UAEs Ministry of Finance has announced three new decisions relating to corporate tax

Three new business tax judgements were released by the UAE's Ministry of Finance. The ministerial directives define the prerequisites for claiming participation exemption and provide the foundation for generating financial statements and processes for consolidating them within a tax group. They also specify the prerequisites for the exemption of private regulated pensions and social security funds.

The measures, according to the ministry's undersecretary Younis Haji Al Khouri, are intended to increase the flexibility of the UAE's corporate tax policy and provide a favourable business climate for all sectors.

This lays forth additional requirements for the corporation tax exemption of private regulated pensions and social security funds in the UAE. The judgement assures compliance with international tax standards, allowing investors to accept the UAE's private pension or social security funds' exempt status when making investments abroad and taking advantage of double tax treaty benefits. The ruling also specifies the maximum contributions per beneficiary and the yearly mandatory auditor certification of compliance.

This offers precise instructions for companies creating their financial statements, which will serve as the basis for figuring taxable income for the purpose of the corporation tax. The ruling affirms that IFRS, which are required to be applied by bigger companies with annual revenues over Dh50 million, are the appropriate accounting standards in the UAE. Applying IFRS is an alternative for small and medium firms whose annual revenues do not exceed Dh50 million. The ruling affirms that enterprises with less than Dh3 million in revenue may adopt cash basis accounting, which significantly lessens the compliance cost.

A participation interest, which is defined as a 5 percent or larger ownership interest in another entity's shares, or capital held for at least a year, is provided with corporation tax deductions on dividends, profit distributions, and capital gains. The subsidiary must be located in a country with a corporation tax rate of at least 9% or be able to show an effective tax rate on profits, income, or equity of at least 9% in order to qualify for the exemption. The ruling also makes it clear that the relief would apply to different categories of ownership interests, such as preferential, ordinary, and redeemable shares, as well as membership and partner interests, when the total purchase cost of the ownership interests is Dh4 million or more. This guarantees that businesses domiciled in the UAE with specified interests in foreign corporations that satisfy the criteria won't pay corporate tax on such investments.