We are delighted to present the Spring Edition of our A&M Tax & Customs Newsletter. This edition brings fresh insights and key analyses of the most significant tax and customs regulatory developments from the past quarter across the Gulf region.

United Arab Emirates (UAE)

DIRECT TAX UPDATES

Pillar 2 Legislation

On February 6, 2025, the UAE released legislation introducing a Domestic Minimum Top-up Tax (DMTT) for multinational enterprises (MNEs), marking a significant step toward implementing the Organisation for Economic Co-operation and Development’s (OECD) 15% global minimum tax under Pillar 2. This move underscores the UAE’s continued alignment with international tax standards and its commitment to fair taxation practices.

The DMTT applies to MNE groups with consolidated revenues exceeding EUR 750 million, and covers various entity types including Joint Ventures, Permanent Establishments (PEs), and Minority-Owned Entities. The law introduces 18 elections and provides clarity on income adjustments, covered taxes, compliance timelines, and safe harbour provisions.

Key highlights include:

• Confirmation of in-scope entities and exclusions (e.g., government entities, sovereign wealth funds)
   
• Detailed rules for calculating top-up tax and effective tax rates.
   
• Guidance on transitional rules, restructuring impacts, and filing obligations; and
   
• Availability of transitional and permanent safe harbours.

The first filings and payments for DMTT are due 15 to 18 months after the relevant fiscal year, with registration processes still to be finalized by the UAE Federal Tax Authority (FTA). While the UAE’s DMTT has not yet received Qualified Status, it is expected to be recognized under the OECD framework.

For further information on Pillar 2 in the UAE, please click here.

Interest Deduction Limitation Rules Guide

The FTA released a new Interest Deduction Limitation Rules Guide in April 2025, providing clarity on how businesses can deduct interest expenses under the UAE Corporate Tax (CT) Law. The guide explains that, in line with international standards (notably the OECD’s BEPS framework), net interest expense deductions are generally capped at the higher of either 30% of adjusted EBITDA or AED 12 million. Any disallowed interest above this limit can be carried forward for up to ten years.

The guide covers the definition of interest, the application of both general and specific limitation rules, exceptions, and how these rules interact with other tax provisions like transfer pricing (TP) and anti-abuse measures. Businesses are advised to review their financing arrangements, maintain robust documentation, and monitor their interest expenses relative to EBITDA to ensure compliance and optimize their tax position.

For further details on the guide, please click here. Keep an eye out for our upcoming article, where we will break down key takeaways and practical considerations for taxpayers navigating these new rules.

INDIRECT TAX UPDATES – Value Added Tax (VAT), Customs & Excise Tax

UAE Issues Ministerial Decision No. (1) of 2025 on Excise Tax for E-Smoking Products and Beverages

Published on 3 January 2025, the Ministerial Decision No. (1) of 2025 provides key updates to the implementation of excise tax regulations, specifically focusing on

• Liquids used in electronic smoking devices.
   
• Electronic smoking devices and tools; and
   
• Concentrates, powders, gels, and extracts.

Ministerial Decision No. 236 of 2019, concerning the implementation of Cabinet Decision No. 52 of 2019 is hereby repealed. Furthermore, any provisions that contradict or conflict with the provisions of this Decision are also hereby repealed.

For further details on this Ministerial Decision, please click here.

FTA Release Public Clarification on Recent VAT Law Reform

The UAE recently went through a major VAT Law reform, formalized through Cabinet Decision No. 100 of 2024, which introduced 35 updates to 34 out of 75 Articles in the VAT Executive Regulations. These changes, effective from 15 November 2024, were further clarified by the FTA in Public Clarification (PCVAT040), issued on 14 March 2025.

Key highlights from the FTA’s Public Clarification include:

• Definitions
   
• Single Composite Supply vs. Multiple Supplies
   
• Deemed Supply
   
• Voluntary Registration
   
• Deregistration
   
• Tax Group Deregistration and Amendment
   
• Zero rating – Export of Goods and Services
   
• Virtual Assets and Financial Services
   
• Input Tax Recovery – Non-Recoverable Input Tax
   
• Input Tax Apportionment
   
• Tax Invoices

For further information on this update, please click here.

TRANSFER PRICING UPDATES

Unilateral Advanced Pricing Agreements (APAs)

On 19 February 2025, the FTA issued Decision No. 2 of 2025, effective 1 March 2025, outlining its policy for issuing clarifications and directives, including the introduction of unilateral APAs.

Unilateral APAs are agreements between a taxpayer and the FTA that establish in advance the acceptable TP method for specific controlled transactions. These agreements are grounded in the OECD TP Guidelines (2022). Unlike standard tax rulings, APAs involve a detailed review of factual assumptions and require ongoing monitoring to ensure compliance. By offering greater certainty and reducing the risk of TP audits, APAs support businesses in financial planning and maintaining compliance.

Applications for unilateral APAs will be accepted starting in the fourth quarter of 2025, while information on other types of APAs will be provided at a later date. The FTA will outline the specific procedures and application requirements in due course.

For further details on Decision No. 2 of 2025, please click here.

A Deep-Dive into the UAE TP Rules 
 

As the UAE transitions into a CT environment, TP is now a critical compliance area for businesses operating in the region. Following the introduction of the UAE CT Law (Federal Decree-Law No. 47 of 2022), the FTA released a detailed TP Guide in October 2023, aligning with OECD standards but including UAE-specific nuances.

Key Takeaways:

1. Arm’s Length Principle: All transactions between Related Parties and Connected Persons must reflect market-based pricing, even if the business is exempt or qualifies for Small Business Relief.

2. TP Documentation Requirements: Depending on revenue thresholds, businesses may be required to prepare and maintain:

a. Master File & Local File – Mandatory if:

• Total revenue ≥ AED 200 million, or
• Consolidated group revenue ≥ AED 3.15 billion.

b. Disclosure Form – Must be submitted with the CT Return if:

• Total value of related party transactions exceeds AED 40 million. If the AED 40 million threshold is met, any individual transaction with aggregate value per category that exceeds AED 4 million must be disclosed.
• Payments to Connected Persons exceeding AED 500,000 (including their Related Parties) must also be disclosed.

3. TP for Pillar Two: Accurate documentation and timely adjustments are essential to avoid additional tax liabilities such as top-up taxes.

4. APAs: The FTA will begin accepting unilateral APA applications starting Q4 2025, providing more certainty for taxpayers.

5. Country-by-Country Reporting (CbCR): Applies to UAE-headquartered multinational groups with consolidated revenue ≥ AED 3.15 billion.

For further details on this article, please click here.

Interplay of TP Rules on the Banking Sector

Alvarez & Marsal Middle East launches its Financial Services Industry (“FSI”) Tax Insights series, offering practical guidance on tax issues affecting the financial services sector. In this first edition, the spotlight is on the rapidly evolving TP landscape in the Middle East – especially the UAE's alignment with OECD TP Guidelines, including the treatment of financial transactions.

Key insights include:

• New TP obligations for banks engaging in intercompany funding, foreign exchange, derivatives, trade finance, and intragroup services.
• Importance of Value Chain Analysis in allocating profits for loans and trade financing.
• Need for robust documentation and arm’s length benchmarking for derivative deals, syndicated loans, and intercompany services.
• TP implications for banks operating through branches and guidance on attributing capital and profits per OECD’s Attribution of Profits to PEs.

For further details on this article, please click here.

E-INVOICING UPDATES

UAE E-Invoicing Consultation Paper
 

On 6 February 2025, the UAE Ministry of Finance published a public consultation paper outlining its proposed e-Invoicing framework and data dictionary, marking a significant step toward digitizing tax compliance in the UAE. The paper outlines a comprehensive set of data requirements – including 50 mandatory fields (15 of which are new) for standard invoices and up to 120 data points depending on the scenario.

Key insights include:

• Widespread scope: Applies to all businesses, regardless of VAT registration, including exempt and zero-rated transactions.
• Industry-wide impact: Financial services, free zone entities, real estate, and e-commerce sectors may face notable challenges due to volume and complexity.
• PEPPOL model adoption: Confirms the 5-corner model with double validation (C2 & C3) before invoice acceptance.
• New compliance burden: Significant updates to master data, tax coding, and system integration will be required – especially for complex or high-volume invoice types.
• Reason codes for exempt, zero-rated, and out-of-scope invoices will become mandatory.

The MoF is currently seeking stakeholder feedback. Once finalized, the regime could uncover non-compliant tax documents in real time and restrict invoice issuance if standards aren't met.

For further information on this update, please click here.

Bahrain

Entities in Scope of DMTT Rules

The guide on entities in scope of DMTT in Bahrain was published by the National Bureau for Revenue (NBR) on January 16, 2025. This guideline provides detailed clarification on:

• Entities covered by the DMTT law, including in-scope and excluded entities.
   
• Revenue threshold application.
   
• Safe harbors; and
   
• Location determination.

For further details on this guide, please click here.

For any questions around implementing these key tax updates, please reach out to a member of the A&M Tax Team (listed below).