UAE Ministry of Finance Announces key Tax Amendments to Ministerial Decisions on Tax Groups, Participation, and Foreign Permanent Establishment Exemptions

Updated Ministerial Decisions:

1. Ministerial Decision No. (301) of 2024: Addresses Tax Groups under Federal Decree-Law No. 47 of 2022, introducing administrative simplifications.
2. Ministerial Decision No. (302) of 2024: Provides further clarity on the Participation Exemption and Foreign Permanent Establishment Exemption.

Highlights of the Revisions:

I. Amendments to Tax Group Regulations

The updated Ministerial Decision No. (301) of 2024 focuses on Tax Groups under Federal Decree-Law No. 47 of 2022. Key amendments include:

1. Simplified Compliance for Dual-Resident Entities:
   • Foreign juridical persons considered UAE residents can now be included in a Tax Group without needing confirmation from foreign tax authorities about their tax residency status.
   • A UAE resident entity that becomes a tax resident in another country will automatically exit the Tax Group at the start of the tax period.
2. Application Timeline:
   • Businesses intending to form a Tax Group must apply to the Federal Tax Authority before the end of the relevant tax period.
   • For those following a January-December fiscal year, applications should be submitted promptly.
3. Administrative Relief on Taxable Income Calculations:
   • Taxable persons with pre-grouped tax losses or unutilized net interest expenditure can choose to forfeit these amounts, thereby avoiding the need to calculate taxable income for specific group members on a standalone basis.
   • The requirement to calculate standalone taxable income is also waived when claiming a foreign tax credit.

II. Updates to Participation and Foreign Permanent Establishment (PE) Exemptions

Ministerial Decision No. (302) of 2024 addresses the Participation Exemption and Foreign Permanent Establishment Exemption. Key amendments include:

1. Protection Against Double Taxation:
   • Income from ownership transfers under Qualifying Group Relief or Business Restructuring Relief will not be subject to double taxation, even if claw-back provisions apply.
2. Clarification on Minimum Acquisition Cost Criteria:
   • The 5% profits or liquidation proceeds test does not apply if the minimum acquisition cost exceeds AED 4 million, providing clarity for businesses.
3. Asset Test Application:
   • The asset test for Participation Exemption applies only when the participation is classified as a related party under UAE Corporate Tax Law.
4. Restrictions on Liquidation Losses:
   • Losses from the liquidation of a participation can be utilized only after adjustments against specific items in the relevant tax period and the preceding seven tax periods, including tax losses transferred from the participation and previously exempted dividends.

III. Foreign Permanent Establishment Transfers

The updated Ministerial Decision No. (302) of 2024 provides additional clarity on the alignment between tax loss offsetting and the Participation Exemption for foreign Permanent Establishments (PEs). Key amendments include:

1. Eligibility for Participation Exemption:
   • Foreign Permanent Establishments that transfer their assets and liabilities to companies can only benefit from the Participation Exemption once the profits of the Participation fully offset any aggregate tax losses incurred by the PE.
   • This ensures parity in treatment between Participations and Permanent Establishments, fostering equity within the Corporate Tax regime.
2. Alignment with Group Taxation Principles:
   • The amendments emphasize that tax relief measures are contingent upon the adjustment of tax losses to reflect the true taxable position of the transferred PE.
   • This provision supports the UAE’s aim to establish transparent and fair tax compliance standards.

Implications for Businesses

These amendments are designed to streamline tax compliance and reduce administrative burdens for businesses in the UAE. Key takeaways for businesses include:

• Reviewing the new provisions to ensure they meet the updated compliance requirements.
• Understanding how the updates to Tax Groups, Participation Exemptions, and Foreign Permanent Establishments affect their tax obligations.
• Consulting with tax professionals to navigate the amendments effectively and ensure timely compliance.

The UAE Ministry of Finance reinforces its commitment to creating an investor-friendly tax environment, simplifying compliance, and fostering growth opportunities. These efforts strengthen the UAE’s position as a leading global hub for business and investment.

How Motei & Associates Can Help

At Motei & Associates, we specialize in providing expert guidance on compliance and tax planning under the UAE Corporate Tax Law. With the recent amendments to Tax Groups, Participation Exemptions, and Foreign Permanent Establishments, our legal team is here to help you navigate these changes effectively.

Whether you need tailored advice on how these updates may impact your business operations, tax group formation, or family foundation, we are committed to offering comprehensive support.

Contact our legal team today to ensure your business is fully prepared and compliant under the updated UAE tax regulations.