Updates in UAE and international tax legislation, March 2025

We’re pleased to present our latest digest, highlighting key tax and legal developments across the UAE and GCC for March 2025.

This month, we focus on the preparation of the Corporate Tax Return. For financial years ending on 31 December 2024, the filing deadline is 30 September 2025 - nine months after the year-end.

Here’s a snapshot of what’s inside this issue:

• Corporate Tax & VAT: Insights into the FTA’s Public Clarification No. VATP040, the new Guide on Interest Deduction Limitation Rules, Cabinet Decision No. 35 clarifying nexus rules for non-residents, Cabinet Decision No. 34 of 2025 on investment funds, along with details on the FTA’s upcoming webinars on Corporate Tax return filing.

• Regulatory Developments: A significant move in Dubai now allows free zone companies to conduct business beyond their designated zones.

• International Updates:

• Qatar enacts Pillar Two legislation, introducing the Income Inclusion Rule and a Domestic Minimum Top-Up Tax.
• Saudi Arabia mandates Ultimate Beneficial Ownership (UBO) disclosures for most entities.
• Bahrain updates its VAT Imports & Exports Guide, including guidance on multiple supplies leading to a single export.

We hope you find this edition insightful and helpful in navigating your compliance and strategic tax planning. As always, we’re here to support you.

TAX UPDATES

FTA Released a Public Clarification VATP040 on Changes to UAE VAT Executive Regulations Effective from November 15, 2025

On October 4, 2024, Cabinet Decision No. 100/2024 was released, introducing numerous changes to the UAE VAT Executive Regulations, which took effect starting November 15, 2024.

Subsequently, on March 14, 2025, the UAE Federal Tax Authority (FTA) published Public Clarification No. 40 (VATP040), offering detailed guidance on how these amendments should be interpreted and implemented.

VATP040 outlines and explains the most significant changes made to the VAT Executive Regulations.

• Article 2(4)(b) was amended to clarify that any transfer of real estate, resulting in the transfer of ownership rights from one person to another, qualifies as a supply of goods for VAT purposes. This amendment clarifies that it applies to real estate supplies, including all forms of ownership transfer, not just sale and lease.

• The value of a ‘single composite supply’ must be stated as a single price. For example, if a marketing campaign is charged a single fee, but the price of each component of the service (rent of premises, catering, promotional materials, etc.) is separately specified in the contract, then such a service will not be considered a ‘single composite supply’.

• Article 33(1)(d) of the Executive Regulations was amended to clarify that the domestic transportation of goods as part of an international transport service may only be zero-rated if the service is supplied by the same supplier that provides the international transport service. The clarification further highlights that a subcontract to a different supplier for a domestic leg of an international transport should not qualify for zero-rating.

• The clarification comments on changes that allow employers to reimburse VAT on employees’ and their families’ medical insurance, regardless of whether it is provided voluntarily or by law, directly or through an insurer. However, such reimbursement is limited to the spouse (one wife) and a maximum of three children under 18 years of age. In addition, the FTA clarified that this amendment applies only to VAT on insurance premiums related to the period starting from November 15, 2024

• For the application of the 0% VAT rate in the case of direct and indirect export of goods from 15.11.2024, one of the following documents is required:

• An export certificate (exit certificate) or customs declaration (clearance certificate) issued by the customs authority of the relevant Emirate after verifying that the goods have left the UAE; or

• Any document or customs declaration (clearance certificate) certified by the competent authority of the destination country, confirming that the goods have been imported into that country.

• Digital representations of fiat currency (e.g., UAE dirhams) or financial securities are excluded from the definition of virtual assets.

Taxpayers are advised to reassess their VAT status based on the guidance provided in this clarification and take appropriate measures to ensure compliance with the revised Executive Regulations.

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New QLP Regime: Update for UAE Investment Funds

The UAE Cabinet issued Decision No. 34 of 2025, introducing an update to the corporate tax landscape for investment funds. This Decision replaces Cabinet Decision No. 81 of 2023 and sets out a new framework for Qualifying Investment Funds (QIFs) and Qualifying Limited Partnerships (QLPs).

The new rules aim to simplify the tax regime and attract more investment into the UAE by providing targeted tax relief for funds and their investors—if certain conditions are met.

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Nexus Rules for Non-Residents: When UAE Real Estate Triggers Tax Exposure

MoF issued Cabinet Decision No. 35 of 2025, which provides further clarity on the nexus conditions under which non-resident persons may be subject to UAE Corporate Tax, even without a permanent establishment or other active presence in the UAE. The Decision applies to Tax Periods starting on or after 1 January 2025.

Key Clarifications:

• Foreign investors in Qualifying Investment Funds (QIFs) and Real Estate Investment Trusts (REITs) may now be treated as having a nexus with the UAE, subject to specific conditions outlined in Cabinet Decision No. 34 of 2023.

• The Cabinet further emphasized that where transactions are artificially structured to give the appearance that income is not derived from UAE real estate, but in reality, is - such income may be reclassified as UAE-sourced, thereby establishing a taxable nexus.

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New Guide on Interest Deduction Limitation Rules Released

The UAE Ministry of Finance has issued a new Corporate Tax Guide (CTGIDL1 – April 2025) focusing on Interest Deduction Limitation Rules. The guide provides general guidance on the deductibility of interest when calculating taxable income and covers the definition of interest, general and specific limitation rules, carry-forward mechanisms, and how these rules interact with other Corporate Tax provisions.

We will cover this guide in more detail in our April Tax Digest.

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FTA Holds Webinars on Corporate Tax 

The UAE Federal Tax Authority (FTA) is hosting important webinars in April 2025, aimed at providing valuable insights into corporate tax regulations and compliance:

Corporate Tax Registration Webinar 
Date: 22nd of April 2025
Time: 10:00 am to 11:00 am (English)

The webinars are open to all stakeholders seeking to better understand the UAE’s corporate tax system. Participants can register by clicking on the provided links for each session.

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Dubai’s Free Zone entities are allowed to conduct business outside their designated zones and in mainland Dubai

On 3 March 2025, the Dubai Executive Council issued Decision No. 11/2025, enabling Dubai's free zone companies to conduct business activities beyond their designated zones and into mainland Dubai.

The Decision allows companies to conduct business both outside and within the free zone in Dubai (with the exception of financial institutions licensed under the Dubai International Financial Centre), provided they obtain a license and approval from the Dubai Department of Economy and Tourism (DET).

Licenses and permits include:

• A license to establish a branch in Dubai.

• A license to set up a branch in Dubai while maintaining headquarters in the free zone.

• Temporary permits for specific activities valid for up to six months.

The two types of branch licenses are valid for one year and may be renewed annually. 

The DET, along with other relevant bodies, is expected to release a detailed list of activities that free zone entities can perform in mainland Dubai within the next six months.

Companies must adhere to all applicable federal and local laws, including maintaining separate accounting records for their mainland operations.

Companies are allowed to utilize staff registered in their respective free zones for operations in mainland Dubai, enabling more efficient resource management.

Fees for the licenses/permits:

• AED 10,000 annually for a branch license linked to a free zone headquarters (including renewal).

• AED 5,000 annually for a temporary permit and its renewal.

Businesses currently operating outside their designated zones without appropriate approvals have one year from the Decision’s enactment to regularize their status under the new framework.

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Saudi Arabia: New Ultimate Beneficial Ownership Regulations are Implemented 

In February 2025 Saudi Arabia has introduced new regulations on Ultimate Beneficial Ownership (UBO), mandating them to disclose their UBOs to the Ministry of Commerce. They are effective of 3rd of April 2025.

Under these new rules, all companies operating within the Kingdom—except those specifically exempted—are required to:

• Submit UBO details (referring to individuals who ultimately own or control the entity) to the Ministry of Commerce during incorporation. The Ministry may also request this information from existing companies;

• Maintain a local UBO register containing essential data such as the UBO’s name, passport number, residential address, contact information, and the reasons they are classified as a UBO;

• Update the UBO information annually, within 30 days before the company’s registration anniversary date;

• Report any changes in UBO status within 15 days of the change.

Failure to comply with these requirements may result in penalties of up to SAR 500,000.

Entities that are exempt from these obligations include entities that are fully or partially owned by the government and companies undergoing liquidation.

Qatar implemented Global Minimum Taxation Rules under Pillar 2

On March 27, 2025, Qatar enacted Law No. 22 of 2024, officially published in the country’s Official Gazette. This legislation amends certain aspects of Income Tax Law No. (24) of 2018 and introduces key components of the OECD's Pillar Two framework. Effective January 1, 2025, the amendments implement both the Income Inclusion Rule (IIR) and a Domestic Minimum Top-Up Tax (DMTT), with the latter intended to qualify as a Qualified Domestic Minimum Top-Up Tax.

The new provisions impose the IIR and DMTT on multinational enterprise (MNE) groups and apply uniformly across Qatar. 

The legislation mandates that both the IIR and DMTT be applied in alignment with the OECD's Global Anti-Base Erosion (GloBE) Rules, associated commentary, administrative guidance, and Safe Harbour provisions.

NBR of Bahrain Updates VAT Guide for Imports and Exports

The National Bureau of Revenue (NBR) in Bahrain has issued an updated edition of its Imports and Exports VAT Guide, with key clarifications and revisions.

One of the major changes appears in Section 1.2, which now offers more comprehensive guidance on the VAT treatment of exported goods. The guide reiterates that exports of goods from Bahrain may be zero-rated for VAT (0%) if specific conditions are met: the goods must be dispatched from Bahrain to a destination outside the Implementing States within 90 days from the supply date, and they must not be altered, used, or sold before export.

Suppliers must retain proper export documentation to verify these conditions. If they fail to do so, the transaction may be reclassified as a domestic supply, attracting the standard VAT rate of 10%.

A key addition in this update is the introduction of a new subsection in Section 1.2 titled “Multiple Supplies Resulting in a Single Export.” It explains that where several transactions lead to a single export, only the final supply will be eligible for zero-rating, assuming all export requirements are satisfied. All prior transactions within the chain will be treated as domestic and taxed at 10%.

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Shura Council of Bahrain Dismisses Remittance Tax Proposal Again

The Shura Council has once again rejected a proposed 2% tax on expatriate remittances. Members raised concerns that such a measure could drive foreign workers to rely on unofficial money transfer methods, potentially facilitating money laundering and damaging Bahrain’s international financial standing.

The council also challenged the justification for the suggested 2% rate, noting that the proposal lacked a clear explanation for selecting this figure. Moreover, they highlighted the absence of defined penalties for those who might fail to comply with the proposed regulation.

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CORPORATE TAX RETURN: Time to Start Preparing

As the UAE’s Corporate Tax regime comes into full effect, businesses with a financial year ending 31 December 2024 face their first major compliance milestone: filing the Corporate Tax Return by 30 September 2025. This nine-month window might seem generous, but with the complexities of the UAE tax law the preparation must begin now. 

Three Things Businesses Should Do Now

Here are three priority actions to ensure you are on track for a compliant and efficient Corporate Tax Return submission:

Assess QFZP (Qualifying Free Zone Person) Eligibility

For Free Zone businesses intending to apply the 0% corporate tax rate, assessing whether you qualify as a Qualifying Free Zone Person (QFZP) is absolutely critical - and this must be done in the first tax period.

When completing your tax return in EmaraTax, you will be asked: “Is the Taxable Person making an election to not be subject to Corporate Tax at the rate applicable to Qualifying Free Zone Persons?”

To benefit from the 0% rate, your business must meet all of the following conditions:

• Generate Qualified Income.

• Meet de minimis thresholds.

• Maintain substance in the Free Zone (Designated Zone).

• Prepare audited financials and comply with TP rules.

Therefore, it’s essential to start assessing your eligibility now, identify any grey areas, and prepare documentation and justifications in advance to avoid non-compliance or losing the preferential rate.

Prepare Transfer Pricing (TP) Analyses and Documentation

If your business engages in transactions with Related Parties or Connected Persons, you will be required to complete the Transfer Pricing Disclosure Form as part of your Corporate Tax Return — but only if certain thresholds are exceeded.

What needs to be disclosed in the tax return?

According to the FTA Corporate Tax Return Guide (CTGTRX1), the following materiality thresholds apply.

• A Related Party Transactions Schedule is required if the total transaction value exceeds AED 40 million. Disclosures must include details for transaction categories such as goods, services, IP, interest, and more if the value per category exceeds AED 4 million.

• A Connected Persons Schedule is mandatory if the total transaction value with Connected Persons exceeds AED 500,000.

In addition, the return must indicate:

The nature of the transaction, the TP method applied, and whether the price is at arm’s length.

The FTA expects businesses to justify:

• Compensation and other benefits paid to shareholders, directors, and other officers — these must be at arm’s length.

• Non-monetary benefits or favors received from Related Parties - these must be assessed and accounted for appropriately.

Failure to demonstrate compliance may lead to tax adjustments or the loss of the 0% tax rate for Free Zone Persons.

Prepare Financial Statements and Make Key Elections and Adjustments

Your financial statements are the foundation of your Corporate Tax Return. However, when filing the return, certain adjustments must be made, and you should review them in advance to ensure readiness.

You must prepare financials under IFRS or IFRS for SMEs (if revenue is below AED 50 million), and ensure alignment with the selected accrual or cash basis.

Key Adjustments & Elections

When completing the tax return, you may need to make several adjustments, such as:

• Disallowing certain expenses (e.g. fines, entertainment)

• Limiting interest deductions (to AED 12M or 30% of EBITDA)

• Adjusting for revaluations and income that qualifies for exemption

You’ll also need to make key elections, some of which are irrevocable after the first tax period, including:

• Realisation Basis Election (to ignore unrealised gains/losses)

• Transitional Rules Election

• Small Business Relief (available if revenue is below AED 3M)

• Exemption for income from foreign Permanent Establishments

How We Can Help

We support clients across all stages of Corporate Tax compliance:

• QFZP Eligibility Review - we assess your status, substance, and revenue classification to support application of the 0% tax rate.

• TP Analyses and Documentation - our TP team is ready to assist at every stage: from assessing the arm’s length nature of your transactions to preparing documentation and supporting ongoing compliance. 

• Tax Return Advisory - we advise on key matters arising during return preparation including adjustments, elections, and disclosure requirements.

Contact us at: mena@pgplaw.ru