance- New Clauses added

Introduces special timelines as an exception to the five-year rule:

Clause 3: If a credit balance arises from an FTA decision after the five-year period or in the last 90 days of that period, the taxpayer has one (1) year from the date the balance arose to submit a refund request.
Clause 4: Without prejudice to the provisions of Clause 3 of this article where the credit arises after the five-year period or in the last 90 days, the taxpayer has 90 days from the date the balance arose to submit a refund request.
Clause 5: The FTA must review refund requests and notify the taxpayer of its decision for approval or rejection.
Clause 6: If the refund request is not submitted within the specified timelines, the taxpayer’s right to claim the refund expires permanently.

Article 46- Statute of limitations

Overview of the Amendment:

Except in certain specific situations, the UAE VAT Law prohibits the tax authorities from auditing a business or issuing a tax assessment for a VAT period after five years have elapsed. If the taxable person submit VAT refund application in the 5th year or on any late VAT credit periods, the FTA can still conduct audit which must be completed within 2 years from when the claim was submitted. Further, voluntary disclosures are generally not allowed to be submitted beyond five years, except in cases where they relate to an unresolved refund application.

Article 54(bis)

Overview of the Amendment:

The FTA may issue official, legally binding directions to clarify VAT interpretation and ensure uniform application across taxpayers.

Practical Measures

The Taxpayer should Review all VAT credit balances and submit any pending VAT refund applications before the statute of limitations takes effect.
Ensure that all transactions are recorded with consistent and acceptable VAT treatment to minimize compliance risks and audit exposure.

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VAT Implication of Shipping and Logistics Sector

Insights

October 30, 2025

The shipping and logistics sector is the backbone of global trade. In the United Arab Emirates (UAE), this sector holds strategic importance because of the country’s geographical location and its ambition to be a world-class logistics hub connecting Asia, Europe, and Africa. The UAE’s state-of-the-art ports, airports, and free zones have made it a preferred destination for global supply chains and multinational businesses.

With the introduction of Value Added Tax (VAT) in January 2018, companies operating in shipping, freight forwarding, and logistics have had to understand and comply with a new set of tax rules. While the VAT framework is designed to be business-friendly, the sector’s complex mix of local and cross-border services makes it critical for companies to know when to charge VAT, when zero-rating applies, and when a transaction is outside the scope of UAE VAT altogether.

This article explores the key VAT implications for the shipping and logistics industry in the UAE, providing an in-depth understanding of how different services are treated under the law and highlighting practical scenarios that businesses frequently face.

Understanding Shipping and Logistics

A shipping and logistics company is responsible for moving goods efficiently and securely from one location to another, whether within the UAE or across international borders. The services provided in this sector are diverse and often involve multiple stages of a supply chain. Typical activities include:

Transportation by land, sea, and air
Customs clearance and documentation
Warehousing and inventory management
Multimodal coordination (sea-air, land-air, etc.)
Order fulfilment and last-mile delivery
Freight forwarding and supply chain consultancy
Planning and managing the flow of goods from suppliers to customers
Preparing necessary paperwork (bills of lading, customs declarations, etc.)
Some logistics companies offer broader services like supply chain consulting, procurement, and returns management.

Because of this wide scope of operations, VAT treatment varies depending on the nature of the service and whether it relates to domestic transportation, international movements, or import/export activities.

Modes of transportation

Modes of transportation include Sea, Air, Road, transportation and multimodal transportation.

Sea Transport

Air Transport

Road Transport

Multimodal Transport (combining different modes)

Shipping Companies

Shipping companies are businesses that specialize in transporting cargo for a fee, primarily via sea using container ships, but also through other modes like air, rail, and road. They play a vital role in global trade by moving goods, such as raw materials and finished products, between different ports and destinations worldwide, ensuring that products reach consumers and industries efficiently and safely.

VAT Treatments

International transportation

Transactions Type	VAT Applicability	Examples
International Transportation of goods and passengers	0%	Freight from Jebel Ali to Europe; passenger flight from Dubai to London.
International Transportation of goods and passengers includes more than one stops	0%	Shipment Dubai → Riyadh → Cairo → Europe (entire trip qualifies as international).
Air passenger transport in the state considered as “International Transport Service”	0%	Abu Dhabi → Dubai leg of a flight continuing to New York.
Inbound and outbound transportation of passengers and goods (including intra-GCC)	0%	Inbound and outbound transportation of passengers and goods (including intra-GCC)
Transport related services for inbound and outbound transportation	0%	passengers flying out to Saudi Arabia.
Transportation starting and ending outside UAE	Out of Scope	Shipping goods directly from India to Oman without transiting through the UAE
Transport related services for cross border trade	Out of Scope	Goods are shipped directly from India to Oman without passing through the UAE, while the freight is billed by a UAE company.

Local Transportation

Transactions Type	VAT Applicability	Examples
Local Transportation of goods and services	5%	Trucking goods from Dubai to Abu Dhabi (not linked to import/export).
Transport related services for local transportation of goods	5%	Loading, warehousing, and packaging for a domestic delivery.
Local transport which is part/for the purpose of inbound and outbound transportation	0%	Trucking goods from Sharjah to Jebel Ali for onward shipment to Europe
Local transportation of passengers in non-qualifying means of transport	5%	Tourist desert safari, limousine service.
Local transportation of passengers in qualifying means of transport	Exempt	Mono Rail, Dubai Metro, Taxi and Bus
Supply of means of transport for the transportation of passenger and goods	0%	Sale of a cargo vessel or aircraft for commercial use

Freight Forwarding Companies

A freight forwarding company acts as an intermediary to manage the complex process of shipping goods internationally by arranging transportation, handling documentation, and coordinating logistics on behalf of a business. They do not own the transport vehicles, but instead use their network of carriers and partners to find the most efficient and cost-effective way to move cargo via sea, air, rail, or road, ensuring it arrives safely and on time.

Usually undertaking the following:

Arrangement of transportation (Door to door, door to port, port to door and port to port transportation.
Handling documentation
Insurance
Warehousing
Arrange transportation by air, sea, road, rail
Multimodal transport co-ordination

VAT Treatments

Transactions Type	VAT Applicability	Examples
Local transport which is part/for the purpose of inbound and outbound transportation	0%	Trucking goods from Sharjah to Jebel Ali for onward shipment to USA
Freight Brocker service fee	5%	Service fee charged for arranging freight forward service for an international shipment from Jebel Ali to Europe
Warehousing service for local sales	5%	Warehousing fee charged for storing goods in the port
Local transportation of goods and transport related services for local transportation of goods	5%	Goods transport from Dubai to Sharjah, and Loading, warehousing, and packaging for a domestic delivery.
Transport related services for cross border transportation	Out of Scope	Shipping goods directly from India to Oman with no UAE leg, freight charges issued UAE Company

Means of Transport

Goods can be moved by air, sea, rail, or road, and the choice of transport depends on factors such as cargo size and how urgently delivery is required. Because international transport supports the UAE’s trade and tourism growth, the VAT law provides zero-rate (0%) VAT on following types of transport and related services.

Under UAE VAT rules, the following supplies are subject to 0% VAT when used for commercial purposes:

Aircraft – Planes designed or adapted to carry passengers or goods for commercial transport (not for recreation or sports).
Ships or boats – Vessels intended for commercial activities such as cargo or passenger transport (not for leisure or private use).
Buses or trains – Vehicles built or modified to carry 10 or more passengers as part of public transportation.

Goods and services directly connected to these means of transport—such as operation, repair, maintenance, or conversion—are also zero-rated, provided the conditions of the VAT law are met.

Warehousing

Warehousing services refer to the storage of goods in a designated facility before they are distributed to their final destination, whether to retailers, other businesses, or end consumers. They are a critical component of the global supply chain and logistics sector.

VAT Treatments

Transactions Type	VAT Applicability	Examples
Warehousing service provided to customer in UAE	5%	A UAE customer stored or used warehouse facility at a warehouse in the port before clearing the goods.
Packing, re-packing, labelling etc..	5%	Re-packing service provided at warehouse for a UAE company.

Transaction Scenarios and Their VAT Implications

Scenario 1: International Shipment (Zero-Rated)

A freight forwarder arranging shipment of goods from Sharjah to Germany charges 0% VAT, as the service qualifies as international transport.

0% VAT applies to all stages, including local trucking.

Scenario 2: Domestic Shipment (Standard-Rated 5%)

A trucking company delivering goods from Jebel Ali Free Zone to a retailer in Abu Dhabi applies 5% VAT.

5% VAT applies, as transport is purely within the UAE

Scenario 3: Domestic Passenger Transport (Exempted)

A metro ride in Dubai is exempt from VAT, but a desert safari tour bus is subject to 5% VAT

Exempt from VAT

Scenario 4: Cross border transport of goods (Out of scope)

A freight forwarder arranging shipment of goods from India to Germany, this will be out of scope of UAE VAT as the transport is not starting or ending in the UAE.

Out of scope of UAE VAT

Conclusion

VAT treatment in the UAE shipping and logistics sector depends on whether the service is domestic, international, exempt, or outside the scope of UAE VAT. To remain compliant and competitive, businesses must apply the correct VAT rate and maintain precise documentation to avoid penalties.

Key compliance priorities for shipping and logistics companies include:

Accurate classification of services (domestic vs. international).
Proper documentation, such as bills of lading, Custom declarations, Exit Certificate and transport contracts, to justify zero-rating.
Timely and accurate VAT reporting to secure input VAT recovery and avoid fines.

When applied correctly, VAT does not add to the cost of international trade; instead, it promotes transparency, efficiency, and operational integrity. By understanding VAT implications and maintaining robust internal controls, shipping and logistics businesses can remain compliant, cost-effective, and well-positioned to thrive in the UAE’s strategic logistics market.

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UAE Electronic Invoicing System: MD 243 & MD 244 OF 2025

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October 4, 2025

On 29th September 2025, the UAE Ministry of Finance took a big step forward in reshaping how businesses handle tax compliance. Two new decisions were issued:

Ministerial Decision No. 243 of 2025, which sets out the rules, scope, definitions, and obligations of the new system.
Ministerial Decision No. 244 of 2025, which provides the phased rollout plan, timelines, and compliance requirements.

Together, these decisions introduce the Electronic Invoicing System (EIS) – a central, government-run platform designed to move businesses away from manual or paper-based VAT invoicing, and toward structured, digital records that are fast, transparent, and secure.

For businesses, this is not just another compliance requirement. It’s part of a wider transformation toward digitization, transparency, and efficiency in the UAE economy.

What Does E-Invoicing Actually Mean?

Before diving into obligations and deadlines, it’s worth understanding what exactly “electronic invoicing” means in the UAE context. The Ministerial Decisions define several key terms to remove ambiguity and ensure everyone speaks the same language.

1. Electronic Invoice (E-Invoice):

A VAT invoice that is issued, received, transmitted, and stored in a structured digital format. Importantly, this is not just a scanned PDF emailed to a customer. The format is machine-readable, which means it can be validated and processed automatically.

2. Electronic Credit Note:

A digital document that amends or cancels an invoice. This could apply to a return, refund, discount, or correction.

3. Electronic Invoicing System (EIS):

The central platform managed by the Federal Tax Authority (FTA). All e-invoices and e-credit notes must pass through this system for validation, reporting, and storage.

4. Accredited Service Provider:

Businesses will not connect directly to the EIS. Instead, they must use a government-accredited third-party provider who ensures that their ERP or accounting system integrates smoothly with the platform.

5. Excluded Persons and Transactions:

Certain transactions and taxpayers are excluded from e-invoicing, to reduce complexity or avoid duplication. For instance, sovereign government activities, some air transport services, and specific financial services are out of scope.

6. Pilot Programme and Taxpayer Working Group:

A trial phase where selected businesses will test the system and provide feedback.

7. Business-to-Consumer (B2C) Transactions:

For now, e-invoicing is only mandatory for business-to-business (B2B) transactions. Retail and consumer-facing sales are excluded, though they may be included in the future.

8. Revenue:

The gross income earned by a Person during the most recent Accounting Period, based on the financial statements prepared in accordance with applicable legislation in the State or, if such financial statements are not available, based on other documentation acceptable to the Authority.

This initiative extends beyond regulatory compliance, marking a strategic step in the UAE’s ongoing efforts to enhance digitization, transparency, and economic efficiency.

Why Is the UAE Introducing E-Invoicing?

At first glance, it may seem like this is just another administrative burden. But the reality is quite different. The EIS is being introduced to achieve several strategic objectives:

1. Digitization of VAT Invoicing

Paper-based invoices are slow, prone to errors, and difficult to audit. By digitizing, transactions become faster, more accurate, and easier to track.

2. Improved Compliance

Because the EIS enforces a standard format and real-time reporting, businesses will find it harder to make mistakes or omit information. The FTA will also have more visibility over VAT flows, reducing compliance risks.

3. Transparency and Cooperation

The data collected can be shared with other UAE government departments and even foreign tax authorities under international agreements, boosting trust and credibility.

4. Fraud Prevention

E-invoicing minimizes common issues like false invoicing, duplicate claims, or fraudulent VAT refunds.

5. Alignment with Global Standards

Many countries have already adopted similar systems. By implementing e-invoicing, the UAE is positioning itself within a global ecosystem of modern tax administration, making it easier for multinationals to operate here.

Scope of E-Invoicing:

The decisions make it clear that e-invoicing will apply broadly:

All VAT-registered businesses in the UAE will eventually be required to issue e-invoices for their taxable supplies.
Government entities must comply when acting in a business capacity (e.g., when charging fees or selling goods/services).
Voluntary adoption is possible even before it becomes mandatory, as long as a business meets the technical requirements.

Exemptions

Not every transaction is covered. Key exclusions include:

Sovereign government activities.
International passenger flights where e-tickets already serve as proof.
Airline ancillary services covered by e-documents.
International cargo transport by air (temporary exemption of 24 months).
Financial services that are VAT-exempt or zero-rated.
Any other exclusions announced later by the Minister.
B2C transactions, which are excluded until further notice.

What Are the Business Obligations?

Once a business is within scope, the obligations under the EIS are detailed and strict:

1. Issuing and Reporting

All taxable supplies must be supported by an e-invoice issued within 14 days of the supply date.
Credit notes must also be electronic and issued for cancellations, discounts, refunds, or corrections.
Both issuers and recipients must process and acknowledge invoices via the EIS.
All invoices must be reported to the FTA within the prescribed timelines.

2. Accredited Service Providers

Every business must connect through an accredited provider.
If there are changes to a company’s registration details, these must be shared with the provider within five business days.

As per Article 15 of Ministerial Decision No. 64 of 2025 five ARP are approved:

Cygnet Digital IT Solutions L.L.C
Comarch Middle East FZ LLC
Defmacro Software FZCO
Oxinus Holding Limited
Pagero Gulf FZ LLC

Few more ARP will be added in the above list

3. Data Requirements

E-invoices must include all the fields specified under VAT law. This ensures consistency across businesses.

4. Special Cases

Agents can issue invoices on behalf of principals.
Self-billing is permitted where both supplier and customer are VAT-registered and conditions are met.

5. Data Storage

All e-invoice data must be stored within the UAE for the retention period required under the Tax Procedures Law.

6. System Failures

If your systems go down and you cannot comply, you must notify the FTA within two business days.

What Powers Does the FTA Have?

The system will give the Federal Tax Authority significant visibility and control:

Access & Verification: The FTA can access invoice data anytime for audit or verification.
Data Sharing: Invoice data may be shared with other UAE government entities or foreign tax authorities under international agreements.

This reinforces the dual role of the EIS: enforcing domestic VAT compliance while also supporting the UAE’s global tax transparency commitments.

Phased Implementation Timeline

The transition will not happen overnight. The Ministry has wisely chosen a phased approach:

Phase 1 – Pilot Programme

Launch date: 1 July 2026.
Participants: A select group of businesses forming the “Taxpayer Working Group.”
Purpose: To test the system, fix issues, and fine-tune before mass adoption.

Phase 2 – Voluntary Adoption

Starting 1 July 2026, any business can voluntarily adopt the system if they are ready.

Phase 3 – Mandatory Adoption

Deadlines depend on business size and type:

Large Businesses (Revenue ≥ AED 50 million):

Must appoint an accredited provider by 31 July 2026.
Mandatory adoption from 1 January 2027.

2. Other Businesses (Revenue < AED 50 million):

Must appoint a provider by 31 March 2027.
Mandatory adoption from 1 July 2027.

3. Government Entities:

Must appoint a provider by 31 March 2027.
Mandatory adoption from 1 October 2027.

4. B2C Transactions:

Excluded until a new decision says otherwise.

Enforcement and Penalties

Both decisions came into force immediately after being published in the Official Gazette.

Any earlier rules that contradict them are repealed.
Penalties for non-compliance will follow the existing UAE VAT and Tax Procedures Law framework. This means businesses could face fines for failing to issue e-invoices, late reporting, or not sto

The Bigger Picture

This system is about more than tax reporting. It represents a strategic shift in how the UAE manages taxation and supports its digital economy agenda.

Key benefits include:

Supporting the UAE’s smart economy vision.
Improving accuracy and timeliness in VAT reporting.
Reducing paperwork and administrative burdens.
Giving the FTA stronger audit and monitoring tools.
Preparing the groundwork for AI, blockchain, and advanced analytics in tax administration.
Strengthening investor confidence by aligning with OECD guidelines and international best practices.

Practical Takeaways for Businesses

For companies operating in the UAE, the message is clear: don’t wait until the last minute. Preparing early will not only reduce compliance risks but may also unlock operational efficiencies.

Action to be taken:

Start Early

Large businesses should already be planning their transition. Waiting until mid-2026 will be risky.
Choose an Accredited Provider

Research and select an FTA-accredited service provider to ensure your systems can integrate smoothly with the EIS.
Upgrade Systems

Make sure your ERP, POS, and invoicing systems are capable of producing and transmitting structured e-invoices.
Train Staff

Finance, invoicing, and compliance teams will need training to handle new workflows.
Stay Informed

Watch for updates on B2C inclusion or further sector-specific exemptions.

Conclusion

Ministerial Decisions No. 243 and 244 of 2025 establish the legal and operational backbone of the UAE’s Electronic Invoicing System. Decision 243 lays out the framework, scope, and obligations, while Decision 244 sets the roadmap for phased adoption.

By 2027, nearly all VAT-registered businesses and government entities in the UAE will be required to issue and process e-invoices through the EIS.

For businesses, this is both a compliance requirement and an opportunity:

a chance to modernize systems, streamline processes, and build trust with regulators and partners.
By preparing early, companies won’t just avoid penalties they’ll also be better positioned to use e-invoicing as a competitive advantage in an increasingly digital economy.