The resolutions include Ministerial Resolution No. 125 of 2023 regarding the tax group, Ministerial Resolution No. 126 of 2023 regarding the general rule for interest deduction limitations, and Ministerial Resolution No. 127 of 2023 regarding the consolidated group. According to a press release, these resolutions aim to provide clarity and guidance in relation to corporate taxation in the UAE.

The Ministerial Resolution concerning the tax group outlines the conditions for entities resident in the UAE and jointly owned by 95% or more to form or join a tax group, treating them as a single entity for corporate tax purposes. The UAE parent company must hold at least a 95% voting rights and capital ownership in each company, and all members of the tax group must be residents in the UAE for corporate tax purposes.

The formation of a tax group facilitates the calculation and reporting of taxable income by allowing the parent company to submit a single tax return based on the group’s overall taxable profits or losses, disregarding transactions within the tax group.

The Ministerial Resolution concerning the general rule for interest deduction limitations sets the maximum interest that can be deducted by non-banking businesses, insurance service providers, or individuals engaged in business activities in the UAE. Net interest expenses can be deducted up to 30% of the company’s accounting profits before deduction of interest, tax, depreciation, and amortization, or a safe harbour amount of AED 12 million.

Tax groups that include banking and/or insurance service providers are required to exclude the income and expenses of these members when determining the 30% limit on interest deduction.

Regarding the Ministerial Resolution on consolidated groups (unless otherwise chosen), the consolidated group itself will not be considered a taxable person, provided it is not a legal person (company).

If the consolidated group chooses to be treated as a taxable person, the decision is irrevocable upon approval, and any changes in the partnership’s composition must be notified to the Federal Tax Authority within 20 working days.

Foreign partnerships treated as consolidated groups must submit an annual declaration confirming that they are not subject to tax under the laws of any other foreign jurisdiction, and tax is imposed on each partner individually based on their share of income.

Regarding family businesses, the resolution requires that one or more beneficiaries of the family institution must be public beneficiaries for it to be treated as a consolidated group.

It is essential to ensure that public beneficiaries do not receive income treated as taxable income. If they do, this income should be distributed to the relevant beneficiaries within six months from the end of the relevant tax period.

It is worth mentioning that the UAE issued Federal Law Decree No. 47 of 2022 in September 2022 concerning corporate and business tax, with businesses in the UAE becoming subject to corporate tax starting from their financial year commencing on or after June 1, 2023.

Corporate tax has been set at a rate of 9% on taxable income exceeding AED 375,000 and a 0% rate on the portion of taxable income below that threshold.