A view of Dubai. The UAE amended its commercial companies' law to boost the country’s competitive advantage and attract foreign capital. Getty Images
A view of Dubai. The UAE amended its commercial companies' law to boost the country’s competitive advantage and attract foreign capital. Getty Images
A view of Dubai. The UAE amended its commercial companies' law to boost the country’s competitive advantage and attract foreign capital. Getty Images
A view of Dubai. The UAE amended its commercial companies' law to boost the country’s competitive advantage and attract foreign capital. Getty Images

Economy

Foreign investment to UAE set to surge by 35% after legal reforms

Amendments to companies' law will encourage investors and residents to invest in SMEs, Dubai Economy chief says

The National

December 06, 2020

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Foreign investment to the UAE is expected to increase by 35 per cent after an overhaul of the commercial companies' law, Dubai Economy said on Sunday.

The changes will "have [a] far-reaching impact on the flow and quality of foreign and domestic investments, as well as overall economic growth of the country", said Sami Al Qamzi, director general of Dubai Economy.

The UAE reformed its commercial companies' law last month and annulled the requirement for onshore companies to have an Emirati shareholder. It also introduced other measures to improve the ease of doing business.

The move is intended to boost the country's competitive advantage and attract foreign capital to the Arab world's second-largest economy.

“Allowing foreign nationals 100 per cent ownership of commercial companies will lead to a significant increase not only in foreign and domestic investment, as these amendments allow full freedom for investors to manage and operate their businesses,” Mr Al Qamzi said.

The amendments are also expected to encourage individual investors and residents to invest in the small and medium enterprises, “which is a critical link in production chains”.

Sectors such as manufacturing, high-tech industries, digital economy, entertainment, engineering and legal consulting services are expected to attract long-term investment that will enhance "competition, partnerships and acquisitions among existing local and foreign companies".

Demand for high-skilled, high-wage jobs is set to increase due to improvement in the flow and quality of investment, according to the DED.

The amendments will also improve the country's position on the World Bank's Doing Business report, which will bring in more capital, Mr Al Qamzi said.

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

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