Year-end adjustments, specifically “true-up” and “true-down”, are common practices in transfer pricing (TP) and financial reporting. These adjustments are corrections made at year-end to align related-party transactions with arm’s-length standards or budgeted/targeted financial metrics. Generally, true-up adjustments involve correcting financial or operational data to align with actual performance or arm’s-length standards. This accounting process identifies the exact amount of expenses, revenue, or costs before closing the books for the accounting period. It represents an upward adjustment that increases a company’s revenue or profitability to meet regulatory or contractual requirements, such as those imposed by transfer pricing rules. 

Conversely, true-down adjustments involve revising projections downward to reflect actual performance or revised expectations. This process is similar to true-up adjustments but involves making downward corrections. When actual expenses, costs, or revenues are lower than budgeted or estimated, true-down adjustments are made.

The process of making true-up and true-down adjustments can be broken down into four distinct steps. First, there is the review of financial records: at year-end, the actual financial records of related party transactions are compared against transfer pricing policies, pre-agreed profitability thresholds, or budgeted metrics, such as budgeted profit margins.

Next is the comparison with Arm’s Length Standard: companies assess whether their transfer pricing arrangements – covering prices for goods, services, royalties, or financing – fall within an arm’s length range, as outlined by OECD guidelines or local transfer pricing regulations, like those in the UAE or other OECD member countries.

Then comes the calculation of adjustments: If actual results differ from expected or targeted outcomes, adjustments are calculated. A true-up adjustment increases the value of financial transactions to meet the target, while a true-down adjustment decreases the value to correct for overbooked transactions.

Finally, there is the Recording of Adjustment: These adjustments are documented in the financial records before the finalization of the financial statements, thereby impacting taxable income.

The following tables illustrate the case scenarios for true-up and true-down TP adjustments.

True-Up TP Adjustments

Service Providers
Particulars		Amount (USD)
Revenue	A	11,000
Operating Expenses	B	10,000
Operating Profit	C = A − B	1,000
MTC	D = C / B	10.00%
TP Policy (Target)	E	12.00%
Adjustment to Target	F = E − D	2.00%
True Up Adjustment	G = B × F	200
Adjusted Revenue	H = A + G	11,200
Adjusted Operating Profit	I = H − B	1,200

Distributors
Particulars		Amount (USD)
Revenue	A	11,000
COGS	B	9,000
Operating Expenses	C	1,000
Operating Profit	D = A − B − C	1,000
OM	E = D / A	9.09%
TP Policy (Target)	F	12.00%
Adjustment to Target	G = F − E	2.91%
True Up Adjustment	H = G × A	320
Adjusted COGS	I = B − H	8,680
Adjusted Operating Profit	K = A − I − C	1,320

True-Down TP Adjustments

Service Providers
Particulars		Amount (USD)
Revenue	A	11,000
Operating Expenses	B	10,000
Operating Profit	C = A − B	1,000
MTC	D = C / B	10.00%
TP Policy (Target)	E	8.00%
Adjustment to Target	F = E − D	−2.00%
True Up Adjustment	G = B × F	−200
Adjusted Revenue	H = A + G	10,800
Adjusted Operating Profit	I = H − B	800

Distributors
Particulars		Amount (USD)
Revenue	A	11,000
COGS	B	9,000
Operating Expenses	C	1,000
Operating Profit	D = A − B − C	1,000
OM	E = D / A	9.09%
TP Policy (Target)	F	7.00%
Adjustment to Target	G = F − E	−2.09%
True Up Adjustment	H = G × A	−230
Adjusted COGS	I = B − H	9,230
Adjusted Operating Profit	K = A − I − C	770

Accurate execution of TP adjustments, whether through a true-up or a true-down, is crucial to avoid double taxation. This becomes particularly vital when related entities operate across multiple tax jurisdictions, as inconsistencies in intercompany transaction pricing may lead tax authorities in different countries to make unilateral profit adjustments.

Such adjustments can result in the same income being taxed multiple times, posing significant financial and compliance challenges for the group. Beyond the risk of double taxation, incorrect TP can lead to underreporting of taxable income and, consequently, underpayment of taxes. In such cases, tax authorities may impose penalties or sanctions for tax avoidance or non-compliance with local transfer pricing regulations, especially if appropriate year-end adjustments have not been properly implemented.

TP adjustments can also affect withholding tax obligations. If an adjustment alters the amount or nature of intercompany payments, it may create new or increased withholding tax obligations that must be addressed before the financial year ends. For instance, a true-up adjustment that increases taxable income may require the immediate withholding of tax on the revised amount.

To ensure full compliance, it is essential to issue updated intercompany invoices reflecting the adjusted values, so the correct withholding tax can be applied at the time of payment. 

Crowdfunding has emerged as a developing alternative financing mechanism worldwide, including in the United Arab Emirates (“UAE”). In line with the UAE’s ambition to strengthen its position as a regional financial hub promoting innovation and investment, legislative initiatives have been introduced to enable crowdfunding activity. Crowdfunding lacks a universal definition, even in jurisdictions with advanced regulatory frameworks. This stems from crowdfunding being a collection of distinct funding mechanisms, from charitable contributions to regulated investments,
with activity occurring through platforms like Beehive, Eureeca, Kickstarter, and Crowdcube.

Government-led crowdfunding initiatives also exist. A notable initiative in this regard is DubaiNEXT, launched by the Dubai government in 2021 to help individuals and small and medium enterprises (SMEs) raise funding from the community of investors. Crowdfunding is an activity regulated by the UAE’s Federal Securities and Commodities Authority. Under Article 1 of Cabinet Resolution No. 36 of 2022, crowdfunding is defined as “a funding mechanism that enables a fund seeker to collect amounts from investors for the purpose of funding their project via the platform, in return for capital shares of a company incorporated or to be incorporated for implementing such a project.

Essentially, crowdfunding generally involves raising small contributions from many individuals to support projects through online platforms, with returns varying by model. Often, those individuals may not be professional investors. This flexibility has made crowdfunding attractive to entrepreneurs seeking capital and investors seeking opportunities. SMEs, often challenged in accessing traditional financing, increasingly use crowdfunding. Within the UAE, the sector is expected to reach USD 118.7 million by 2030, with an annual growth rate of 17.5%. This growth is driven by capital alignment with specific needs while offering investors varied risk-return profiles.

Under the overarching term “crowdfunding, five distinct models can be identified. They differ primarily in the type of consideration, if any, provided by the project owner in return for the funds received. This consideration is ultimately what determines how a particular model is
classified and, in turn, how it is treated for tax purposes. The first model is donation-based crowdfunding, where contributors provide funds without expecting any material or financial return. It is commonly used for social, medical, or charitable initiatives and is regarded as an altruistic form of crowdfunding.

The second model is reward-based crowdfunding, which can be seen as an extension of the donation-based approach. In this model, contributors receive a non-financial reward, such as a product, service, or experience, in recognition of their contribution. The remaining models are generally regarded as the financial forms of crowdfunding, as they contain little or no altruistic element and are primarily structured around the expectation of
financial return. The first of these is lending-based crowdfunding, which resembles a traditional credit arrangement. The investor provides funds to the project owner, who undertakes to repay the principal along with an agreed interest component.

The second is equity-based crowdfunding, in which the project owner issues shares
or participation certificates to investors in return for the funds raised. A further category consists of hybrid models that combine features of the structures described above. A prominent example in the market is the use of SAFE (Simple Agreement for Future Equity) notes, under which an investor provides funding at an early stage in exchange for a contractual right to acquire equity at a later date. SAFE notes may therefore carry characteristics of both debt-like arrangements and equity-based financing mechanisms. SAFE notes may not be primarily designed for crowdfunding; they could, however, be a part of it. The different crowdfunding models are detailed in the table below.

CIT and VAT Treatment

Transaction flows under each crowdfunding model affect their CIT and VAT treatment. The UAE CIT Law (Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses) does not specifically address crowdfunding, so its tax treatment follows the general principles of UAE CIT. The same conclusion holds regarding the UAE VAT Law (Federal Decree No. 8 of 2017). The VAT treatment of crowdfunding depends on whether parties involved are taxable persons and whether goods or services are supplied for consideration under the UAE VAT Law. Under Article 9 of the UAE VAT Law, we believe that crowdfunding platforms operate as disclosed agents, with funds flowing between investors and project owners, while charging a separate VAT-subject facilitation fee.

Donation-based crowdfunding

In the donation-based model, the project owner receives a benefit, and, given that the project owner is mostly a taxable person, the amount must be included in the Taxable Person’s taxable income, subject to the standard 9% UAE CIT rate. The donor cannot claim any CIT deductions unless they make a payment to an approved public benefit entity recognised under UAE law, regardless of whether the donor is a Taxable Person. In the donation-based model, genuine donations are outside the scope of VAT because they do not involve a supply made in exchange for consideration. However, when donors receive benefits such as publicity or event access, the supply is subject to a 5% VAT for the project owner and is considered full consideration. Donors cannot reclaim VAT on genuine donations but may be required to account for VAT under the deemed supply rules if acting in a Taxable Person’s capacity.

Reward-based crowdfunding

Reward-based crowdfunding Under the reward-based model, transactions are commercial in nature. Funds received by project owners are taxable income for UAE CIT purposes upon delivery of the reward. Contributors can deduct the expense to the extent they are a Taxable Person, and the expense is a business expense. Under this model, supplies are treated as commercial transactions for UAE VAT purposes. Project owners must charge 5% VAT on rewards, while contributors may deduct the input VAT if the expense is considered incurred in the course of doing business. For non-monetary rewards, transactions may be treated as barter, with taxable value determined at market value under Article 34 of the UAE VAT Law and Article 25 of the UAE VAT Executive Regulations (Cabinet Decision No. 52 of 2017).

Equity-based crowdfunding

Under the equity-based model, amounts received by project owners upon the issuance of shares are treated as capital receipts and are not subject to UAE CIT. Dividends paid are non-deductible, while UAE investors may benefit from participation exemption for dividends and capital gains if statutory conditions, including a minimum 5% ownership for 12 months, are met. For non-UAE resident investors, capital gains or dividends are subject to 0% withholding and may be taxed in their jurisdiction of residence. In the equity-based model, share issuance or transfer constitutes an exempt financial service under Article 46 of the UAE VAT Law and Article 42 of the UAE VAT Executive Regulations, so no VAT applies. Investors receive shares exempt from supply and cannot recover VAT on related costs.

Lending-based crowdfunding

The lending-based model mirrors peer-to-peer loans. Loan inflows to project owners are not taxable, while interest payments are deductible, subject to a 30% EBITDA limitation under Article 30 of UAE CIT Law. For investors, interest income is taxed at 9%, unless they are Free Zone Persons conducting financing with other Free Zone counterparties, provided the two entities are also Related Parties, in which case 0% may apply. However, this is, admittedly, unlikely to happen in crowdfunding. Under this model, interest income and payments are exempt from financial services, i.e., no VAT is charged or recovered on related costs.

Hybrid models

Hybrid models may combine equity-based, lending-based, and reward-based crowdfunding features, requiring allocation between equity, lending, and reward components. While crowdfunding platforms that combine equity and reward components are relatively uncommon, a notable model is the revenue-share or participating loan model. This model functions as a lending arrangement with variable, performance-based returns. For project owners, the inflow is not taxable, and periodic payments are deductible when structured as financing. For investors, revenue-share income is subject to a 9% tax as a financing return. Under the QFZP regime, revenue-share and participating loans qualify only when constituting licensed financing activity within Free Zones directed to Free Zone or foreign borrowers. Otherwise, they are treated as financial intermediation, excluded from qualifying activities under Cabinet Decision No. 55 of 2023. The VAT treatment of revenue-share or participating-loan crowdfunding models depends on their structure. When qualifying as financing, payments are exempt as financial services. If structured as a profit-sharing arrangement without a loan component, the transaction may fall outside the scope of VAT. Investor income is either exempt or outside the scope, while platform facilitation fees remain subject to 5% VAT.

Tax treatment platforms

The tax treatment of crowdfunding platforms under the various crowdfunding models illustrated above follows a similar pattern. The platform, in general, provides only facilitation services and is therefore subject to 9% UAE CIT. If the platform is a Qualifying Free Zone Person (QFZP), the related income would only be eligible if the income is earned from another FZP, since crowdfunding is not expressly mentioned as an “Excluded Activity”. It is ineligible as a qualifying activity under Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 229 of 2025, as digital intermediation, facilitation services, and fundraising are not listed as qualifying activities. For UAE VAT purposes, platform services qualify as financial intermediation. Accordingly, fees charged by platforms to underlying parties remain taxable at the standard 5% rate unless the service qualifies as an exempt financial service or is treated as a zero-rated export when provided to a foreign investor. For platform operators, the recoverability of input VAT depends on the nature of the underlying activities. Input VAT may be recovered when the related costs are used to make taxable supplies, such as platform commissions or 5% facilitation fees. Where costs relate to exempt activities, including certain financial services such as interest income or equity issuance, recovery is restricted

 Conclusion

The UAE’s tax framework for crowdfunding is still developing, and each model interacts differently with the CIT and VAT rules. A few points stand out from this analysis. First, clearer guidance would be helpful for hybrid and fintech-driven models. Instruments such as SAFE notes sit between debt, equity, and rewards, creating uncertainty about their tax treatment. More explicit direction would reduce ambiguity, support both platforms and investors, and encourage innovation in this space. Second, compliance obligations should continue to evolve as the market grows. Requirements around registration, record-keeping, reporting, and audit need to remain proportionate, ensuring transparency while still allowing SMEs and start-ups to access crowdfunding effectively. Given the evolving market, careful structuring and early tax analysis are crucial for project owners, investors, and platforms.

Aurifer welcomes the opportunity to contribute to the “Public Consultation Document: Global Mobility of Individuals” released by the Organisation for Economic Co-operation and Development (hereinafter: “OECD”) on 26 November 2025 and open for public comments until 22 December 2025 (hereinafter: the “Public Consultation Document”).

In what follows, we have aimed at sharing our views, hoping that these will be helpful in the consultation process.

1. Data and Trends of Mobility of Individuals in and across the GCC Countries

We welcome the OECD’s “Public Consultation Document: Global Mobility of Individuals” as timely, addressing issues relevant for practice in the context of increased cross-border remote work. We agree with the Public Consultation that evolving work patterns are testing existing international tax rules based on traditional concepts such as physical presence. In our comments below, we will focus on the reality of individual mobility within GCC countries.

GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia (“KSA”), United Arab Emirates (“UAE”)) are among the top destinations globally for international migrants, with foreign workers making up a large share of the population and labour force.[1] GCC states often rank among the world’s highest shares of foreign-born residents. In parts of the GCC (e.g., Qatar and the UAE), foreign residents constitute around 80–90% of the total population.[2] The six GCC countries hosted 10.1% of all migrants worldwide in 2024, up from 5% in 1990. KSA alone accounted for 4.5% of all migrants worldwide (down from 5% in 2015), while 2.7% were recorded in the UAE.[3]

Intra-regional mobility of GCC nationals is also significant. Under article 8 of the 1981 Economic Agreement between GCC States, GCC citizens are legally entitled to freedom of movement, residence, and employment across member states (Bahrain, Kuwait, Oman, Qatar, KSA, and the UAE). This includes the same treatment as local citizens in economic activities and labour markets across the GCC. In practice, GCC nationals can enter, reside, seek employment, and start economic or professional activities in other GCC states without the standard visa or work permit restrictions that typically apply to non-nationals.[4] This is reminiscent of the 1957 Treaty of Rome which established the European Economic Community (the predecessor of the European Union) and incorporated the free movement of people.

According to recent figures, more than 36.5 million Gulf citizens travelled, lived, or worked freely across other GCC member states last year, taking advantage of unified transport and residency systems. This marks a sharp rise from just over 14 million in 2007, underscoring how regional

policies have transformed cross-border movement into a routine part of Gulf life.[5] KSA registered 8.8 million entries of GCC nationals into its territory – a 5.8% increase compared with 2023. Entries originated from across GCC states (e.g., Bahrain, Qatar, UAE, Kuwait, and Oman).[6]

This data indicates that the Gulf Cooperation Council (GCC) countries are progressing towards a more integrated common market from that perspective, with millions of citizens now enjoying enhanced mobility, improved access to jobs, and broader economic opportunities throughout the region.

 2. Tax Issues of Global Mobility of Individuals in GCC Countries

For the GCC countries (Bahrain, Kuwait, Oman, Qatar, KSA, UAE), the taxation of individuals differs significantly from that in OECD member jurisdictions, as GCC countries – as of December 2025 – have not yet introduced a personal income tax (PIT). Therefore, certain tax challenges for globally mobile individuals, as detailed in the Public Consultation, do not arise to the same extent as they do in jurisdictions with established PIT systems, such as most OECD members.

However, these issues remain relevant to GCC countries regarding corporate and international tax matters. Notably, individual mobility raises important questions about the interpretation and application of key concepts, including tax residence of natural persons and legal entities, the counting day tests, permanent establishment (PE), profit attribution, and transfer pricing.

Recent regional developments are illustrative. The UAE introduced a CIT effective June 1, 2023.[7] While this regime excludes income earned by natural persons from wages, personal investment income, and real estate investment income, cross-border mobility may raise corporate-level tax questions for employers and related parties, including whether activities in the UAE could create a taxable presence therein. More pertinently, the UAE’s CIT functions as a business tax, applying not only to companies and legal entities but also to individuals engaged in business activities, provided their annual revenue exceeds AED 1M (approximately, USD 272,000).[8]

The UAE plays arguably the most important role when it comes to mobility of HNWIs. It has developed multiple (administrative) residency by investment and merit programmes to attract foreign individuals. While the other GCC States may also have similar programmes in place, the UAE’s programme is much more successful. The administrative residency is regretfully by applicants often confounded with tax residency.

The Public Consultation is also relevant for the interpretation of tax treaties, particularly regarding the definition of residence and the allocation of taxing rights between Contracting States. This matters for GCC jurisdictions as well, insofar as they rely on treaty networks for cross-border

investment and labour mobility. By way of example, the UAE has concluded 137 double taxation agreements with major trading partners, reflecting the importance of tax treaties in its strategy.[9]

The OECD’s work on global mobility will gain even greater significance as Oman implements its planned 5% personal income tax (PIT) for individuals earning over 42,000 OMR (approximately USD 109,000) starting January 1, 2028. The announced features of the Omani PIT suggest a modern design, with income above specified thresholds taxed, and exceptions for income. Issues such as residence determination, source rules, and treaty interaction will become critical, particularly for mobile individuals and expatriates. The Executive Regulations, which will outline procedures, timelines, tax return forms, and other specific matters for the implementation of the PIT Law, are expected to be issued by June 30, 2026, within one year of the PIT Law’s publication in the Official Gazette.[10]

More generally, international guidance on global mobility of individuals will be vital for jurisdictions introducing PIT, particularly guidance that establishes an approach which promotes coherence among domestic tax rules, corporate concepts, and treaty interpretation. Early alignment with international principles may reduce uncertainty and support compliance.

In our view, the OECD’s work in this field should support these broad goals:

• alignment between personal income tax rules, corporate tax concepts, and treaty interpretation;
• proportionate approaches for short-term presence; and
• administrative certainty, as uncertainty often hinders legitimate cross-border mobility.

We believe that the Public Consultation offers a unique opportunity to develop flexible guidance for jurisdictions at different development stages, including GCC countries, where PIT is not yet in force or only planned, but CIT and international tax implications of global mobility of individuals are already relevant.

 

 3. PIT and Global Mobility of Individuals in GCC Countries

Global mobility of individuals – driven by remote work, frequent travel, and regional commuting – has exposed weaknesses in PIT systems that rely on assumptions of stable residence and physical presence. These weaknesses may cause double taxation, double non-taxation, and excessive compliance burdens for individuals and businesses, while also complicating relationships with social security, pension regulations, labour, and migration law. In a GCC context, for non-GCC nationals, social security and pension regulations play a reduced role, given that these are attached to the employer, and therefore contributions are due in the country of employment. They are in any case comparatively substantially lower than in OECD countries. As to GCC nationals, the contributions are generally due to the country of citizenship, regardless of where they are employed, under an arrangement agreed to as part of the GCC framework.

The UAE tax residence framework demonstrates how residence rules can be modernized to address these challenges in a highly mobile business environment. The UAE’s social and economic model centres on high mobility. As a global aviation hub, it hosts:

• regional commuters operating across multiple continents;
• senior executives with multinational responsibilities, remote employees working for foreign employers; and
• mobile professionals with fragmented physical presence across jurisdictions.

In KSA, the other major jurisdiction where our firm operates, this is less the case as it less of a regional hub though efforts have been made to establish an HQ programme with associated tax benefits, and it is increasingly connected. Qatar presents similar challenges but shows less dynamic than the UAE.

In this environment, relying solely and exclusively on a physical presence threshold would likely lead to puzzling residence outcomes, creating multiple residence claims or leaving individuals outside residence taxation.

The UAE addresses these realities through a robust tax-residence framework for frequent travellers and mobile professionals (though some of its treaties are only applicable to citizens). This robustness derives from the UAE’s adoption of a multi-layered tax residence test rather than reliance on a single criterion. Notably, since 2022, UAE tax residence may be established through alternatively:

• a 183-day physical presence test;
• a 90-day physical presence test, where the individual: holds a legal right to reside in the UAE, and maintains ties such as a permanent home, employment, or business activity;
• a non-day-count test, requiring that both the individual’s usual residence and centre of financial and personal interests are in the UAE.[11]

This layered structure is meant to target the reality of highly mobile individuals who may be present briefly but remain economically anchored in the UAE.

The UAE has also ensured that the definition of tax residence for domestic tax purposes aligns with common definitions of residence under tax treaties. Notably, the residence test based on usual residence and centre of interests mirrors to a certain extent the corresponding tie-breaker rules laid down in Article 4(2) of the OECD Model Tax Convention. This alignment reduces friction between domestic residence determinations and treaty outcomes, particularly for executives with ties to multiple jurisdictions.[12]

Another relevant feature of the definition of tax residence under UAE tax law is the recognition of exceptional circumstances. Notably, the UAE excludes involuntary presence in the UAE due

to emergencies, border closures, or illness from the day count. This is relevant in a global hub economy like the UAE, where travel disruptions can have unintended tax consequences.[13]

Finally, another strength to be highlighted is that the UAE tax-residence definition relies on objective criteria. The multi-layered tax residence test is built on verifiable factors – i.e., legal residence status, housing, employment, and business activity – rather than the taxpayer’s subjective intention, facilitating compliance for both taxpayers and tax authorities.[14]

Through these features, the UAE’s tax residence test achieves the following goals:

• it reduces dual residence and double taxation risks for executives and mobile employees;
• limits residence gaps for remote workers and frequent travellers;
• lowers compliance burdens for employers managing globally mobile workforces; and,
• functions as an ex ante dispute-prevention mechanism, reducing reliance on mutual agreement procedures (MAPs).

As a global hub characterised by frequent travel and highly mobile talent, the UAE demonstrates that multi-factor, treaty-aligned residence rules can accommodate modern business realities without increasing disputes or undermining tax base integrity.

The experiences of other GCC countries may also be relevant. In KSA, another major country where our firm operates, a 183-day counting test is applied. Under this test, an individual becomes a tax resident of KSA if they have been present in the Kingdom for at least 183 days. However, KSA legislation offers an alternative test, whereby an individual with a permanent domicile in KSA is considered a resident if they have been present in the country for at least 30 days during the tax year. A permanent domicile is deemed to exist if a place of abode is made available to the taxpayer by any means (ownership, lease, etc.) for at least one year.[15]

In Qatar, where our firm also practices, domestic tax law defines an individual as a resident if they either i) have a permanent home in the State of Qatar, ii) have resided in the State of Qatar consecutively or intermittently for more than 183 days a year, or iii) hold Qatari nationality. Consequently, any individual holding Qatari nationality is considered a ‘resident’ in Qatar for tax purposes, regardless of their place of residence.[16]

The experience with determining tax residence for individuals in GCC countries may offer a relevant reference point for the OECD as it rethinks personal income taxation in an increasingly mobile world. More in detail, the UAE experience suggests that effective residence design in a mobility-driven economy should:

• move beyond 183-day tests;
• combine reduced physical presence thresholds with substantive legal and economic connections;
• embed as much as possible treaty tie-breaker concepts into domestic law;
• and codify exceptional-circumstance exclusions.

4. CIT and Global Mobility of Individuals in GCC Countries

Global mobility of directors and senior management, along with virtual and hybrid meetings, has placed significant pressure on traditional approaches to determining the place of effective management of companies and other legal entities (POEM). Corporate tax rules were developed under the assumption that key management decisions occur in a single physical location, which no longer reflects today’s business reality.

The UAE CIT guidance on POEM demonstrates how existing concepts can be applied coherently in virtual decision-making.[17] The UAE is a global aviation and business hub, characterized by frequent travel and a distributed governance structure. In practice, multinational enterprises (MNEs) operating in or through the UAE commonly have:

• boards whose members are rarely in the same jurisdiction;
• directors and executives who join meetings virtually from different countries;
• decision-making conducted via videoconferences, written resolutions or email exchanges; and,
• meetings organized in the UAE for logistical convenience rather than substantive management.

In such cases, focusing mechanically on formal board meeting locations risks producing POEM outcomes disconnected from where decisions are actually taken. The UAE tax framework, as a coherent response, addresses the challenges of virtual governance and remote decision-making by implementing a series of guidelines.[18]

First, the UAE domestic tax law acknowledges that board and management meetings may be held virtually, in whole or in part. Videoconferencing technology does not prevent decisions from being regarded as effective management decisions. The UAE Federal Tax Authority (FTA) guidance in this regard makes clear that the digital platform or hosting location is irrelevant for POEM purposes, and virtual meetings should not be treated differently from physical meetings due to format. This framework ensures modern governance practices are accommodated without altering the POEM concept.[19]

For virtual meetings, the UAE FTA guidance also shifts attention from where a meeting is convened to where decision-makers are physically located when decisions are made. This approach recognises that management decisions are, in general, taken where directors or executives exercise their authority, and the place of effective management follows the decision-makers, not the location in meeting records. This clarification is important in global hub

economies like the UAE, where meetings may be organised in one location while participants are geographically dispersed.[20]

The UAE FTA guidance further emphasises that POEM should be assessed on the basis of overall management patterns rather than isolated events. For virtual meetings, this includes:

• whether strategic decisions are consistently taken by individuals in a particular jurisdiction;
• the role of written resolutions and electronic approvals;
• whether meetings involve genuine deliberation or formal approval of decisions made elsewhere; and,
• whether authority is meaningfully exercised or delegated.[21]

This substance-based analysis prevents POEM outcomes driven by legal formalities that could be misleading or purposely tilted.

Another distinct element of the UAE approach to the POEM test is that virtual meetings may be used during temporary circumstances, such as travel disruptions that affect directors’ locations. In such cases, temporary changes in participant locations should not alter POEM outcomes. This reduces the risk of short-term disruptions that could lead to unintended consequences for residents.[22]

By focusing on observable factors – such as decision-makers’ physical location during meetings, documented processes and consistent decision patterns – the UAE approach provides administrable criteria for virtual meetings without relying on subjective intent. This enhances certainty for taxpayers and authorities in assessing POEM in a virtual environment.

Uncertainty around virtual meetings can expose businesses to unintended shifts in CIT residence, dual-residence claims under domestic law, and increased reliance on MAPs embedded in tax treaties. By clarifying the treatment of virtual meetings for POEM purposes, the UAE guidance serves as a dispute-prevention mechanism, reducing residence disputes arising from modern governance practices. The UAE’s guidance has been particularly helpful when it comes to addressing complexities associated with meeting the requirements under KSA’s HQ programme.

The UAE’s approach to virtual meetings, based on decision-makers’ physical presence and governance patterns, offers a reference point for the OECD in considering how residence rules operate in a mobile, digitally connected business environment.

More in detail, the UAE experience suggests that effective residence design in a mobility-driven economy should:

• explicitly recognise virtual and hybrid meetings as normal corporate decision-making;
• focus on decision-makers’ physical location when decisions are taken, rather than formal meeting locations;
• assess patterns and substance of decision-making, not isolated events; and,
• consider temporary circumstances affecting the cross-border mobility of individuals.

As to KSA and Qatar, guidance as to the interpretation of ZATCA, the Saudi tax authority, or the GTA, the Qatari tax authority, of the abovementioned concept is absent to date. That is particularly painful in a Qatari context, outside of the QFC. The authority competent for taxes in the QFC in its guidance on the place of effective management refers for its interpretation amongst others to OECD Guidance.[23]

In conclusion, we consider that the experience of GCC jurisdictions demonstrates that traditional, presence-based tax concepts require careful adaptation in an environment characterised by high individual mobility, remote work, and virtual governance. Multi-factor residence tests, treaty-aligned concepts, and substance-based approaches to corporate residence can provide administrable and dispute-preventive solutions without undermining tax base integrity. We believe that these experiences may offer useful reference points for the OECD’s work on global mobility of individuals, particularly for jurisdictions seeking to modernise their frameworks or introduce personal income taxation in the future. We would be pleased to engage further with the OECD and to provide any additional clarification that may be helpful.

References:

[1] International Labour Office (ILO), Labour Migration, https://www.ilo.org/regions-and-countries/ilo-arab-states/areas-work/labour-migration.

[2] Gulf Labour Markets and Migration (GLMM), GCC Total Population and Percentage of National and Non-Nationals in GCC Countries (National Statistics – mid-2022), https://gulfmigration.grc.net/gcc-total-population-and-percentage-of-nationals-and-non-nationals-in-gcc-countries-national-statistics-mid-2022/. 

[3] GLMM, National and Foreign Populations in GCC Countries, https://gulfmigration.grc.net/wp-content/uploads/2025/02/Francoise-De-Bel-Air-Factsheet-No.-13-GCC-Populations-2025-02-27.pdf.

[4] Later comprehensively revised by the 2001 GCC Economic Agreement Between the GCC States – see article 3 for the equivalent article.

[5] Zawya, Gulf Common Market Expands Opportunities for GCC Nationals, 19 September 2025, https://www.zawya.com/en/economy/gcc/gulf-common-market-expands-opportunities-for-gcc-nationals-sjjxx5pm.

[6] SA: General Authority for Statistics, Gulf Common Market in the Gulf Cooperation Council (GCC), https://gccstat.org/en/statistic/publications/indicator.

[7] UAE: Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses [UAE Corporate Tax Law].

[8] UAE: Cabinet Decision No. 49 of 2023 Issued 8 May 2023 – (Effective from 1 Jun 2023). See also UAE Federal Tax Authority (FTA) Guide Corporate Tax Guide | Taxation of natural persons under the Corporate Tax Law | CTGTNP1 – November 2023.

[9] UAE: Ministry of Finance (MoF), Double Taxation Agreements (DTAs), https://mof.gov.ae/en/public-finance/international-relations/double-taxation-agreements/.

[10] OMN: Royal Decree No. 56 of 22 June 2025, published in the Official Gazette on 30 June 2025.

[11] UAE: Cabinet Decision No. 85 of 2022 – Issued 2 Sept 2022 (Effective 1 Mar 2023); Ministerial Decision No. 27 of 2023 – Issued 22 Feb 2023 (Effective 1 March 2023); Federal Tax Authority (FTA), Tax Procedures Guide | Tax Resident and Tax Residency Certificate | TPGTR1.   

[12] UAE: Ministerial Decision No. 27 of 2023 – Issued 22 Feb 2023 (Effective 1 March 2023), article 2.

[13] UAE: Ministerial Decision No. 27 of 2023 – Issued 22 Feb 2023 (Effective 1 March 2023), article 4.

[14] UAE: Ministerial Decision No. 27 of 2023 – Issued 22 Feb 2023 (Effective 1 March 2023), articles 5 and 6.

[15] KSA: Royal Decree No. M/1 of 6 March 2004 (Income Tax Law), Article 3.

[16] QAT: Law No. (11) of 2022 Amending Several Provisions of Income Tax Law Promulgated by Law No. (24) of 2018, article 1.

[17] UAE: Article 11(3)(b) of the UAE Corporate Tax Law. 

[18] UAE: Federal Tax Authority (FTA), Tax Procedures Guide | Tax Resident and Tax Residency Certificate | TPGTR1.   

[19] UAE: Federal Tax Authority (FTA), Tax Procedures Guide | Tax Resident and Tax Residency Certificate | TPGTR1, paragraph 4.1.6.1.

[20] UAE: Federal Tax Authority (FTA), Tax Procedures Guide | Tax Resident and Tax Residency Certificate | TPGTR1, paragraph 4.1.6.1.

[21] UAE: Federal Tax Authority (FTA), Tax Procedures Guide | Tax Resident and Tax Residency Certificate | TPGTR1, paragraph 4.1.6.

[22] UAE: Federal Tax Authority (FTA), Tax Procedures Guide | Tax Resident and Tax Residency Certificate | TPGTR1, paragraph 4.1.6.

[23] QAT: QFC Tax Manual, sections 2060 and 2080, pages 44 and following. The QFC also refers to guidance of the South African Revenue Service and a UK ruling.

The introduction of the federal Corporate Income Tax (CIT) regime in the United Arab Emirates marks a shift in the country’s business landscape. From financial years beginning on or after 1 June 2023, companies are required to pay 9% on profits above AED 375,000, with income below that threshold not taxable, effectively functioning as a nil bracket. This change has placed greater importance on understanding how to manage taxable income effectively. One of the most efficient ways to do so is by identifying which expenses are deductible under the new rules. While the CIT Law provides clear principles, the details are nuanced, and businesses that master these rules can optimise their tax position while remaining fully compliant.

The guiding principle under Article 28 of the CIT Law is that an expense is deductible only if it is wholly and exclusively incurred for business purposes and is not of a capital nature. In other words, only business expenses are deductible for CIT purposes. Expenses should be accounted for on an accrual basis, meaning they are recognised in the year in which they are incurred, not when they are paid, except where the taxable person is a small business which can avail cash accounting.

Where an expense is partly business-related, only the portion used for business can be deducted. For instance, if a company pays for a subscription that serves both personal and professional purposes, only the business-related element could be claimed.

Categories of Deductible Expenses

1) Business-Related Operating Expenses

Most day-to-day operating expenses fall within the deductible category, provided they serve a genuine commercial purpose. Salaries, allowances and bonuses paid to employees are deductible, as are office rents, utility bills and telecommunications costs that keep the business running. Expenditure on office supplies and consumables, such as stationery and printing, qualifies as well.

Marketing and advertising campaigns, whether digital, print, or event-based, are also deductible to the extent they are designed to generate taxable income. Similarly, professional service fees for auditors, legal counsel, or tax advisers are recognised as valid deductions. Even travel and accommodation costs can be deducted when they are clearly linked to business, though taxpayers must retain detailed records of the purpose and beneficiaries of such expenses. Maintenance and repair of business assets are also deductible, provided it does not extend the asset’s useful life. Lastly, costs related to the training of employees and professional development are also deductible when linked to improving business performance.

2) Finance Costs

Interest payments on borrowings used for business purposes are generally deductible, This includes interest on bank loans, credit lines, finance leases and the profit component of Islamic financing. Though there are certain limitations:

• Net interest expenses, after offsetting taxable interest income, may only be deducted up to 30% of adjusted EBITDA. A safe-harbour rule allows the first AED 12 million of net interest expenses to be deducted in full.
• In addition, specific restrictions apply to related-party loans borrowed by taxable persons. If a loan from a related entity is used to finance dividends, share redemptions, or capital contributions, the interest on that loan cannot be deducted unless the taxpayer can demonstrate that the arrangement is commercially driven rather than tax-motivated. This ensures that financing structures are aligned with genuine business needs rather than aggressive tax planning.

3) Entertainment Expenses

Client entertainment and hospitality occupy a special category. These are deductible only up to 50% of the actual cost. The CIT Law recognises that client lunches, tickets to events, and similar expenses have a business purpose but also carry a personal benefit element. To support such deductions, companies must maintain detailed documentation specifying the business reason and identifying the individuals involved.

4) Charitable Contributions

The CIT regime also allows deductions for charitable contributions, but only when made to approved “Qualifying Public Benefit Entities”. Donations to other organisations, regardless of their merit, are not deductible. For businesses, this means verifying the recipient’s status before making contributions if they wish to obtain a tax benefit.

5) Depreciation and Amortisation

Capital expenditure is not immediately deductible. Instead, businesses claim relief through depreciation or amortisation over the asset’s useful life, following standard accounting standards and reflecting the economic reality of the asset. For example, a vehicle or a piece of equipment is not expensed in the year of purchase but gradually written down in line with its expected use.

6) Bad Debts

Another important category concerns bad debts. If income previously recognised as taxable becomes uncollectible, it may be written off and deducted from a tax point of view. This ensures that businesses are not taxed on income they ultimately never receive, provided proper evidence of irrecoverability is maintained.

7) Pre-Incorporation and Pre-Trading Expenses

Expenditure incurred before a company formally begins operations, such as registration fees, market research, or feasibility studies, may also be deductible if it satisfies the general conditions of being business-related and properly recorded. This provision acknowledges that significant investment is often made before revenue is generated.

8) Taxes and Unrecoverable VAT

While CIT itself is not deductible, other domestic taxes and unrecoverable VAT incurred wholly for business purposes are deductible. Recoverable VAT, for which input claims can be made in line with the UAE VAT legislation, does not qualify. This distinction underlines the importance of carefully reviewing VAT positions alongside corporate tax planning.

9) Net Operating Losses

One of the most valuable features of the UAE Corporate Tax regime is the treatment of net operating losses. These may be carried forward indefinitely and used to offset up to 75% of taxable income in future periods. Losses incurred before the introduction of the CIT regime or before an entity became a taxable person cannot be carried forward, but the rule provides a powerful mechanism for businesses with volatile or cyclical earnings to smooth their tax liabilities over time.

Compliance and Documentation

The ability to deduct expenses ultimately hinges on record-keeping. Businesses must retain invoices, contracts, and supporting evidence that substantiate the purpose of each expense. In related-party contexts, compliance with the arm’s-length principle is critical, and transfer pricing documentation, including master and local files, may be required. Companies that take compliance lightly, risk disallowance of deductions and potential penalties.

Conclusion

The UAE CIT regime has introduced a new level of complexity to the business environment, but also an opportunity for well-managed companies to optimise their tax position. By understanding the principles of deductibility and carefully documenting expenses, businesses can ensure that legitimate costs, whether salaries, professional fees, interest, or charitable donations, are used effectively to reduce taxable income. Staying up to date with Federal Tax Authority guidance and seeking advice from qualified professionals will be essential for maintaining compliance and maximising the benefits available under the law.

Reach out to our experienced team of professionals who will help you navigate these rules!