The UAE Ministry of Finance has introduced three new Ministerial Decisions to facilitate the implementation of Federal Decree-Law No 47 of 2022 on the Taxation of Corporations and Businesses.
These decisions aim to simplify the determination of taxable income and provide tax relief for certain transactions within qualifying groups and business restructuring.
Corporate tax relief for qualifying group transfers
The first decision, Ministerial Decision No 132 of 2023, focuses on Transfers within a Qualifying Group.
A qualifying group refers to a group of companies that are connected to each other, either through ownership or control. These companies can benefit from certain tax relief measures introduced by the UAE Ministry of Finance.
However, to be considered part of a qualifying group, the companies must meet the specific criteria set by the Ministry of Finance.
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The exact requirements and conditions for qualifying as a group would be specified in the relevant regulations or guidelines accompanying the Ministerial Decisions.
It outlines the procedure for claiming corporate tax relief when transferring assets and liabilities between members of a qualifying group.
The decision specifies that entities must make an election in their tax return to apply for this relief and fulfill the associated record-keeping requirements.
Once the election is made, it becomes irreversible and applies to all future tax periods. The decision also addresses the tax implications if the relief needs to be revoked due to assets, liabilities, or group companies leaving the qualifying group within two years of the original transfer.
Business Restructuring Relief for tax liability
The second decision, Ministerial Decision No 133 of 2023, provides guidance on Business Restructuring Relief.
It clarifies the conditions under which corporate tax liabilities are not triggered 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 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” the relief if the business or ownership interests are subsequently transferred within two years of the initial restructuring.
Streamlined calculation of taxable income
Lastly, 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 establishes adjustments required for the income calculation, including the recognition of realised and unrealised gains or losses reported in financial statements.
The decision also provides guidelines for adjusting changes in values on assets and liabilities resulting from transfers involving related parties, qualifying groups, or business restructuring relief.
Additionally, businesses that prepare financial statements on an accrual basis of accounting can choose to recognise gains and losses on a realisation basis for certain assets and liabilities.
This election is irreversible except under exceptional circumstances approved by the Federal Tax Authority and must be made during the first tax period.
Undersecretary of the Ministry of Finance, Younis Haji Al Khouri, explained that the new decisions were designed to reduce compliance burdens for taxpayers and align with international best practices.
“The new decisions issued today aim to simplify the process of determining taxable income in addition to providing tax relief for intra-group transfer of assets or liabilities between members of the same qualifying group or when carrying out specific organisational restructuring. This reflects the Ministry of Finance’s commitment to ease the burden of compliance on taxpayers based on international best practice to maintain the UAE’s favorable business environment and drive economic growth,” he said.
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