Ministry of Finance Issues New Ministerial Decisions Relating to Corporate Tax

The UAE Ministry of Finance consistently introduces a series of new Ministerial Decisions under Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses. These decisions have a collective objective of bolstering the regulatory framework governing corporate and business taxation in the UAE. By offering clearer guidelines and procedures, they enable businesses to adhere to the requirements specified in the Federal Decree-Law. These decisions reflect the UAE government’s steadfast dedication to upholding a fair and transparent tax system, while simultaneously fostering an environment conducive to business growth and development within the country. Below, you will find descriptions of a three Ministerial Decisions introduced.

– Ministerial Decision No. 114 of 2023 focuses on accounting standards and methods. It designates International Financial Reporting Standards (IFRS) as the applicable accounting standards in the UAE. Larger businesses with revenues exceeding AED 50,000,000 are required to use IFRS, while small and medium businesses with revenues not exceeding AED 50,000,000 have the option to use IFRS for SMEs. Furthermore, businesses with less than AED 3,000,000 in revenue can choose to use cash basis accounting. The decision also clarifies the concept of consolidated financial statements for tax grouping purposes.

–Ministerial Decision No. 115 of 2023 sets out conditions for private regulated pension funds and social security funds in the UAE to be exempt from corporate tax. The decision ensures alignment with international tax practices, allowing the UAE’s private pension or social security funds to maintain their exempt status when investing internationally. It also establishes maximum contributions per beneficiary and mandates annual confirmation of compliance by a statutory auditor.

– Ministerial Decision No. 116 of 2023 focuses on participation exemption. It provides corporate tax exemptions on dividends, profit distributions, and capital gains derived from a Participating Interest. A Participating Interest refers to a 5% or greater ownership stake in another entity’s shares or capital, held for at least 12 months. The exemption applies if the subsidiary is located in a jurisdiction with a corporate tax rate of at least 9% or can demonstrate an effective tax rate of at least 9% on profits, income, or equity. The decision also specifies that various ownership interest types, such as preferential shares, ordinary shares, and redeemable shares, as well as membership and Partner Interest, qualify for the relief if the aggregated acquisition cost of the ownership interests is equal to or exceeds AED 4,000,000.

For further information on the other Ministerial Decisions related to the taxation of corporations and businesses under Federal Decree-Law No.(47) of 2022, please visit the Ministry of Finance website: https://mof.gov.ae/tax-legislation/

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