The UAE Ministry of Finance recently announced important developments in the field of corporate taxation. With the issuance of three new Ministerial Decisions, the Ministry aims to simplify corporate tax calculations and provide relief to businesses engaging in qualifying group transfers and restructuring activities. Some key aspects of these decisions and their implications for UAE businesses are as follows:
Corporate Tax Relief for Qualifying Group Transfers:
Ministerial Decision No 132 of 2023 focuses on transfers within a qualifying group. A qualifying group refers to a collection of interconnected companies through ownership or control. These groups can now benefit from corporate tax relief measures introduced by the Ministry of Finance. However, certain criteria need to be met to qualify as a group, as specified in the accompanying regulations or guidelines. The decision outlines the procedure for claiming corporate tax relief when transferring assets and liabilities within a qualifying group. Entities must make an irreversible election in their tax return and fulfill record-keeping requirements. The relief applies to all future tax periods and addresses the tax implications. If the relief needs to be revoked within two years of the original transfer.
Business Restructuring Relief for Tax Liability:
Ministerial Decision No 133 of 2023 provides guidance on business restructuring relief. This decision clarifies the conditions under which corporate tax liabilities are not levied during business mergers and restructuring transactions. If a business or part of a business is transferred or merged into another legal entity in exchange for shares or ownership interests, and the transferor elects to apply for this relief, no gain or loss needs to be included in the calculation of taxable income. The decision also outlines the process for clawing back or regaining the relief if subsequent transfers occur within two years of the initial restructuring.
Streamlined Calculation of Taxable Income:
Ministerial Decision No 134 of 2023 introduces the General Rules for Determining Taxable Income. This decision simplifies the calculation of taxable income for UAE businesses. It provides guidelines for adjustments required in the income calculation. Including the recognition of realized and unrealized gains or losses reported in financial statements. Businesses preparing financial statements on an accrual basis of accounting have the option to recognize gains and losses on a realization basis for specific assets and liabilities. This election must be made during the first tax period and is irreversible except under exceptional circumstances approved by the Federal Tax Authority. These new Ministerial Decisions from the UAE Ministry of Finance aim to reduce compliance burdens for taxpayers, align with international best practices, and maintain a favorable business environment in the UAE. For more information and detailed regulations, businesses can visit the Ministry of Finance’s official website http://www.mof.gov.ae/
