UAE, set to implement a corporate tax regime from June 1, has announced major provisions on tax groups and net interest expenditure deduction as part of the corporate tax requirements.
It issued new regulations regarding the maximum interest businesses can deduct per the UAE corporate tax rules. The new regulations aim to enhance transparency and streamline the process of obtaining tax-related clarifications for individual taxpayers.
The recently introduced regulation, known as the General Interest Deduction Limitation Rule, outlines the maximum amount of interest that businesses, excluding banks, insurance providers, or individuals engaged in business activities, can deduct for tax purposes in the country.
According to the UAE Federal Tax Authority (FTA), businesses can deduct their net interest expenditure up to a limit determined by either 30% of adjusted EBITDA or a “safe harbor” amount of $3.27 million approximately, whichever is higher.
Banks and insurance providers must exclude the income and expenditure of the members when calculating the 30% EBITDA threshold.
The new decision has also defined the fees required for a “private clarification” request regarding one or more taxes. A taxpayer requesting a “private clarification” must submit the necessary form through the FTA’s website and supporting documents.
The new rules exempt long-term infrastructure projects that meet specific criteria from the limitation rule, while resident entities that are 95% commonly owned will be treated as a single entity for corporate tax purposes if they form or join a “tax group.”
“Forming a tax group simplifies the calculation and reporting of taxable income by allowing the parent company to file a single tax return,” said a statement. This would be ‘based on the group’s aggregated taxable profit or loss. Transactions between the tax group members would be “generally disregarded.”
An unincorporated partnership will not be considered a taxable person as long as it is not a corporate entity.