The Ministry of Finance has announced Ministerial Decision No (132) of 2023 on Transfers within a Qualifying Group. The decision clarifies that an entity must make an election in their Tax Return to apply the relief and must comply with the associated record keeping requirements.

The election to apply the relief for transfers within a Qualifying Group is irrevocable and will apply to all future Tax Periods. The decision also clarifies the implications of simultaneous asset or liability exchanges and the tax implications if the relief needs to be revoked because the relevant assets and liabilities or the relevant group companies leave the Qualifying Group within two years of the original transfer.

The Ministry of Finance has announced Ministerial Decision No (133) of 2023 on Business
Restructuring Relief. This relief is available when a business or an independent part of a business is transferred or merged into another legal entity in exchange for shares or other ownership interests.

Where the transferor makes an election to apply the relief, no gain or loss needs to be included
in the calculation of their Taxable Income. The relief can apply it the business is exchanged for shares and a limited amount of other consideration such as cash, or when shares are received or issued by someone other than the transferor or the transferee as long as they are received or issued by an entity which owns the transferor or transferee, respectively.

The decision details the mechanism for clawing back the relief if the business or ownership
interests are subsequently transferred within two years of the date of the original restructuring.

The Ministry of Finance has announced Ministerial Decision No (134) of 2023 on General Rules for Determining Taxable Income. The General Rules for Determining Taxable Income streamline the process of calculating taxable income for UAE businesses.

The decision sets out adjustments needed for the taxable income calculation, including the recognition of realized and unrealized gains or losses reported in the Financial Statements.
It clarifies the conditions for applying the realization basis and provides guidelines for adjusting
changes in values on assets and liabilities derived from transfers involving Related Parties,
Qualifying Groups or Business Restructuring Relief.

Businesses preparing Financial Statements on an Accrual Basis of Accounting can choose to recognize gains and losses on a realization basis for certain assets and liabilities This election must be made during the first Tax Period and is irrevocable, except under exceptional circumstances approved by the Federal Tax Authority.

Ministry of Finance Announces Two New Decisions Relating to Corporate Tax for Free Zones
a. Cabinet Decision No. 55 of 2023 on Determining Qualifying Income
b. Ministerial Decision No. 139 of 2023 on Qualifying Activities and Excluded Activities

Free Zone Corporate Tax regime is:

• Available to Free Zone Persons which refers to a juridical person that is incorporated or
  otherwise formed or registered in a Free Zone.
• Applicable only within the prescribed areas of the Free Zones.
• Intended to apply only to income derived from activities that are performed exclusively in or from within a Free Zone.

Businesses can contact their Free Zone Authority to confirm whether that Free Zone is eligible for the 0% rate.

Income from certain specific ‘Excluded Activities’ will not be treated as ‘Qualifying Income’ regardless of  whether the income is derived from a Free Zone Person or as part of undertaking a ‘Qualifying Activity’. These activities are subject to certain exceptions, including:

• Income derived from transactions with natural persons
• Income derived from certain regulated financial services activities
• Income derived from intangible assets
•  Income derived from immovable property, other than transactions with Free Zone Persons in relation to commercial immovable.

Earning income from “Excluded Activities” or earning any other income that is not “Qualifying Income” will disqualify the Free Zone Person from the regime, subject to de minimis requirements.

To satisfy the de minimis requirements, the non-qualifying revenue earned by a Free Zone Person must not exceed the lower of either 5% of their total revenue or AED5,000,000.