The UAE Ministry of Finance has announced significant amendments to the Ministerial Decisions on Tax Grouping, Participation Exemption, and Foreign Permanent Establishment (PE) Exemption. These updates are encapsulated in Ministerial Decision No. (301) of 2024 and Ministerial Decision No. (302) of 2024 and will be effective from 01 January 2025.

The updated decisions aim to enhance compliance and provide administrative relief to taxpayers. However, it is important to note that for the fiscal year 2024, the previous decisions (Ministerial Decision 116 of 2023 and Ministerial Decision 125 of 2023) will remain in effect.

Some key points from the updated decisions include:

Ministerial Decision 301 of 2024 on Tax Groups:

• Simplified Compliance for dual-resident entities: The decision simplifies compliance requirements for dual-resident entities. Foreign juridical persons considered as Residents in the UAE can now be included in the Tax Group without the requirement of furnishing a confirmation from the foreign tax authority on tax residency status. Similarly, a UAE Resident Person who becomes a tax resident in another country will simply cease to be part of the Tax Group from the beginning of the tax period.
• Timeline for filing the Tax Grouping application: The decision reaffirms that eligible members desirous of forming a Tax Group must apply to the FTA before the end of the relevant tax period. This implies that businesses following a January-December fiscal year have very limited time left to make the application for Tax Grouping.
• Administrative Relief from computing taxable income attributable to a relevant member of the Tax Group: The decision provides administrative relief to taxable persons with pre-grouping tax losses or unutilized net interest expenditure by allowing them to forfeit these amounts if they prefer not to determine the taxable income for the relevant tax group member on a standalone basis, in accordance with transfer pricing requirements. Additionally, this requirement is also waived in cases where a foreign tax credit needs to be claimed.

Ministerial Decision 302 of 2024 on Participation Exemption and Foreign Permanent Establishment (PE) Exemption:

• Double Taxation Relief for certain transfers: The new decision clarifies that income from ownership transfers under Qualifying Group Relief or Business Restructuring Relief will not face double taxation, even if claw-back provisions under the Participation Exemption rules apply.
• Clarification on the Minimum Acquisition Cost Criteria: The decision resolves ambiguity regarding the 5% thresholds where the aggregate cost of acquisition criteria is met. It clarifies that the 5% profits/liquidation proceeds test does not apply if the Minimum Acquisition Cost exceeds AED 4 million. Previously, this relaxation seemed applicable only to the 5% ownership criteria.
• Clarification on applicability of Asset Test: The decision specifies that the Asset Test for Participation Exemption applies only when the Participation is categorized as a related party under the UAE CT Law.
• Restriction on utilization of loss arising on liquidation: The decision states that losses from the liquidation of a Participation can be utilized only after adjustment against the following items in the relevant tax period and the preceding seven tax periods:

1. Tax losses transferred from the Participation
2. Dividends and Profit Distributions that were exempted earlier
3. Adjustment for asset/liability transfers undertaken with the participation on non- arm’s length basis

These restrictions also apply to losses on the liquidation of a Participation arising to a Tax Group.

• Restrictions on admissibility of Participation Exemption: The decision introduces restrictive measures on the admissibility of Participation Exemption in cases where the assets/liabilities of a Foreign PE are transferred to such Participation, and the losses of the Foreign PE claimed earlier have not been fully offset against an equivalent amount of taxable income.

If you need further advice or assistance with respect to the above decisions, feel free to contact our Tax Experts.