May 2023 / United Arab Emirates

5 Maggio 2023

Federal Tax Authority Clarifies Change in Tax Period

The Federal Tax Authority (FTA) has clarified through Decision No. 5 of 2023 the rules for changing the tax period for corporate income tax purposes. The Decision provides that a taxpayer may apply to the FTA to change the start and end dates of the tax period or to use another tax period if the following conditions are met:

  • the change is made for one of the following reasons:
    • liquidation of the taxpayer;
    • the alignment of the resident taxpayer's financial year with the financial year of another resident taxpayer for the purpose of forming a tax group or joining an existing tax group, or the alignment of the taxpayer's financial year with the financial year of its domestic or foreign head office, subsidiary, parent or ultimate parent company for the purpose of financial reporting or for the purpose of taking advantage of a tax relief available under corporate tax law or under the legislation of a foreign jurisdiction; or
    • there is a valid commercial, economic or legal reason to change the tax period;
  • the taxpayer has not yet filed the tax return for the tax period for which the change is requested; and
  • the request to change the tax period relates to any of the following:
    • the extension of the current tax period to a maximum of 18 months; or
    • to shorten the next tax period to between 6 and 12 months. The application must be made within 6 months of the end of the original tax period. Taxpayers applying to shorten their tax periods may not apply to shorten previous or current periods.

Decision No. 5 of 2023 on the conditions for changing the tax period for corporate income tax was published on the official website on 7 April 2023 and will enter into force as of 1 June 2023.

17 Maggio 2023

UAE Ministry of Finance Clarifies Corporate Tax Regime for Natural Persons

The Ministry of Finance (MoF) of the UAE has issued a decision specifying the categories of business or business activities carried out by a resident or non-resident individual that are subject to corporate tax.

  • the Decision provides that natural person, whether resident or non-resident, engaged in business or business activities are subject to corporate tax and registration requirements only if their total turnover exceeds AED 1 million in a calendar year; and
  • the decision also stipulates that activities that generate income for individuals from employment, investments and real estate are not considered business or business activities and are not subject to corporate tax.

MOF Decision No. (49) of 2023 was issued on 8 May 2023 and will be effective from 1 June 2023.

It is available on UAE Minister of Finance website: Cabinet Decision No. (49) of 2023

12 Maggio 2023

UAE Ministry of Finance Clarifies Eligibility Rules for Corporate Tax Exemptions

The Ministry of Finance (MOF) of the UAE has provided the following two clarifications for the determination of the conditions under which a taxable person (person) may continue to be considered an exempt person:

  • the liquidation or termination of the business or commercial activity; and
  • non-compliance with the conditions for exemption from income tax is temporary.

Liquidation or termination of business or business activity

The eligibility rules provide that a person may continue to be deemed as an exempt person from the beginning date of the liquidation or termination procedure of the business or the business activity until the date it is completed, provided that a notification has been submitted to the Federal Tax Authority (FTA) within 20 business days from the date of the beginning of the procedure. The person shall cease to be deemed as an exempt person on the day following the date of the completion of the liquidation or termination procedure.

Non-compliance with conditions for exemption from income tax is temporary

The person may continue to be deemed as an exempt person from corporate tax where all the following conditions are met:

  • failure to meet the conditions to be deemed as an exempt person is due to a situation or an event beyond the person's control, which could not be reasonably predicted or prevented;
  • the person has made an application to the FTA to continue to be treated as an exempt person within 20 business days from the date it fails to meet the conditions to be exempt;
  • the person is reasonably expected to rectify the failure to meet the conditions within 20 business days from the submission of the application to the FTA; and
  • upon request by the FTA, the person provides evidence to support putting in place appropriate procedures to monitor compliance with the relevant conditions of the corporate tax law, within 20 days from the date of the request by the FTA or any other period as may be determined by the tax authority.

The period of 20 business days may be extended by an additional 20 business days if the failure to rectify the situation or the events is beyond the person's reasonable control.

The Ministry of Finance's Decision No. 105 of 2023 determining the conditions under which a person may continue to be considered an exempt person was issued on 4 May 2023.

It is available on UAE Ministry of Finance website: Ministerial Decision No. 116 of 2023

12 Maggio 2023

UAE Ministry of Finance Clarifies Transfer Pricing Documentation Requirements

The UAE Minister of Finance has clarified the requirements for maintaining transfer pricing documentation for corporate tax purposes. The clarification provides that taxpayers who meet one of the following conditions must maintain both a master file and a local file for the relevant tax period:

  • at any time during the relevant tax period, the taxpayer is a member of a multinational group of companies with a total consolidated group turnover in the relevant tax period of AED 3.15 billion or more; and
  • the taxpayer's turnover in the relevant tax period is at least AED 200 million.

The local file includes transactions or arrangements with the following persons:

  • a non-resident person;
  • an exempt person;
  • a resident person who has made an election for small business relief; and
  • a resident whose income is subject to a rate of corporate income tax different from the rate applicable to the income of the taxpayer.

In addition, the clarification provides that the taxpayer shall not include in the local file transactions or arrangements with the following related parties and connected persons:

  • resident persons other than a non-resident person, an exempt person, a resident person who has made an election for small business relief, and a resident person whose income is subject to a corporate tax rate different from that applicable to the income of the taxpayer;
  • an individual, provided that the parties to the transaction or arrangement act as if they were independent;
  • a legal person that is a related party or connected person solely by virtue of being a partner in an unincorporated partnership, provided that the parties to the transaction or arrangement act as if they were independent; and
  • a permanent establishment of a non-resident person in the UAE, the income of which is subject to the same rate of corporate tax as that applicable to the income of the taxpayer.

The decision states that the parties to the transaction or arrangement will be deemed to be acting as if they were independent of each other if both of the following conditions are met:

  • the transaction or arrangement is carried out in the ordinary course of business; and
  • the parties are not dealing exclusively or almost exclusively with each other.

The Ministry of Finance's Clarification No. 97 of 2023 on transfer pricing documentation requirements for corporate income tax purposes was issued on 27 April 2023.

The ministerial decision is available on UAE Ministry of Finance website: Ministerial Decision No. 97 of 2023

15 Maggio 2023

Dubai retains No.1 global ranking for attracting Greenfield FDI projects

Dubai retained its No. 1 spot globally for attracting Greenfield FDI projects in 2022, further reinforcing its position as the world’s top foreign direct investment hub, according to the latest data from the 2022 Financial Times ‘fDi Markets’ report.

Retaining its top spot for a second successive year, Dubai achieved 89.5% YoY growth in total announced FDI projects in 2022, while total FDI capital surged 80.3% over the same period, further consolidating the emirate’s status as one of the top three global cities, a key goal of the Dubai Economic Agenda D33 launched by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai.

His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of The Executive Council of Dubai said: “Dubai’s ability to secure the No. 1 global ranking for Greenfield FDI projects for the second year in a row demonstrates its ability to sustain its compelling investment value proposition even at a time when the worldwide economy is facing headwinds.  Driven by the vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, the emirate offers the deep stability, sustainability, infrastructure and opportunity-rich environment needed to ensure the long-term trust of international investors, businesses and entrepreneurs. Over the years, Dubai has forged dynamic partnerships with global investors to accelerate innovation and create enduring economic value. Dubai leads the world in attracting FDI in a wide range of industries, especially future-oriented sectors, a fact that is a testament to the strategic vision articulated in the Dubai Economic Agenda D33, which aims to consolidate Dubai’s position as one of the world’s top urban economies.”

Financial Times Ltd. ‘fDi Markets’ data for 2022 showed that Dubai continued to maintain and improve its leadership position across key FDI attraction metrics. The emirate ranked first in attracting FDI projects into tourism, business services, financial services, transport and warehousing, consumer products, and software & IT services sectors. Dubai also emerged as the 2022 world leader in attracting FDI projects in the creative industries cluster, in research and development projects, and in attracting FDI project headquarters by hosting international companies’ global and regional headquarters.

His Excellency Helal Saeed Almarri, Director General of Dubai’s Department of Economy and Tourism, said: “Dubai’s leading global FDI ranking underpins a comprehensive framework of initiatives that were launched to further strengthen the city’s business and investment environment, based on the directives of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai.

“Our strategy to further consolidate the city’s position as one of the top three global cities, in line with the Dubai Economic Agenda, D33, is again strengthened by the achievement of attracting and stimulating FDI and reflects the confidence investors, multinational companies, start-ups, and global talent have in Dubai. The growth of the city’s share in global Greenfield FDI projects clearly indicates our strategy’s effectiveness and also highlights the city’s position as the capital of the global digital economy and a hub for innovation and technology, further ensuring that increasing FDI inflow remains a top priority and key goal of the D33 Agenda,” HE Helal Almarri added.

Overall in 2022, Dubai ranked seventh globally in attracting Greenfield FDI Capital and fifth globally in FDI Jobs. From a MENA perspective, Dubai ranked second in FDI Capital and first in FDI Jobs. Compared to 2021, Greenfield FDI (wholly owned) and new forms of investments increased by 6% in 2022. The new forms of investments demonstrate the level of Dubai’s domestic market maturity and the diverse non-equity-based partnership opportunities across joint ventures, strategic alliances, sub-contracting, licensing, production-sharing franchising, and turnkey projects.

The emirate’s share in attracting global Greenfield FDI projects reached 4%, an increase of 1.9% compared to 2021, with a record 837 projects enabling the city to achieve the highest growth in global shares across the past seven years, according to data from Financial Times’ fDi Markets, the most comprehensive online database on cross-border Greenfield investments. Dubai attracted a total of 1,173 FDI projects in 2022.

Dubai FDI Monitor’s data also revealed that the total estimated FDI capital flowing into Dubai in 2022 was AED47 billion ($12.8 billion) compared to AED26.07 billion in 2021. An estimated 38,447 jobs were created in Dubai in 2022 compared to 24,932 jobs in 2021.

The top five source countries for FDI projects accounted for 54% of the total in 2022, split among the United States (20%), the United Kingdom (13%), India (12%), France (5%), and Switzerland (4%). Additionally, the top five source countries for FDI capital accounted for 72% of the total estimated flows into the emirate in 2022, split among Canada (41%), the United Kingdom (12%), the United States (11%), India (4%), and Switzerland (4%).

The top five sectors - transportation & warehousing, hotels & tourism, renewable energy, software & IT services, and consumer products - accounted for 76% of the total estimated flows into Dubai and 68% of announced FDI projects — the transportation & warehousing sector led the pack with a dominant 45% share of FDI capital. Dubai FDI Monitor data also revealed that the top five business functions accounted for 78% of total estimated flows into Dubai, while 93% accounted for the total announced FDI projects in 2022. Business services also remained a prominent business function based on FDI projects and FDI capital in 2022.

Compared to 2021, Dubai leads the world in a number of important metrics as a result of attracting different types of FDI projects and capital, including Greenfield FDI and new forms of investments: mergers, acquisitions, reinvestments, VC-backed FDI and greenfield joint ventures.

Complementing the 2022 increase in FDI capital, the hotels & tourism sector and the software & IT services sector catalysed growth in total estimated jobs created through FDI. High and medium-tech FDI projects accounted for 63% of the projects recorded in this sector in 2022, highlighting Dubai’s position as a preferred destination for high-tech FDI projects and a global centre for specialised talent in the digital economy.

Source: Media Office - Government of Dubai 

31 Maggio 2023

United Arab Emirates Clarifies Rules Regarding Deduction of Interest for Corporate Tax Purposes

The Minister of Finance (MoF) has clarified the rules for limiting the general interest deduction for corporation tax (CIT) purposes. The ruling includes provisions on:

  • the definition of interest, which includes, but is not limited to, the interest component of any of the following:
    • performing and non-performing debt securities;
    • shares in collective investment schemes that invest primarily in cash and cash equivalents;
    • asset-backed securities and similar instruments;
    • agreements to sell and repurchase the same security at a future date and at an agreed price;
    • securities lending and similar agreements to transfer a security subject to an obligation or right to repurchase the same or a designated similar security;
    • securitization and similar transactions involving the transfer of assets in exchange for the issue of securities giving entitlement to the income generated by those assets;
    • lease or hire purchase arrangements where substantially all the risks and rewards of ownership of the underlying asset have been transferred to the lessee; and
    • factoring and similar receivables purchase transactions.

In addition, the rules require the interest component to include the following costs:

  • guarantee fees;
  • arrangement fees;
  • commitment fees; and
  • any other commissions similar in nature to guarantee, arrangement and commitment fees.

The amount of interest that may be deducted from taxable income is the greater of AED 12,000,000 or 30% of Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA).

The amount of EBITDA will be the higher of AED 0 and the amount calculated as taxable income based on the sum of the following items:

  • net interest expense for the relevant tax period;
  • depreciation expense considered in determining taxable income for the relevant tax period; and
  • any interest income or expense relating to historic financial assets or liabilities held before 9 December 2022.
The ministerial decision is available here: Ministerial Decision no.126 of 2023