The UAE Ministry of Finance (MoF) recently issued two updated Ministerial Decisions under Federal Decree-Law No. 47 of 2022 (UAE Corporate Tax Law). Among these, Ministerial Decision No. 301 of 2024 on Tax Groups (MD 301) replaces Ministerial Decision No. 125 of 2023 (MD 125) for tax periods commencing on or after 1 January 2025. For tax periods starting before this date, MD 125 will continue to apply.
Key amendments are highlighted below:
Foreign companies considered as tax residents in the UAE on account of having their place of effective management and control in the UAE can still form tax groups with other UAE resident companies. However, the requirement for foreign companies, or those with management and control outside the UAE, to submit documents proving tax residency has been eliminated.
This adjustment may stem from the Federal Tax Authority (FTA) previously being required to accept a taxpayer's claim if supporting documents such as a Tax Residency Certificate (TRC) or confirmation from another jurisdiction were provided. Moving forward, the FTA may assess the validity of tax residency claims by considering a broader range of evidence, extending beyond the TRC.
Another potential reason for this change is the challenges taxpayers often face in obtaining such documents from relevant authorities in other jurisdictions.
The Tax Group is required to calculate Taxable Income that is attributable to one or more of its members on an arm’s length basis in the following scenarios and also report the same in the transfer pricing disclosure form:
The earlier requirement of having the transactions at arm’s length when one of the members is claiming a foreign tax credit has been removed.
It is further provided that all unutilized pre-grouping tax losses and pre-grouping carried forward net interest expenditure should be utilized to the maximum possible extent against the Taxable Income of the Tax Group before being carried forward to subsequent tax periods.
If the Tax Group fails to correctly calculate a member’s attributable income or does not fully utilize the pre-grouping tax losses and pre-grouping net interest expenditure, it will be penalized via a forfeit.
The definition of “financial statements” has been provided in the new Decision which requires preparation of a full suite of statements, including the Income Statement, Statement of Comprehensive Income, Balance Sheet, Statement of Changes in Equity, and Statement of Cash Flows.
Previously, when a subsidiary exited or a tax group ceased to exist, standalone financial statements were required to follow the same accounting basis and asset values as the group. The updated requirement now extends to include the adoption of the same elections made by the tax group in the financial statements.
The deadline for submitting the application for formation of a new tax group or changes to an existing tax group remains the same i.e. before the end of the financial year.
The newly published MD 301 of 2024 builds on the previous decision (MD 125 of 2023) and is largely clarificatory in nature, apart from the updates elaborated above. However, since it mentions that MD 125 of 2023 is repealed and application of MD 301 is pertinent only for tax periods commencing after 1 January 2025, there is some ambiguity on the course of action to be followed for tax periods commencing before 1 January 2025 where the amendments may be clarificatory in nature.
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