Corporate Tax Groups – Key Highlights of Ministerial Decision 301 of 2024

Corporate Tax Groups – Key Highlights of Ministerial Decision 301 of 2024 Repealing Ministerial Decision 125 of 2023
(Effective for Tax Periods Starting on or After 2025)

The UAE Ministry of Finance has issued Ministerial Decision No. 301 of 2024, which repeals and replaces Ministerial Decision No. 125 of 2023. The new decision introduces refined provisions governing Tax Groups under the UAE Corporate Tax Law, effective for tax periods starting on or after January 1, 2025.

These updates are designed to enhance clarity, simplify compliance, and align practices with evolving corporate tax policies in the UAE. Below are the key highlights and changes businesses need to be aware of:

1. Definition of Financial Statements

The updated decision explicitly defines the components of financial statements that Tax Groups must prepare. These include but are not limited to statement of income, statement of other comprehensive income, balance sheet, statement of changes in equity and cash flow Statement.

2. Simplification for Dual Residency Entities

Entities with dual residency are no longer required to obtain a Tax Residency Certificate (TRC) from another jurisdiction to remain in a UAE Tax Group. Such entities will instead automatically cease to be part of a UAE Tax Group if they are considered residents elsewhere for tax purposes.

3. Deadlines for Tax Group Applications

The timeline for submitting applications to form a Tax Group, replace a Parent Company, or make structural changes remains fixed at the end of the relevant financial year. For businesses operating in 2024, the deadline to comply is approaching fast, with only a few days remaining.

4. Loss Utilization Priorities

The decision mandates that pre-grouping losses must be fully utilized before accessing post-grouping losses. This structured approach promotes transparency and encourages careful financial planning.

5. Changes to Interest Restrictions

Pre-grouping carried forward restricted interest expenses may be forfeited if not fully utilized in the tax period they are claimed. Businesses must now evaluate how best to manage and apply interest expenses to minimize potential forfeiture.

6. Refinements to Arm’s Length Principle Application

Key adjustments have been made regarding the application of the arm’s length principle:

• Trigger Conditions: Tax Groups must calculate taxable income using arm’s length principles only when they choose to utilize unutilized pre-tax grouping losses or net interest expenditure (NIE).
• Foreign Tax Credit Income: The arm’s length principle no longer applies to income eligible for foreign tax credits, reducing administrative burdens.

7. Forfeiture Scenarios for Losses and Interest Expenses

New provisions detail scenarios where unutilized pre-tax grouping losses or restricted interest expenses may be forfeited. These provisions aim to ensure fair application and compliance with the updated rules.

8. Clarification for Parent Company Replacements

The process for replacing the Parent Company of a Tax Group has been clarified, requiring that such changes occur before the end of the relevant tax period to avoid group discontinuation. This ensures continuity in tax compliance and group operations.

How We Can Help

Navigating the intricacies of corporate tax regulations can be challenging, especially with the evolving provisions under Ministerial Decision No. 301 of 2024. Our team of seasoned tax professionals is here to provide tailored guidance to ensure your business remains compliant and optimized. From evaluating your Tax Group structure to assisting with application deadlines and loss utilization strategies, we offer comprehensive support at every step. Reach out to us today to simplify your compliance journey and secure your organization’s financial health for the years to come.