Welcome to the January 2025 edition of our monthly Tax Newsletter! This month, we bring you a comprehensive roundup of the latest developments in the UAE’s evolving tax landscape. Our focus is on the key updates impacting Corporate Tax regulations, including recent amendments, deadlines, and compliance requirements introduced in January. Additionally, we explore noteworthy changes in Indirect Taxes, such as VAT and excise tax, that may influence businesses across the region.
Stay informed with expert insights and practical advice designed to help you navigate these updates effectively and ensure your business remains compliant in the new year.
On 9th December 2024, the UAE Ministry of Finance announced updates to the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. The amendment includes implementing a Domestic Minimum Top-up Tax (DMTT) for multinational enterprises (MNEs) operating in the Emirates. This move aligns with the UAE’s commitment to the OECD’s BEPS Pillar Two Action plan, requiring MNEs to pay a minimum effective tax rate of 15% on their global profits.
The DMTT applies to MNEs with consolidated global revenues of €750 million or more in at least two of the last four financial years immediately preceding the year in which the DMTT is applicable.
The Pillar Two rules mandate that large multinational enterprises (MNEs) must pay a minimum effective tax rate of 15% on profits in every country where they operate.
To promote sustainable growth, innovation, and investment, the Ministry of Finance is considering the introduction of the following Corporate Tax Incentives under Federal Decree-Law No. 47 of 2022:
The UAE is proposing a Research and Development (R&D) Tax Incentive to encourage innovation and economic growth. This expenditure-based incentive could offer a 30- 50% tax credit, refundable based on revenue and employee count.
Another incentive under consideration is a refundable tax credit for high-value employment activities associated with senior personnel performing core business functions.
The Ministry of Finance has announced amendments to existing ministerial decision no. 116 of 2023 on the foreign PE exemption by issuance of an updated ministerial decision no. 302 of 2024 (new decision).
The earlier decision stated that before a taxable person could apply for the exemption of income earned from a Foreign PE, the tax losses incurred by that specific Foreign PE and utilized by the taxable person must be fully offset against the taxable income of the same Foreign PE in subsequent tax periods.
The new decision provides a similar condition for opting the exemption method. However, rather than limiting the offsetting of losses to the taxable income of the individual Foreign PE that incurred the losses, the new decision allows the taxable person to offset such losses against the aggregate taxable income of all Qualifying Foreign Permanent Establishments (QFPEs) of the taxable person.
New decision also provides that in case where a Taxable Person transfers all the assets and liabilities of a QFPE to a Participation, resulting in the termination of the existence of that QFPE, the Taxable Person can only benefit from the provisions of participation exemption on the amount of income from the Participation in excess of the aggregate Tax Losses incurred by the Taxable Person’s QFPE which has been utilized by taxable person.
The UAE Ministry of Finance has announced significant amendments to the Ministerial Decisions on Tax Grouping. These updates are encapsulated in Ministerial Decision No. 301 of 2024 and it is effective from 01 January 2025.
Foreign juridical persons considered UAE Residents can now be included in the Tax Group without the requirement of furnishing a confirmation from the foreign tax authority on tax residency status. Similarly, UAE residents becoming tax residents in other countries will automatically exit the Tax Group from the start of the relevant tax period.
Administrative Relief from computing taxable income attributable to a relevant member of the Tax Group
The decision provides administrative relief by allowing taxable persons to forfeit pre-grouping tax losses or net interest expenditure if they choose not to determine the taxable income of a relevant member on a standalone basis in accordance with transfer pricing rules. Further, the requirement to calculate such income is removed if the Tax Group earns income eligible for a Foreign Tax Credit.
The Ministry of Finance has announced amendments to existing ministerial decision no.116 of 2023 on the participation exemption for the purpose of Federal Decree- Law No. 47 of 2022 (UAE CT law) by issuance of an updated ministerial decision no. 302 of 2024 (new decision).
Where participation exemption was not claimed in case of participation acquired under an exempt transfer (Qualifying Group Relief or Business Restructuring Relief) and subsequently the exempt transfer becomes taxable due to violation of any conditions, the taxable person may reverse any income which was previously taken into account due to restriction applicable under Article 9 of the UAE CT law. This adjustment to taxable income shall be done during the tax period in which there is a violation of conditions of exempt transfer.
The 5% profits or liquidation proceeds test does not apply if the minimum acquisition cost exceeds AED 4 million.
The decision specifies that the asset test for Participation Exemption applies only when the participation is classified as a related party under UAE Corporate Tax Law.
The decision states that losses from the liquidation of a Participation can be utilized only after adjustment against the following items in the relevant tax period and the preceding seven tax periods:
Adjustment for asset/liability transfers undertaken with the participation on non- arm’s length basis
These restrictions also apply to losses on the liquidation of a Participation arising to a Tax Group.
Cabinet Decision No. (127) of 2024 on the Reverse Charge Mechanism for Precious Metals and Stones
The Ministry of Finance has announced the issuance of Cabinet Decision No. (127) of 2024, which significantly broadens the application of the Reverse Charge Mechanism (RCM) to encompass transactions involving precious metals and stones between VAT-registered businesses in the UAE.
This decision, published in Official Gazette Issue No. 790 on 27th December 2024, will come into effect on 25th February 2025. It repeals Cabinet Decision No. 25 of 2018, which previously restricted the RCM to supplies of gold and diamonds between registered dealers.
This decision streamlines compliance processes and enhances cash flow management for businesses operating in the precious metals and stones sector in the UAE.
Suppliers of precious metals and stones are no longer required to charge or remit VAT on B2B transactions when the goods are sold for resale or manufacturing purposes.
Buyer is required to account for VAT on the purchase under the Reverse Charge Mechanism (RCM), provided both parties are VAT-registered in the UAE.
Buyers must provide a written declaration confirming the goods are for resale or manufacturing.
Buyers must also confirm their VAT registration status with the supplier.
Suppliers must verify the buyer’s VAT registration and keep all declarations on record.
If buyers fail to provide the required declarations, the supplier becomes responsible for charging and paying the VAT.
Taxable business involved in the supply of gold, diamonds, and other precious metals and stones should evaluate their current VAT treatments. It is essential to determine whether their existing practices align with the new Cabinet Decision and take appropriate actions to ensure compliance by the effective date of 25th February 2025.
The Federal Tax Authority has issued VATP039, a public clarification that provides guidance on the VAT treatment of cryptocurrency mining, specifically addressing digital currencies. Released on 13 January 2025, this clarification aims to ensure that businesses and individuals involved in the cryptocurrency sector are fully informed and compliant with the latest VAT regulations.
A person can mine cryptocurrency for personal use or contract another individual to mine on their behalf. When mining is conducted for personal purposes, it is classified as Out of Scope for VAT, meaning no VAT is chargeable on the rewards earned from personal mining.
Input Tax Incurred is Not Recoverable: As the individual undertaking the mining is not making taxable supplies under UAE VAT law, they are not eligible to register for VAT. Consequently, any input tax incurred in relation to personal mining activities is not recoverable and will be treated as a cost.
When a person mines cryptocurrency on behalf of another for a fee, it is considered a taxable supply of services and VAT should be charged at standard rate for local services. This means the miner is providing a service to another person and must apply VAT on the value of the service provided.
However, the supply may be zero-rated if made to a non- resident, provided all the conditions for zero-rating are met.
If a UAE-registered business receives mining services from a non-resident, the supply is subject to VAT under the Reverse Charge Mechanism (RCM).
Input tax is recoverable if it is linked to taxable supplies as services. This allows miners to offset the input tax against the output tax charged on services provided, thus reducing their overall VAT liability.
Ensuring compliance with VAT regulations and optimizing your tax position is essential. If you are in the crypto or digital currency industry and encountering challenges with VAT compliance, don’t hesitate to reach out for expert guidance and support.
The Federal Tax Authority (FTA) in the UAE has issued Decision No. 8 of 2024, dated 1 November 2024, effective from 1 January 2025. This landmark decision provides detailed guidelines on the mechanism for correcting errors or omissions in VAT returns. Notably, it underscores the mandatory obligation for taxpayers to remain compliant, even when there is no change in the VAT payable amount.
Under this decision, registrants are provided with clear directions for addressing errors or omissions in submitted VAT returns. Even if such discrepancies do not alter the due tax amount, they must be corrected through a Voluntary Disclosure (VD) to ensure full compliance and maintain transparency with the FTA.
The decision identifies three primary cases where errors can be rectified without impacting the due tax amount:
Reporting errors in standard-rated supplies: Incorrectly reported in the box of the wrong Emirate.
Misreported zero-rated supplies: Overstated or understated amounts.
Misreported exempt supplies: Overstated or understated amounts.
It is an exception that VD is not to be filed for errors resulting in a VAT payable difference of up to AED 10,000. However, even if there is no change in payable tax, VD is required for the three categories of errors listed above.
Submitting incorrect VAT returns may attract an administrative penalty of at least AED 500. This reinforces the importance of accurate reporting to avoid financial repercussions.
This decision reflects the FTA’s ongoing commitment to fostering a robust and transparent tax framework. It aims to promote voluntary compliance among taxpayers, assist businesses in maintaining precise and up-to-date tax records, and build trust in the UAE’s tax regime by simplifying correction processes.
Review Past Filings: Conduct a comprehensive review of previously submitted VAT returns to identify potential errors that may require correction.
Prepare for Voluntary Disclosures: Familiarize yourself with the necessary documentation and processes.
Stay Updated: Continuously monitor FTA announcements and consult with qualified tax professionals.
Effective 1 January 2025, Dubai will reinstate the 30% alcohol tax, previously suspended in 2023. This decision impacts alcohol pricing and the hospitality sector, requiring businesses to align with the updated tax framework.
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