Ministerial Decision No 125 of 2023 Tax Group

Aug 12, 2023 | KCG Library

Brief

The Ministry of Finance released Decision No. 125 of 2023 regarding Tax Group on May 22nd. This decision falls under the Federal Decree-Law No. 47 of 2022, which governs the taxation of corporations and businesses (referred to as the ‘CT Law’ hereafter). The decision took effect on the day following its publication.

Key Highlights

Ownership & Residence

The Decision provides clarification on the definition of share capital in relation to meeting the requirement that the group parent must possess at least 95% of the subsidiary’s share capital. Share capital refers to the nominal value of the shares issued and fully paid, or the membership or partnership capital of each subsidiary, as applicable.

Furthermore, the Decision clarifies that a foreign legal entity can establish or become part of a Tax Group if it is considered a Resident Person due to effective management and control from the UAE. However, this is subject to confirmation by the relevant authority that the entity is not considered a resident of its home country.

Administration & Computation

The Decision also introduces specific administrative and computational procedures for a Tax Group, which are as follows:

Applications to establish a Tax Group or join an existing group must be submitted prior to the conclusion of the relevant Tax Period.
It outlines regulations concerning transactions conducted between members of a Tax Group before forming or joining the group. This includes guidelines on when to eliminate such transactions and when to recognize subsequent income arising from them.
It provides clarity on the components to be considered when consolidating financial results, assets, and liabilities in order to calculate the Taxable Income of a Tax Group. This encompasses transactions between members within the same Tax Group, as well as adjustments and provisions related to those transactions.
If a member of a Tax Group has accumulated Tax Losses prior to joining the group, those losses can be offset against the Taxable Income of the Tax Group. However, certain limitations on the utilization of Tax Losses apply. Specifically, the amount that can be utilized is the lower of:
- the portion of the Taxable Income of the Tax Group that can be attributed to the specific member.
- the maximum amount of Tax Loss that is permitted to offset against the Taxable Income of the Tax Group in the relevant tax period.

The Tax Group is required to calculate the Taxable Income of its members, following the transfer pricing rules, in the following circumstances:
- A member of the Tax Group possesses unused pre-Grouping Tax Losses.
- A member of the Tax Group has generated income that qualifies for a Foreign Tax Credit claim by the Tax Group.
- A member of the Tax Group is eligible for any Corporate Tax incentives.
- A member of the Tax Group carries forward unutilized pre-Grouping Net Interest
  Expenditure.

The Tax Group is required to inform the tax authority within twenty business days if a member of the Tax Group intends to leave the group or if the Tax Group ceases to exist due to the conditions no longer being met.

KCG Insights

The Decision also introduces specific administrative and computational procedures for a Tax Group, which are as follows:

Clarifies the definition of share capital for the 95% ownership requirement.
Share capital refers to the nominal value of shares or membership/partnership capital.
Foreign legal entities can join the Tax Group if considered Resident Persons managed and controlled by UAE.
Administrative and computational procedures introduced for Tax Group.
Applications to form or join the Tax Group must be submitted before the relevant Tax Period ends.
Regulations on transactions between Tax Group members are outlined.
Guidelines for consolidating financial results, assets, and liabilities for Taxable Income calculation.
Utilization of Tax Losses limited, lower of Taxable Income portion or maximum allowable offset applied.
Transfer pricing rules apply for calculating the Taxable Income of Tax Group members in certain circumstances.
Tax Group must inform tax authority within twenty business days if a member leaves or Group ceases to exist.