Background
Article 5 of the Federal Decree-Law No. 47 of 2022
on the Taxation of Corporations and Businesses (‘the CT Law’) has specific
provision for Government entities. As per clause 6 of Article 5 of the CT Law, a
Government entity may elect to treat all the businesses or business activities
undertaken by it as a Single Taxable Person (‘STP’).
The Ministry of Finance of the United Arab Emirates
has issued Decision No. 68 of 2023 on 07 April 2023 on treatment of all
Businesses and Business activity conducted by a Government entity as a Single
Taxable Person. Federal and Local Government entities are impacted by this Decision.
Procedure
- The Government entities need to
appoint a Representative Government Entity (‘RGE’) and notify the Federal Tax
Authority.
- An application shall be made by
the RGE to the Federal Tax Authority (‘the FTA’) which would include all
the businesses and business activities conducted by Government entities under a
license issued by a Licensing Authority.
Conditions
- The businesses and business
activities shall be conducted under a license issued by a Licensing
Authority.
- The businesses and business
activities should be conducted within the same Emirate (in case of Local
Government).
Determination
of taxable income
- Consolidation of the financial
results, assets and liabilities of all businesses and
business activities attributable to the STP for the relevant Tax Period.
Addition of new
businesses or business activities to STP
- Directly treated as STP if the
prescribed conditions as specified above are met.
- Notification to the FTA within 20 business days from the date of occurrence of such event.
Discontinuance
of businesses or business activities by STP
Notification to the FTA within 20 business days if:
- any business or business activity
is no longer conducted by the Government Entity.
- any business or business activity
is no longer conducted under a licence issued by a Licensing Authority.
Replacement of
RGE
- Through an application made
to the FTA without discontinuation of the treatment as a STP.
Cessation of
STP
- Application to be made by RGE to the FTA (which is subsequently approved by the FTA);
or
- Failure to meet any of the
conditions as specified above.
Start and end
date of the treatment as a STP
- The start and end date will be
from the beginning of the tax period specified in the application or from any
other tax period as determined by the FTA.
Our comments
- The myriad entities under a STP
need not have separate corporate tax registration and can file a single
corporate tax return thus reducing the compliance burden and administrative
formalities.
- While there are pros of forming
a STP such as reduction in compliance burden, relief from transfer pricing
provisions, etc., one may need to take into consideration other
aspects such as the benefit of basic exemption limit of AED
375,000 which shall be limited to one STP rather than being available to each
of the entities under the STP.