11 May 2023

Ministry of Finance releases further Guidance on Exempt Persons

Authored by: Theunis Claassen

Following last year’s release of the Federal Decree-Law No. 47 of 2022 (the CT Law), corporate tax is set to commence for financial years starting on or after 1 June 2023. In anticipation of this commencement date a number of Ministerial and Cabinet Decisions have been released to provide further guidance on the application of the CT Law. This newsflash briefly considers a recent Ministerial Decision in relation to Exempt Persons.

Exempt Persons

Article 4(1) of the CT Law exempts certain persons from corporate tax (CT), including Government Entities, Government Controlled Entities, persons engaged in an Extractive Business, persons engaged in a Non-Extractive Natural Resource Business, Qualifying Public Benefit Entities, Qualifying Investment Funds, certain pension and social security funds as well as UAE incorporated entities wholly owned and controlled by certain of the Exempt Persons contemplated above that conduct prescribed activities. These persons will only be exempt from CT where they comply with the conditions imposed under the relevant provisions of the CT Law, as applicable to that specific category of Exempt Person.       

Article 4(5) provides that where an Exempt Person fails to meet any of these conditions at any particular time during a Tax Period, such person shall cease to be an Exempt Person for the purposes of the CT Law from the beginning of the relevant Tax Period.

However, the Minister is empowered under Article 4(6) to prescribe the conditions under which a person may continue to be an Exempt Person, or cease to be an Exempt Person from a different date, in the following instances:

  1. Failure to meet the conditions is the result of liquidation/termination of the Person.
  2. Failure to meet the conditions is of a temporary nature and will be promptly rectified, and appropriate procedures are in place to monitor the compliance with the relevant conditions of the CT Law.
  3. Any other instances as may be prescribed by the Minister

Ministerial Decision No. 105 of 2023 (MD105) has now been released to provide further guidance on these instances and their application.  

Conditions of Deeming the Person as an Exempt Person in the Case of Liquidation or Termination

Article 2 of the MD105 provides that for the purposes of category (a) above, the Person may continue to be deemed as an Exempt Person from the date its liquidation or termination procedure starts until the date it is completed, provided that a notification has been submitted to the Authority within twenty business days from the start of the liquidation/termination procedures. A 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. For purposes of Article 2, the Person’s liquidation or termination procedure shall be applied as per the applicable legislations in the UAE.

Conditions of Deeming the Person as an Exempt Person in Case the Failure to Meet the Conditions is of a Temporary Nature

For the purposes of category (b) above, Article 3 of MD 105 provides that the Person may continue to be deemed as an Exempt Person where all of the following conditions are met:

  1. The 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 he could not reasonably have predicted or prevented.
  2. The Person has made an application to the Authority to continue to be treated as an Exempt Person within twenty business days from the date it fails to meet the conditions to be exempt under the relevant provisions of the CT Law.
  3. It is reasonably expected to rectify the failure to meet the conditions within twenty business days from the submission of the application contemplated above.
  4. Upon request by the Authority, the Person provides evidence to support putting in place the appropriate procedures to monitor the compliance with the relevant conditions of the Corporate Tax Law, within (20) twenty business days from the date of the request by the Authority, or any other period as may be determined by the Authority.

The Authority shall review the application submitted under item 2 and notify the Person of its decision within twenty business days of the submission of the application, or such other time period required to review the application, provided that the Person has been notified. Furthermore the period specified in item 3 above may be extended by an additional twenty business days in the event that the failure to rectify is beyond the Person’s reasonable control.

Instances for Ceasing to Deem the Person as an Exempt Person from a Different Date

For the purposes of category (c) above, Article 4 of MD 105 provides that the Person shall cease to be deemed as an Exempt Person starting from the day it fails to meet the conditions to be exempt under the relevant provisions of the CT Law, in case it can be reasonably concluded that the main purpose or one of the main purposes of this cessation is to obtain a Corporate Tax advantage (as specified in Clause (2) of Article (50) of the CT Law) that is not consistent with the intentions or purposes of the CT Law.

Our Tax Service Offering

It is important for taxpayers to remain up to date on the most recent Ministerial and Cabinet Decisions as released from time to time as these contain important information on the application of the CT Law as well as taxpayer rights and obligations.

Taxpayers seeking to rely on an exemption or relief provided under the CT Law should take proactive steps to ensure that they comply with the eligibility criteria for these exemptions and/or reliefs and that they are aware of the applicable administrative obligations associated therewith.

In order to ensure that your business adopts the most beneficial tax structure while simultaneously mitigating unwanted tax risk, the Tax team at Hadef & Partners is available to discuss these and other questions you might have regarding the tax affairs and general preparedness of your business in respect of the new corporate tax regime.  

In particular, Theunis Claassen from our Tax Team, can guide you in identifying key areas of your business that will be impacted by the new corporate tax regime and assist you with specialist tax planning and the implementation of appropriate mechanisms to achieve optimal tax outcomes for your business.

Please feel free to contact Theunis Claassen, our Head of Tax, to arrange an initial discussion regarding your business and its taxes.

 
 

This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.