Riyadh seeks new allies further afield


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This weekend, the Crown Prince of Saudi Arabia, Prince Salman bin Abdulaziz Al Saud, is expected to fly into Islamabad to sign an agreement sealing the kingdom’s new defence and security cooperation with the nuclear-armed Asian state. Once concluded, the deal will bring the militaries of Pakistan and Saudi Arabia closer than ever before.

That the kingdom is taking a more proactive stance towards its own security and seeking to both solidify regional alliances – such as with its Gulf neighbours – as well as seeking friends further afield is entirely due to events currently occurring in the region. Riyadh does not seek conflict, and has concluded that the more friends it has the more likely it will be to keep this at bay.

It is no secret that Riyadh is unhappy with the United States over the latter’s response to the Syrian civil war and its sudden tilt towards Iran. It is chiefly because of that displeasure that Barack Obama will fly into the country next month to meet King Abdullah, seeking to mend relations with the country’s closest Arab ally. But he is unlikely to find his hosts in a mood for pleasantries. The kingdom is unhappy that the US, after so many years as the pivotal power in the region, now appears to be washing its hands of the conflict in Syria. And with violence from the conflict spreading to Jordan – which shares a long border with Saudi Arabia – and to have also overflowed to Lebanon – which threatens Saudi interests in the country – the war in Syria is very much Saudi Arabia’s problem too.

What the expected new agreement with Pakistan means is harder to read. But the subtext is clear: that if the US cannot offer a full guarantee of peace and security, there are others who can help. That does not, as some have speculated, mean that Riyadh is seeking to acquire nuclear weapons – it is, after all, a signatory to the Non-Proliferation Treaty. But the kingdom cannot be expected to remain idle while its rival across the Arabian Gulf openly enriches uranium.

In a carefully worded op-ed in The New York Times in December, Saudi Arabia’s ambassador to the UK wrote: “The West has allowed [Iran] to continue its programme for uranium enrichment, with all the consequent dangers of weaponisation.” One might conclude that Riyadh has decided that the best way to be certain of peace is to encourage an environment with an oversurfeit of friends.

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Ten tax points to be aware of in 2026

1. Domestic VAT refund amendments: request your refund within five years

If a business does not apply for the refund on time, they lose their credit.

2. E-invoicing in the UAE

Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption. 

3. More tax audits

Tax authorities are increasingly using data already available across multiple filings to identify audit risks. 

4. More beneficial VAT and excise tax penalty regime

Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.

5. Greater emphasis on statutory audit

There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.

6. Further transfer pricing enforcement

Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes. 

7. Limited time periods for audits

Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion. 

8. Pillar 2 implementation 

Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.

9. Reduced compliance obligations for imported goods and services

Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations. 

10. Substance and CbC reporting focus

Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity. 

Contributed by Thomas Vanhee and Hend Rashwan, Aurifer