Editorial Team – [2023] 151 taxmann.com 30 (Article)
World Tax News provides a weekly snippet of tax news from around the globe. The current column provides information on 7 ministerial decisions recently announced by the UAE Finance Ministry in view of implementing Corporate Tax in the United Arab Emirates from 1st June 2023.
According to Federal Decree-Law No. 47 of 2022, businesses will be subject to UAE Corporate Tax from the beginning of their first financial year, which starts on or after 1st June 2023.
1. Ministerial Decision No. 120: Transitional rules
This decision provides guidelines for adjusting a taxable person’s opening balance sheet under the corporate tax law, which is effective from 1st June 2023.
The decision applies to specific assets and liabilities, including real estate, intangible assets, financial assets, and financial liabilities, that businesses hold before implementing the corporate tax law.
Businesses can adjust their tax treatment of such assets and liabilities based on specific rules and must decide how to do that when they submit their first tax return. Their choice would be permanent except in special circumstances.
The decision also provides relief to real estate sectors where the immovable property is recorded on a historical cost basis. They have the option to select the basis of the relief using either a time apportionment method or a valuation method.
Source: Ministerial Decision No. 120 of 2023
2. Ministerial Decision No. 125: Tax Grouping
Ministerial Decision No. 125 outlines guidelines on tax grouping for the purpose of corporate tax. As per the decision, the UAE Parent Company must own at least 95% of the voting rights and shares in each of such UAE entities. All the members of the tax group will be considered UAE residents for corporate tax purposes.
Further, if a subsidiary leaves a Tax Group or a Tax Group ceases to exist as a result of no longer meeting the prescribed conditions, the Tax Group shall notify the Authority within 20 business days from the date the conditions are no longer met.
The decision includes guidelines on the following:
(a) Ownership and tax residency requirements for subsidiaries and parent companies;
(b) Rules in relation to transactions before forming or joining a Tax Group;
(c) Relief for pre-grouping tax losses;
(d) Transfer pricing documentation requirements and the calculation of the taxable income of tax groups;
(e) Clarifications on income from intra-tax group transfers and business restructuring transactions; and
(f) Financial statement requirements for subsidiaries that leave tax groups.
Source: Ministerial Decision No. 125 of 2023
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