The Red Sea Development Company raised $3.76bn in green funding in April. Image courtesy of TRSDC.
The Red Sea Development Company raised $3.76bn in green funding in April. Image courtesy of TRSDC.
The Red Sea Development Company raised $3.76bn in green funding in April. Image courtesy of TRSDC.
The Red Sea Development Company raised $3.76bn in green funding in April. Image courtesy of TRSDC.

Business

Banking

Sustainable debt market set to top $1tn this year

Sustainability-linked debt issuance reached $680bn in the first six months, more than double the amount in the first half of 2020

Michael Fahy
Michael Fahy

July 16, 2021

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The market for sustainable finance is set to top $1 trillion this year, a 30 per cent increase on 2020, according to a new paper from the Institute of International Finance.

Sustainable debt issuance globally rose to $680 billion in the first six months – more than twice the figure for the same period last year and close to 2020's full-year total of $700bn.

The $1tn of issuance of green financing in 2021 will bring the total size of the market to more than $3tn, most of which consists of green loans.

"The size of the green bond market has now surpassed $1tn, with average daily secondary market trading reaching $2.7bn this year – up from $1.6bn in 2020," the IIF report said.

"Despite this rapid expansion, the green bond market is still relatively small – less than 1 per cent of the global bond market – and not sufficiently diversified."

The bulk of the green bonds in circulation so far have been issued by financial companies, utilities and sovereign governments, but the investor base is broadening, the IIF said.

In the Middle East and North Africa, $6.4bn of green financing linked to sustainable projects was issued in the first half of this year, according to Bloomberg's H1 2021 Capital Markets League table. The figure was higher than the entire amount issued in the region last year and was bolstered by a 14.12bn Saudi riyal ($3.76bn) green financing deal announced in April for The Red Sea Development Company.

Most of the green loans in issuance have been used to fund renewable energy schemes, with power generation projects and utilities companies also attracting substantial capital.

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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

Updated: July 16, 2021, 5:30 AM
Business