Amendments regarding tax groups and foreign establishment exemption

The Ministry of Finance announced the amendment of some provisions of ministerial decisions by issuing Ministerial Resolution No. 301 of 2024 regarding the tax group for the purposes of Federal Decree Law No. 47 of 2022 regarding corporate and business tax, and Ministerial Resolution No. 302 of 2024 regarding the exemption for participation and foreign permanent establishment. For the purposes of the law itself, these amendments provide important clarifications and administrative facilities aimed at enhancing compliance and consolidating the position of the UAE. As a leading global business destination.

The provisions of the amended ministerial decision apply to tax periods beginning on or after January 1, 2025, as the decision provides a set of administrative facilities and clarifications for businesses and companies that form tax groups.

The amended provisions work to simplify the requirements imposed on foreign legal persons who are considered residents of the country and legal persons established in the country and who are effectively managed and controlled outside the UAE, by facilitating the compliance procedures necessary to prove that they are not tax residents. In other foreign countries or territories.

The amended decision also clarifies the cases in which tax groups are obligated to calculate the taxable income attributed to one of their members, in line with the “neutral rate” principle. One of the most prominent contents of the amended decision is the abolition of the requirement to calculate this income in cases where the tax group generates income that allows it to benefit from a foreign tax deduction. In addition, tax groups that incurred tax losses before forming the group can choose to waive these previous losses, which gives Companies have greater flexibility and reduce burdens related to tax compliance under the corporate tax system.

The amended ministerial decision applies to tax periods beginning on or after January 1, 2025 and provides clarifications and administrative facilities for businesses that benefit from the participation and foreign permanent establishment exemption.

With regard to the participation exemption, the amended decision ensures that double taxation does not occur on income related to transfers of ownership interest under the provisions of qualified group facilities or business restructuring facilities, even if those facilities are canceled for failure to meet the conditions. The decision also stipulates that the assets test for the purposes of the participation exemption (Pursuant to Article 23(2)(d)) It will only apply if the participation is a party related to the taxable person, reducing the compliance burden on persons investing in funds and similar structures.

Furthermore, the amended decision clarifies the procedures to be taken regarding liquidation-related tax losses incurred by the participation, whether within or outside the tax group. It also provides clarification on the treatment of liquidation losses.

Foreign permanent establishments whose assets and liabilities are transferred to companies can benefit from the participation exemption only after the participation profits fully cover the total tax losses of the permanent establishment, which ensures their treatment on an equal footing with other participations, and enhances the fairness of the corporate tax system.

His Excellency Younis Haji Al Khouri, Undersecretary of the Ministry of Finance, said that these updated amendments reflect the UAE’s commitment to promoting a dynamic and attractive tax environment for investors, where compliance is simplified and growth opportunities are increased, as this approach enhances the UAE’s position as a leading global destination for business and investment.