MoF Updates Ministerial Decisions On Tax Groups And Participation Exemptions To Enhance Compliance

The Ministry of Finance (MoF) has introduced changes to existing Ministerial Decisions, updating Ministerial Decision No. (301) of 2024 and Ministerial Decision No. (302) of 2024. These updates pertain to Tax Groups and exemptions under Federal Decree-Law No. 47 of 2022 on Corporate Taxation. The amendments aim to clarify regulations and ease administrative processes, reinforcing the UAE's status as a prime business hub.

These revised decisions will be effective for tax periods starting from 1 January 2025. They provide administrative relief and clarity for businesses forming Tax Groups. The changes simplify compliance for foreign juridical persons considered Resident Persons in the UAE, as well as those established in the UAE but managed abroad, by easing procedures to prove non-residency in other jurisdictions.

The updated decision also addresses the Participation Exemption and Foreign Permanent Establishment Exemption. It ensures that income from ownership transfers under Qualifying Group Relief or Business Restructuring Relief is not doubly taxed, even when claw-back provisions are applicable. This adjustment aims to streamline compliance for businesses investing in funds and similar structures.

For Tax Groups, the amendments specify when taxable income must be calculated according to the arm's length principle. This requirement is waived if the group earns income eligible for a Foreign Tax Credit. Additionally, groups with Pre-Grouping Tax Losses can choose to forfeit these losses, offering more flexibility and reducing compliance burdens under the Corporate Tax regime.

The amendments also provide guidance on adjusting tax losses incurred by Participations within or outside a Tax Group. They clarify how liquidation losses should be treated. Moreover, foreign Permanent Establishments transferring assets and liabilities to companies can benefit from the Participation Exemption only after profits offset aggregate tax losses, aligning their treatment with other Participations.

Younis Haji AlKhoori, Under-Secretary of the Ministry of Finance, stated: "These amendments reaffirm the UAE’s commitment to enhancing a dynamic and investor-friendly tax environment, simplifying compliance, and increasing growth opportunities. This approach strengthens the UAE's position as a leading global hub for business and investment."

The asset test for Participation Exemption now applies solely to related parties, easing compliance burdens for businesses investing in funds or similar structures. These changes aim to enhance equity within the Corporate Tax regime by aligning treatment across different participations.

With inputs from WAM