MOF Issues Three Ministerial Decisions Concerning Tax Group, Interest Deduction Limit And Unincorporated Partnership, Foreign Partnership And Family Foundation

The UAE Ministry of Finance, on 29th May 2023, issued three Ministerial Decisions concerning tax group, interest deduction limit and unincorporated partnership, foreign partnership and family foundation.

According to the Ministerial Decision No. 125 of 2023, Entities in which parent UAE owned 95% or more can form or join a tax group and will be treated as a single entity for corporate tax purposes. Parent Company needs to file a single Tax Return for the tax Group based on the group’s aggregated taxable profit or loss.

Further, it clarifies that a Parent Company and Subsidiary must be Resident Persons that are not considered residents for tax purposes in another country or foreign territory under a relevant international agreement in force in the State.

The application to form a Tax Group or to join an existing Tax Group must be submitted to the Authority before the end of the Tax Period within which the formation or joining of a Tax Group is requested.

The amount of pre-Grouping Tax Losses of a Subsidiary that can be used to offset the Taxable Income of the Tax Group is limited to the taxable income of the tax group attributable to the subsidiary.

According to the Ministerial Decision No. 126 of 2023, Net interest expenditure that can be deducted is capped at the higher of 30 per cent of adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) or a safe harbour amount of Dh12 million. Further it is clarified that the limit does not apply to Banking and insurance companies. And also a Tax Group with members who are banking and insurance company must exclude these member’s income and expenditure when determining the 30% threshold.

According to the Ministerial Decision No. 127 of 2023, Unincorporated Partnership shall not be considered a Taxable Person in its own right, provided it is not a juridical person. Individual partners will be taxed on their share of income received from the Unincorporated Partnership firm. Further Unincorporated Partnership elects to be treated as a taxable person in its own right once in a lifetime. This decision is irrevocable.

The Unincorporated Partnership shall notify the Federal Tax Authority within 20 twenty business days of any change in the partnership composition.

The Foreign Partnership submits an annual declaration to the Authority to confirm that it is not taxed under foreign jurisdiction laws, and each partner is taxed individually based on their share of income.