Middle East: Tax

Changes in business models and supply chains have become increasingly common as multinational groups respond to cost pressures, digitalization, geopolitical developments, market expansion, and the need for greater supply-chain resilience. While these changes are usually driven by commercial considerations, they can significantly affect a group’s transfer pricing position.

Debt-to-equity conversion is considered one of the most important financial restructuring tools used by companies to address financing structure imbalances and improve their financial position. The importance of this mechanism is particularly evident in cases where companies rely on debt financing for extended periods, whether through shareholders’ loans, loans provided by subsidiaries or sister companies, or external financing, resulting in a high level of liabilities compared to equity.

The UAE Federal Tax Authority has introduced new supplier verification and supply validation requirements that fundamentally alter VAT compliance obligations. Taxable persons must now implement comprehensive due diligence processes to confirm the authenticity of suppliers and transactions before claiming VAT refunds. This regulatory shift places unprecedented responsibility on businesses to actively validate the legitimacy of their supply chain transactions.