The UAE Ministry of Finance issues amendments regarding tax groups

The Ministry of Finance has declared the modification of certain provisions of ministerial decisions through the issuance of Ministerial Decision No. 301 of 2024 concerning tax collection under Federal Decree-Law No. 47 of 2022 on corporate and business tax, and Ministerial Decision No. 302 of 2024 regarding the exemption of foreign participation and permanent establishment under the same law.

 These amendments offer significant clarifications and administrative conveniences intended to improve compliance and reinforce the UAE's status as a premier global business hub.

Since the decision offers a set of administrative facilities and explanations for firms and companies that join tax groups, the requirements of the amended ministerial decree are applicable to the tax periods starting on or after January 1, 2025.

By facilitating the required compliance procedures to demonstrate that they are not tax residents in other foreign countries or territories, the amended provisions streamline the requirements placed on foreign legal persons who are deemed residents of the United Arab Emirates but who are effectively managed and controlled outside the United Arab Emirates.

Tax groups

In accordance with the "neutral price" principle, the amended resolution also makes clear the circumstances in which tax groups must determine the taxable income attributed to one of their members. One of the resolution's most notable features is the removal of the need to do so in situations where the tax group generates enough revenue to qualify for a foreign tax deduction. Additionally, tax groups that experienced tax losses prior to the group's formation may elect to waive these prior losses, which provides businesses with more flexibility and lessens the burden associated with corporate tax compliance.

Administrative facilities and clarifications of tax periods

For companies that profit from the exemption of participation and foreign permanent presence, the updated ministerial decree offers administrative facilities and clarifications for tax periods starting on or after January 1, 2025.

Regarding the participation exemption, the amended decision states that the asset test for the purposes of participation exemption (as per Article 23(2)(D)) will only be applied if the participation is a party related to the Taxable Person. This lessens the burden of compliance for those investing in funds and similar structures. It also guarantees that there will not be double taxation on income related to transfers of ownership interest under the provisions of qualifying group facilities or business restructuring facilities, even if those facilities are canceled for non-fulfillment of conditions.

Additionally, the revised resolution makes clear what should be done about the participant's liquidation-related tax losses, both inside and outside the tax group. Additionally, it clarifies how liquidation losses are handled.

In order to guarantee equal treatment with other participants and improve the fairness of the corporate tax system, foreign permanent establishments whose assets and liabilities are transferred to companies are only eligible for the participation exemption once the participation profits have completely covered the permanent establishment's total tax losses.

His Excellency As this strategy enhances the UAE's standing as a top international location for business and investment, Younis Haji Al Khouri, undersecretary of the Ministry of Finance, stated that these new amendments demonstrate the UAE's dedication to fostering a vibrant and alluring tax environment for investors, where compliance is made easier and growth prospects are expanded.