Among 3 new resolutions issued by
«Finance» sets the conditions for forming a «tax group» or joining it and treating it as a single entity
«Finance»: The joint venture is not subject to corporate tax unless it is treated as a company. Archival
Younis Haji Al Khouri: "The new decisions reflect the flexibility of the corporate tax system in the UAE, in terms of providing clear tax procedures that help comply."
The Ministry of Finance has issued three new ministerial decisions for corporate tax purposes, including Ministerial Decision No. 125 of 2023 on the tax group, Ministerial Decision No. 126 of 2023 on the general rule of interest deduction restrictions, and Ministerial Decision No. 127 of 2023 on the joint coalition.
Younis Haji Al Khouri, Undersecretary of the Ministry of Finance, said: "The new decisions reflect the flexibility of the UAE's corporate tax system, in terms of providing clear tax procedures that help comply and strengthen the UAE's position as a leading hub for business and investment."
He added: "The tax group decision provides for the group to be treated as if it were a single entity, to reduce the burden of management and compliance, while the decision on the rules of interest discount restrictions, provides clarity to companies when calculating loan costs, and is based on the best global practices of the Organization for Economic Cooperation and Development, while the decision on the joint consortium clarifies that the consortium is not subject to corporate tax unless it is treated as a company, meaning that the partners in the joint venture will be subject to corporate tax on their share of income. investigator through partnership."
According to the Ministry of Finance, the ministerial decision related to the formation of the tax group clarifies the conditions under which entities residing in the UAE and jointly owned by 95% or more, can form or join a tax group, and be treated as a single entity for corporate tax purposes.
According to the resolution, the parent company residing in the UAE must own at least 95% of the voting rights and capital in each company, and all members of the tax group must be considered residents of the country for corporate tax purposes.
Interest Discount Restrictions
The resolution on the general rule of interest deduction restrictions sets out the maximum interest that can be deducted by businesses other than banks, insurance service providers or natural persons (individuals) who conduct business or business activities in the UAE.
In line with international standards, net interest charges deducted are set at up to 30% of the company's accounting profit before interest, tax, depreciation and amortization, or the safe-haven amount is set at AED 12 million. Tax groups that include members of banks or insurance service providers must exclude the income and expenses of these members when determining 30% of accounting profits before interest, tax, depreciation and amortization.
Given the importance of infrastructure projects to the UAE, long-term infrastructure projects that meet the relevant requirements will not face any restrictions on the deductibility of interest expenses under the general interest discount rule.
In line with the country's commitment to establish itself as a leading global hub for trade and finance, interest incurred on debt instruments introduced prior to the publication of the Corporate and Business Tax Law to the public on December 2022, <>, will not be subject to the general rule of interest discount restrictions.
Under the Joint Coalition Ministerial Decision (unless chosen), the Joint Venture will no longer be a taxable person per se, provided it is not a legal person (company), but if the Joint Venture chooses to be treated as a taxable person per se, its decision is irreversible once approved. Any change in the composition of the partnership must be notified to the Federal Tax Authority within 20 working days, and foreign partnerships that are treated as a "joint venture" must submit an annual declaration confirming that they are not subject to tax, under the laws of another foreign country, and each partner is taxed separately, based on his share of income.
With regard to family enterprises, the decision stipulates that one or more beneficiaries in family enterprises must be public benefit entities, to be treated as a "joint coalition", and it must be ensured that public benefit entities do not receive income that is treated as taxable income. If so, this income is distributed to the beneficiaries concerned within six months of the end of the relevant tax period.