The UAE Ministry of Finance (MoF) has announced modifications to current Ministerial Decisions by issuing updated Ministerial Decision No. (301) of 2024 concerning Tax Groups, in accordance with Federal Decree-Law No. 47 of 2022 on Corporate and Business Taxation. Additionally, an updated Ministerial Decision No. (302) of 2024 addressing the Participation Exemption and Foreign Permanent Establishment Exemption has been released for the same Decree-Law.
These modifications offer crucial clarifications and administrative reliefs designed to improve compliance and boost the UAE’s status as a premier global business hub.
The revised Ministerial Decision will take effect for Tax Periods starting on or after January 1, 2025, and introduces various administrative reliefs and clarifications for businesses that establish Tax Groups.
Simplification of obligations
The new provisions simplify the obligations for foreign juridical persons classified as Resident Persons in the UAE, as well as for juridical persons formed in the UAE but managed and controlled outside the UAE, by streamlining compliance processes needed to prove that they are not tax residents in another jurisdiction.
Clarification of tax group income
The amendments clarify the circumstances under which Tax Groups must compute taxable income attributed to one of their members based on the arm’s length principle. Importantly, the obligation to calculate such income is eliminated if the Tax Group receives income eligible for a Foreign Tax Credit. Moreover, Tax Groups with Pre-Grouping Tax Losses may choose to relinquish these losses, providing greater flexibility and reducing compliance burdens under the Corporate Tax framework.
Further clarity on participation exemption
The updated Ministerial Decision will apply to Tax Periods beginning on or after January 1, 2025, and offers further clarity and administrative relief for businesses utilizing the Participation Exemption and Foreign Permanent Establishment Exemption.
Guarantee against double taxation
Regarding the Participation Exemption, the revised decision guarantees that income arising from ownership transfers under Qualifying Group Relief or Business Restructuring Relief will not face double taxation, even in instances where claw-back provisions are applicable.
Asset test simplification
Additionally, the asset test for the Participation Exemption (under Article 23(2)(d)) is applicable solely to related parties, simplifying compliance for businesses investing in funds and similar entities.
Adjustments to tax losses
The amendments also provide clarity on adjustments to tax losses incurred by Participations, whether they are within or outside a Tax Group, and clarify the treatment of liquidation losses.
Treatment of foreign permanent establishments
Furthermore, it is explicitly stated that foreign Permanent Establishments transferring their assets and liabilities to companies can only benefit from the Participation Exemption after the profits of the Participation have fully counterbalanced the total tax losses of the Permanent Establishment, aligning their treatment with that of other Participations and enhancing fairness within the Corporate Tax regime.
Younis Haji AlKhoori, under-secretary of the Ministry of Finance, remarked, “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.”
