Corporate tax exemptions introduced, into force from June 01, 2023

Three corporate tax ministerial decisions are set to come into force from June 01, 2023 with a view to make the presently existing tax regime flexible and provide a conducive atmosphere for businesses and investments. They are:

Ministerial Decision No 114 of 2023 on the Accounting Standards and Methods
Ministerial Decision No 115 of 2023 on Pensions and Social Security Funds
Ministerial Decision No 116 of 2023 on Participation Exemption

Accounting Standards and Methods

The decision clarifies that a person with an income of not more than AED 3,000,000 (three million United Arab Emirates dirhams) may prepare Financial Statements using the Cash Basis of Accounting. Consolidated financial statements have to be prepared separately for the parent company and each of its subsidiary, save the transactions between them. Persons with an annual income not exceeding 50,000,000 (fifty million United Arab Emirates dirhams) may apply International Financial Reporting Standards for small and medium-sized entities.

Pensions and Social Security Funds

On fulfilment of a cumulative set of conditions, any private social security fund can apply to the appropriate authority to be exempt from corporate tax. A tax paying employer can also deduct the total value of contributions made by its employees when the value of the contribution does not exceed (15%) fifteen percent of the total Pension Plan Member’s remuneration that is deductible for Corporate Tax purposes. The role of an “auditor” has been given weightage for correct compliance and ensuring eligibility for tax benefits.

Participation Exemption

Lastly, with regards to the decision on participation exemption, the ministry states that a “participation” will be met when its income during the relevant Tax Period and the preceding Tax Period on average consists of (50% ) fifty percent or more of Dividends, capital gains and other income from Participating Interests. Other conditions as mentioned in Article 7 of the decision are also to be complied. The ownership interest types to which the exemptions apply are preferential shares, ordinary shares and redeemable shares and membership and partner interest. However, they do not apply to expenditures in relation to acquisition, sale, transfer, or disposal of an entire Participating Interest or part of a Participating Interest. Hence, they do not apply to professional fees, due diligence costs, litigation costs, commissions, brokerage fees, registration fees, valuation fees, refinancing expenditures, etc.