Ministry of Finance Announces Amendments to Ministerial Decisions on Tax Groups and Participation and Foreign Permanent Establishment Exemptions

• Revised provisions under the UAE Corporate Tax Law aim to enhance compliance and streamline administrative processes

Abu Dhabi – UAE, 23 December 2024: The UAE Ministry of Finance has announced amendments to existing Ministerial Decisions through the issuance of updated Ministerial Decision No. (301) of 2024 on Tax Groups for the purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, and an updated Ministerial Decision No. (302) of 2024 on the Participation Exemption and Foreign Permanent Establishment Exemption for the purposes of the same Decree-Law.

These amendments provide significant clarifications and administrative relief aimed at enhancing compliance and reinforcing the UAE's position as a leading global business destination.

Tax Groups
The amended Ministerial Decision shall apply to Tax Periods commencing on or after 1 January 2025 and introduces a series of administrative reliefs and clarifications for businesses forming Tax Groups.

The revised provisions simplify the requirements imposed on foreign juridical persons that are considered Resident Persons in the UAE, as well as juridical persons established in the UAE but that are effectively managed and controlled outside the UAE, by facilitating the compliance procedures required to demonstrate that they are not tax residents in another jurisdiction.

The amendments clarify the situations in which Tax Groups must calculate taxable income attributed to one of their members in line with the arm's length principle. Notably, the requirement to calculate such income is removed if the Tax Group earns income eligible for a Foreign Tax Credit. Additionally, Tax Groups with Pre-Grouping Tax Losses may opt to forfeit these losses, offering greater flexibility and reducing compliance burdens under the Corporate Tax regime.

Participation Exemption and Foreign Permanent Establishment Exemption
The amended Ministerial Decision shall apply to Tax Periods commencing on or after 1 January 2025 and offers clarity and administrative relief for businesses benefiting from the Participation Exemption and Foreign Permanent Establishment Exemption.

Regarding the Participation Exemption, the updated decision ensures that income involved in ownership transfers under Qualifying Group Relief or Business Restructuring Relief will not be subject to double taxation, even in cases where claw-back provisions apply.

Furthermore, the asset test for the Participation Exemption (under Article 23(2)(d)) applies only to related parties, easing compliance for businesses investing in funds and similar structures.

The amendments also provide guidance on adjustments to tax losses incurred by Participations within or outside a Tax Group, as well as clarity on the treatment of liquidation losses.

In addition, the decision makes it clear that foreign Permanent Establishments whose assets and liabilities are transferred to companies can benefit from the Participation Exemption only after the Participation’s profits have fully offset the aggregate tax losses of the Permanent Establishment, aligning their treatment with other Participations and enhancing the equity of the Corporate Tax regime.

His Excellency Younis Haji AlKhoori, Undersecretary of the Ministry of Finance, said: "These amendments reaffirm the UAE’s commitment to enhancing a dynamic and investor-friendly tax environment, simplifying compliance, and increasing growth opportunities. This approach strengthens the UAE's position as a leading global hub for business and investment."