The emirates issues 3 new decisions regarding the tax, For the purposes of Federal Decree-Law No. (47) of 2022 regarding corporate and business tax, the Ministry of Finance in the UAE has issued three new regulatory ministerial decisions. These include Ministerial Resolution No. 114 of 2023 regarding accounting standards and methods, Ministerial Resolution No. 115 of 2023 regarding pension and social insurance funds, and Ministerial Resolution No. 116 of 2023 regarding exempting participation.
"The three new decisions aim to enhance the flexibility of the corporate tax system in the United Arab Emirates and to create a supportive environment for business in various sectors," said the Undersecretary of the Ministry of Finance, Younis Haji Al-Khoury. "The United Arab Emirates is home to some of the world's most innovative companies," added Younis Haji Al-Khoury.
Al-Khoury continued by saying, "The decisions cover many important dimensions in the sectors of regulated private pension funds and social insurance funds, which are often exempt from corporate tax in countries all over the world."
The eagerness of the Ministry of Finance to impose a minimum burden of compliance for businesses within the scope of the corporate tax system is reflected in the decision to adopt international accounting standards and to provide convenience in accounting operations for firms and small enterprises. This decision was made in light of the ministry's desire to reduce the burden of compliance as much as possible. The fact that the firm will not be subject to double taxation on its profits as a result of this decision to exempt participation at the local level also assures that the company will not be subject to double taxation at the international level.
taxes in the Emirates
Funds for retirement and social security can be found
The Resolution concerning pension and social security funds imposes extra requirements in order for private pension funds and social insurance funds organised in the United Arab Emirates to be exempt from paying corporate tax. This exemption is provided by the Resolution.
The decision assures consistency with international tax practises, and as a result, private pension funds and social insurance funds in the UAE will no longer be subject to the corporate tax when making international investments. In addition, they will be able to take use of the benefits of agreements to avoid being taxed twice on the same income.
In addition to this, the resolution outlines the maximum contributions that can be made for each beneficiary, as well as the duties that must be met in order to pass an annual compliance audit by a statutory auditor. This is done to ensure that the exemption maintains its legitimacy.
The practises and procedures for accounting.
The Ministerial Resolution on Accounting Standards and Methods gives clear direction to businesses on the compilation of their financial statements, which will be used as a beginning point for the calculation of taxable income for the purposes of corporate taxation. These statements will be used as a starting point for the calculation of taxable income.
The ruling reaffirms that the International Financial Reporting Standards (IFRS) are the officially recognised accounting standards that are required to be used by large corporations in the UAE whose annual revenues exceed 50,000,000 dirhams.
However, the judgement makes accommodations for medium and small businesses that have annual revenues of less than 50,000,000 dirhams. These organisations now have the option of using International Financial Reporting Standards for small and medium-sized enterprises (also known as "IFRS for SMEs"), which has been made possible as a result of the ruling.
The resolution states that enterprises with annual revenues of less than three million dirhams are permitted to adopt the cash basis of accounting. This provision is intended to ease the burden of regulatory compliance that these companies are required to deal with.
The decision also provides clarifications about what is meant by consolidating the financial statements for the purposes of the tax group within the same tax group. This is because it requires the preparation of independent financial statements by compiling the financial statements of the parent company and the independent financial statements of each subsidiary as a member of the tax group, and excluding transactions within the tax group in accordance with the provisions of the tax. The decision also provides clarifications about what is meant by consolidating the financial statements for the purposes of the tax group within the same tax
Participation exemption
The Participation Exemption Decision allows for an exemption from corporation tax on dividends or shares, dividends, and capital gains from participation shares. Participation shares are defined as ownership interests of 5% or more of the stock or capital of another organisation that lasts for at least a year. This exemption from corporate tax is made possible by the Participation Exemption Decision.
The participation exemption is only available if the subsidiary in question is situated in a foreign nation that levies a corporate tax rate of at least 9%, or if that nation levies a corporate tax on profits, income, or stocks at an aggregate rate of at least 9%.
Additionally, the decision provides that the participation exemption may be applicable to various categories of ownership shares, such as ordinary shares, preferred shares, redeemable shares, member and partner shares, and so on, as long as the aggregate cost of their acquisition is greater than 4 million dirhams.
This decision assures that UAE-based corporations that own investments in foreign entities that meet the appropriate standards will not be liable to corporate tax in the United Arab Emirates on this type of investment. The conditions for meeting these requirements are as follows: the investment must be held for at least one year and the entity must be located outside of the UAE.
