Consulting Agency

Dubai Municipality implements new electronic licensing and building control system in Emirate of Dubai

These include Ministerial Decree No. 114 of 2023 on accounting standards and methods, Ministerial Decree No. 115 of 2023 on pension and social insurance funds, and Ministerial Decree No. 116 of 2023 on exemption from participation.

Deputy Minister of Finance, Younis Haji Al Khouri, said, "The three new decisions aim to improve the flexibility of the corporate tax system in the United Arab Emirates and create a favourable environment for businesses in various sectors."

He also added: "The rulings address important aspects related to organised private pension and social insurance funds, which are normally exempt from corporate tax. The adoption of international accounting standards and the granting of accounting exemptions for companies and small businesses reflects the Ministry of Finance's desire to reduce the compliance burden on businesses under the corporate tax system. The decision to exempt at the local level also ensures that double taxation of company profits, as well as double taxation at the international level, is avoided."

The ruling relating to pension and social insurance funds establishes additional conditions for corporate tax exemption for private pension and social insurance funds registered in the UAE.

This ruling ensures compliance with international tax practices and allows private pension and social insurance funds in the UAE to be exempt from corporate tax on international investments and take advantage of double tax treaties.

The ruling also specifies the maximum contributions for each beneficiary and the requirements for an annual compliance audit by an external auditor to confirm the appropriateness of the exemption.

The Ordinance on Accounting Standards and Practices establishes clear guidance for businesses on the preparation of financial statements to be used as the basis for calculating taxable income for corporate tax purposes.

The ruling confirms that International Financial Reporting Standards (IFRS) are mandatory accounting standards for large enterprises in the UAE with revenues of more than AED 50,000,000.

However, the ruling provides relief for medium and small enterprises with revenues less than AED 50,000,000 by authorising the application of International Financial Reporting Standards for Small and Medium Enterprises (IFRS for SMEs).

To reduce the burden on such enterprises, the ruling also allows the use of the cash basis of accounting for enterprises with revenues of less than AED 3,000,000.

The ruling also clarifies the harmonisation of financial statements for tax groups within the same tax group by requiring separate financial statements for the parent company and separate financial statements for each subsidiary in the tax group, except for transactions within a tax group in accordance with the company's tax laws.

The Participation Exemption Regulation provides for an exemption from corporation tax on dividends or shares, dividends and capital gains from ownership interests comprising 5% or more of the shares or capital of another entity that are held for more than 12 months.

The participation exemption applies only if the subsidiary is located in another country where the corporate tax rate is at least 9% or if it is taxed on income, gains or shares at an aggregate rate of at least 9%.
The ruling also provides that the participation exemption may be applied to various types of ownership interests, including ordinary shares, preference shares, redeemable shares, members' shares and partners' shares with a total value exceeding AED 4 million.

The ruling ensures that UAE-registered companies holding investments in qualifying foreign companies will not be subject to UAE corporate tax on those investments.