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UAE: Ministry of Finance issues new corporate tax decisions

Norms set on intra-group transfers, determination of taxable income and restructuring relief

The UAE Ministry of Finance has issued three new decisions for the purposes of Federal Decree-Law No 47 of 2022 on the taxation of corporations and businesses. These include Ministerial Decision No 132 of 2023 on transfers within a qualifying group, Ministerial Decision No 133 of 2023 on business restructuring relief, and Ministerial Decision No 134 of 2023 on the general rules for determining taxable income.

Younis Haji Al Khouri, Undersecretary of the Ministry of Finance, said: “The new decisions issued today aim to simplify the process of determining taxable income in addition to providing tax relief for intra-group transfer of assets or liabilities between members of the same qualifying group or when carrying out specific organisational restructuring. This reflects the Ministry of Finance’s commitment to ease the burden of compliance on taxpayers based on international best practice to maintain the UAE’s favorable business environment and drive economic growth.”

Transfers within a qualifying group

The decision provides further details on how to claim corporate tax relief on transfer of assets and liabilities between members of a qualifying group. The decision clarifies that an entity must make an election in their tax return to apply the relief and must comply with the associated record keeping requirements. The election to apply the relief for transfers within a qualifying group is irrevocable and will apply to all future tax periods. The decision also clarifies the implications of simultaneous asset or liability exchanges and the tax implications if the relief needs to be revoked (“clawed back”) because the relevant assets and liabilities or the relevant group companies leave the qualifying group within two years of the original transfer.

Business restructuring relief

The decision clarifies the conditions under which business mergers and other restructuring transactions can be undertaken without triggering a corporate tax liability. This relief is available when a business or an independent part of a business is transferred or merged into another legal entity in exchange for shares or other ownership interests. Where the transferer makes an election to apply the relief, no gain or loss needs to be included in the calculation of their taxable income. The relief can also apply if the business is exchanged for shares and a limited amount of other consideration such as cash, or when shares are received or issued by someone other than the transferer or the transferee as long as they are received or issued by an entity which owns the transferor or transferee, respectively. The decision also details the mechanism for clawing back the relief if the business or ownership interests are subsequently transferred within two years of the date of the original restructuring.

General rules for determining taxable income

The rules streamline the process of calculating taxable income for UAE businesses. The decision sets out adjustments needed for the taxable income calculation, including the recognition of realised and unrealised gains or losses reported in the financial statements. It also clarifies the conditions for applying the realisation basis and provides guidelines for adjusting changes in values on assets and liabilities derived from transfers involving related parties, qualifying groups or business restructuring relief.

Businesses preparing financial statements on an accrual basis of accounting can choose to recognise gains and losses on a realization basis for certain assets and liabilities. This election must be made during the first Tax Period and is irrevocable, except under exceptional circumstances approved by the Federal Tax Authority.