On Tuesday, the UAE Ministry of Finance announced three new around the nation’s corporate tax regime.
The decisions, which fall under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, include various features related to accounting standards, pensions and social security funds, and participation exemption.
Undersecretary of the Ministry of Finance, Younis Haji Al Khouri, said the objectives of these decisions, stating that they seek to promote a favorable business environment and increase the flexibility of the UAE’s corporate tax regime.
“The decisions cover several important aspects related to private regulated pension funds and social security funds which are normally exempted from corporate tax in other countries. Designating International Financial Reporting Standards as the applicable accounting standards and further simplifying accounting processes for SMEs reflects the Ministry of Finance’s commitment to impose a minimal compliance burden for businesses in scope of the Corporate Tax regime. In addition, the participation exemption will prevent double corporate tax on the profits of one entity and eliminate international double taxation,” he said.
For pensions, social security funds
Ministerial Decision No. 115 of 2023 focuses on pensions and social security funds, laying out additional conditions for the exemption from corporate tax.
The decision is in line with UAE’s private pension and social security funds with international tax practices, ensuring that their exempt status is recognised when investing abroad, and allowing for the benefits of double tax treaties.
For pensions, social security funds
Ministerial Decision No. 115 of 2023 focuses on pensions and social security funds, laying out additional conditions for the exemption from corporate tax.
The decision is in line with UAE’s private pension and social security funds with international tax practices, ensuring that their exempt status is recognised when investing abroad, and allowing for the benefits of double tax treaties.
Small and medium enterprises (SMEs) with revenues below AED50,000,000 have the option to adopt IFRS for SMEs.
Furthermore, businesses with revenue below AED3,000,000 can employ cash basis accounting to further reduce their compliance burden, the statement said, adding the decision also clarifies the concept of consolidated financial statements for tax grouping purposes.
For participation exemption
The Ministerial Decision No. 116 of 2023 introduces the participation exemption, granting corporate tax exemptions on dividends, profit distributions, and capital gains from a participating interest.
A participating interest is a 5 percent or greater ownership stake in another entity’s shares or capital, held for at least 12 months, the statement said, adding the exemption applies if the subsidiary is in a jurisdiction with a corporate tax rate of at least 9 percent or can demonstrate an effective tax rate of at least 9 percent on profits, income, or equity.
The decision also clarifies various ownership interest types. These include preferential shares, ordinary shares, redeemable shares, membership interests, and partner interests, as long as the aggregated acquisition cost reaches or exceeds AED4,000,000.
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