Ministerial Decision No. 115 Of 2023 On Private Pension Funds And Private Social Security Funds For The Purposes Of Federal Decree-law No. 47 Of 2022 On The Taxation Of Corporations And Businesses

Aug 13, 2023 | KCG Library

Brief

On May 10, 2023, the Ministry of Finance (MoF) released Decision No. 115 of 2023 concerning Private Pension Funds and Private Social Security Funds in relation to the implementation of the CT Law.

Key Highlights

The Corporate Tax Law in the UAE provides an exemption for public pension or social security funds, as well as private pension or social security funds that meet certain conditions and are subject to regulatory oversight by the competent authority in the State. Decision No. 115 of 2023 now outlines the specific conditions that Private Pension Funds (PPFs) and Private Social Security Funds (PSSFs) must fulfill in order to qualify for this exemption. According to the Decision, Private Pension Funds (PPFs) and Private Social Security Funds (PSSFs) can seek Corporate Tax exemption by fulfilling the following conditions:

The fund consists of assets that are designated by law or contract as Pension Plan assets or fund assets, or the acquisition of these assets is financed by contributions solely for the purpose of funding Pension Plan benefits or End of Service Benefits.
The income generated by the fund is limited to the prescribed income as specified in the Decision.
The fund must have an appointed Auditor

In the case of PPFs specifically, the fund must grant Pension Plan Members or Beneficiaries a right or other contractual claim or entitlement against its assets or earnings. By meeting these conditions, PPFs and PSSFs can apply for Corporate Tax exemption through the Federal Tax Authority (FTA).

The income of these funds should be derived from the following sources:

Investments or deposits held with the purpose of fulfilling the fund’s obligations, with investments not constituting a business operated by the fund.
Underwriting commissions are charged for the fund’s operations
Rebates of charges that are due or paid by the fund to the fund manager.
Any other income generated for the benefit of Pension Plan Members or beneficiaries of the End of Service Benefit, as applicable.

It’s important for the income of the funds to originate from these specified sources in order to be eligible for the Corporate Tax exemption.

The Decision provides details regarding the responsibilities of Auditors for Private Pension Funds (PPFs) and Private Social Security Funds (PSSFs), as well as circumstances under which the Federal Tax Authority (FTA) can withdraw the exemption granted to these funds. Additionally, the Decision states that a Taxable Person can deduct the entire value of contributions made to a PPF for its employees.

However, this deduction is limited to 15% of the employee’s remuneration which is eligible for Corporate Tax deduction in the relevant Tax Period. This allows Taxable Persons to claim deductions for contributions made to PPFs, subject to the specified limit.

KCG Insights

The exemption of private and public funds from Corporate Tax is an important factor in fostering investment and driving economic growth and development. The issuance of clear guidelines regarding the eligibility criteria for this exemption is a significant development that enables funds to assess their Corporate Tax status and comprehend the implications of the UAE Corporate Tax regime. This clarity brings much-needed certainty to the fund’s industry and facilitates informed decision-making.