Ministerial Decision 120. for UAE Regarding Corporate Tax

The decision states that taxable persons can choose to adjust their taxable income for gains or losses upon the disposal of specific assets. These assets include qualifying immovable property, qualifying intangible assets, and qualifying financial assets and liabilities, subject to certain conditions. Taxable persons must meet criteria such as owning the assets before the first tax period, accounting for them on a historical cost basis, and disposing of them after the CT Law becomes effective. The decision outlines two options for adjusting gains on qualifying immovable property and one option for qualifying intangible assets. Additionally, it allows for the exclusion of gains or losses on qualifying financial assets and liabilities based on their net book value.

MoF UAE Decisions 123, 126 and 127 for Corporate Tax

Decision No. 125 clarifies the conditions for forming a tax group, including the meaning of share capital and the eligibility of foreign juridical persons to join a tax group if they are considered residents in the UAE. It also outlines administrative and computational mechanisms for tax groups, including the treatment of transactions between group members and the utilisation of tax losses.

Decision No. 126 focuses on the General Interest Deduction Limitation Rule (GIDLR). It explains that financial returns on assets or liabilities that comprise interest will be considered for the GIDLR, including amounts related to raising finance, Islamic financial instruments, and interest components of derivative instruments. It introduces a safe harbor threshold of AED 12 million for net interest expenditure, beyond which the GIDLR will be applicable. Earnings before interest, tax, depreciation, and amortization (EBITDA) are used to compute the 30% limit.

Decision No. 127 addresses unincorporated partnerships, foreign partnerships, and family foundations. It clarifies that unincorporated partnerships should not be considered taxable persons, but they can choose to be treated as such. Foreign partnerships and family foundations must meet certain conditions to be treated as unincorporated partnerships for tax purposes.

MoF UAE Decision No.133 Regarding CT Implementation

The recently issued Ministerial Decision No. 133 of 2023 introduces Business Restructuring Relief for the implementation of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. The decision defines key terms and provides guidelines for transfers and ownership interests related to corporate tax law.

According to Article 2, a transfer will be considered to meet the conditions of the Corporate Tax Law if the market value of additional consideration received, apart from shares or ownership interests, does not exceed the net book value of the transferred assets and liabilities or 10% of the nominal value of the ownership interests issued.

Article 3 defines ownership interests, including ordinary shares, preferred shares, redeemable shares, membership and partner interests, and other types of securities. These interests must be classified as equity according to the Accounting Standards applied by the Taxable Person.

Growing Demand for Muwafaq Package in UAE

In our latest update, we are pleased to share the significant growth and success of the Muwafaq Package, an initiative introduced by the Federal Tax Authority (FTA) in March to support small and medium-sized enterprises (SMEs) in tax compliance. The FTA reported a surge in demand and registrants for the package, which offers a range of services, incentives, and privileges through an accessible platform. The FTA organized a Customer Council meeting in Abu Dhabi, part of the UAE government's initiative to engage customers in designing better government services. The meeting showcased the objectives of the Customer Councils initiative and emphasized the importance of customer feedback in enhancing service quality. The FTA experts presented the Muwafaq Package's objectives, features, and innovative solutions, including tax compliance facilitation for registered SMEs, educational materials, special rates on tax accounting programs and software, exclusive packages, priority services, and workshops.

FTA in the UAE Launches CT Registration for Public Joint Stock Companies and Private Companies Through EmaraTax.

The Federal Tax Authority (FTA) in the UAE has announced the launch of registration for Corporate Tax for Public Joint Stock Companies and Private Companies through the EmaraTax digital tax services platform. According to the Corporate Tax Law, Taxable Persons will be subject to Corporate Tax from the beginning of their first financial year starting on or after 1 June 2023. Therefore, it is crucial for Taxable Persons to register and obtain a Tax Registration Number for Corporate Tax purposes. The FTA has invited all resident Public Joint Stock Companies and Private Companies to register, excluding Free Zone Persons. Registration for other categories of Taxable Persons will open at a later date. Early registration allows companies and businesses ample time to comply with their legal obligations. The registration process is currently available for individual legal entities, and entities looking to form a Corporate Tax Group should register individually first. For more information and registration, individuals can visit the Corporate Tax registration portal or contact the FTA's customer support team.

MoF Announces Cabinet Decision on Determination of Non-Resident Person Nexus in UAE.

We are delighted to provide a concise summary of the recent announcement by the UAE Ministry of Finance regarding Cabinet Decision No. 56 of 2023. This decision focuses on the nexus of non-resident persons in the UAE for taxation purposes under the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the Corporate Tax Law). Here are the key points:

1. Taxation of Income from UAE Real Estate: Foreign companies and non-resident juridical persons will be subject to UAE Corporate Tax on income derived from real estate and other immovable property located in the UAE. This includes both property used in business operations and property held for investment purposes.

2. Registration and Tax Calculation: Non-resident juridical persons with UAE immovable property are required to register in the UAE for Corporate Tax purposes. They will be subject to Corporate Tax on a net-income basis, allowing for relevant expenditure deductions according to the conditions outlined in the Corporate Tax Law.

3. Exemptions for Real Estate Investment Income: Real Estate Investment Income earned from UAE immovable property owned by foreign or UAE resident individuals, directly or through fiscally transparent entities, may be exempt from Corporate Tax if it is not a licensed business activity. Qualifying Investment Funds and Real Estate Investment Trusts may also be eligible for an exemption, subject to specific conditions.

This newsletter highlights the key aspects of Cabinet Decision No. 56 of 2023, ensuring that our clients stay informed about the taxation regulations pertaining to non-resident persons and their nexus with UAE real estate. It is important for businesses and individuals to understand their tax obligations and the potential exemptions available to them under the Corporate Tax Law.

UAE Ministerial Decision 134 Regarding Taxable Income for CT

The Ministerial Decision No. 134 of 2023 has been issued regarding the General Rules for Determining Taxable Income under the Corporate Tax Law. The decision provides definitions for key terms used in the Corporate Tax Law, such as Accounting Standards, Financial Statements, Accrual Basis of Accounting, Financial Asset, Financial Liability, Equity Method of Accounting, and Cost Method of Accounting.

The decision also outlines adjustments to be made when calculating taxable income. These adjustments include including realized or unrealized gains and losses reported in the financial statements that will not be subsequently recognized in the statement of income. It also specifies adjustments related to transactions with related parties, transfers within a qualifying group, business restructuring relief, and adjustments for partners in an unincorporated partnership.

Furthermore, the decision provides conditions for electing the use of the realization basis, where a taxable person can choose to recognize gains and losses only upon realization. The decision also clarifies which transfers of assets or liabilities are not considered as realizations and defines what constitutes a realization of an asset or liability.

Overall, Ministerial Decision No. 134 of 2023 provides important guidelines and definitions for determining taxable income under the Corporate Tax Law, ensuring transparency and consistency in financial reporting and taxation for corporations and businesses.

UAE Cabinet Decision No.55 on Qualifying Income

The recent Cabinet Decision No. 55 of 2023 is titled "Determining Qualifying Income for the Qualifying Free Zone Person for the purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses." This decision, which came into into effect on 1 June 2023, introduces important definitions and provisions related to qualifying income in free zones. Here are the key points:

1. Definitions: The decision adopts definitions from Federal Decree-Law No. 47 of 2022, but introduces specific meanings for terms such as Domestic Permanent Establishment, Qualifying Activities, Excluded Activities, Non-Free Zone Person, Commercial Property, and Corporate Tax Law.

2. Scope of Application: The decision applies to Qualifying Free Zone Persons.

3. Qualifying Income: The decision outlines categories of income that qualify for taxation, provided they are not attributable to Domestic Permanent Establishments, Foreign Permanent Establishments, or the ownership/exploitation of immovable property. It includes income from transactions with other Free Zone Persons (excluding Excluded Activities), income from transactions with Non-Free Zone Persons related to Qualifying Activities (excluding Excluded Activities), and other income that satisfies de minimis requirements.

4. De Minimis Requirements: To satisfy the de minimis requirements, the non-qualifying revenue derived by a Qualifying Free Zone Person should not exceed a specified percentage of the total revenue or a specified amount, as determined by the Minister. Non-qualifying revenue includes revenue from Excluded Activities and non-Qualifying Activities with Non-Free Zone Persons.

5. Income Attributable to Establishments: Income attributable to Domestic Permanent Establishments or Foreign Permanent Establishments of Qualifying Free Zone Persons is considered taxable income and subject to taxation according to the Corporate Tax Law.

6. Income Attributable to Immovable Property: Income derived from transactions with Non-Free Zone Persons in respect of Commercial Property and transactions with any person for immovable property not classified as Commercial Property is considered taxable income.

7. Maintaining Adequate Substance and Outsourcing: Qualifying Free Zone Persons must carry out their core income-generating activities within the Free Zone and maintain adequate assets, qualified employees, and operating expenditures. They can outsource activities to Related Parties or third parties in the Free Zone as long as adequate supervision is maintained.

June’s Business Takeaway UAE

The new corporate tax levy, which came into effect on June 1, reflects the country’s effort to align itself with new international standards, particularly the move toward a global minimum tax on multinational corporations that was endorsed by the Group of 20 nations in 2021 and continues to gain momentum. The 9% tax on company earnings is still lower than in regional peers and most global financial centers. IPersonal income from employment, real estate and other investments will remain untaxed and there’s no change to a 5% value-added tax introduced in 2018. Read More

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