UAE: Implementation Date of New Pension Law Announced

Al Bayan, 27 November 2023: The UAE’s General Pensions and Social Security Authority has announced the implementation date of the new Pension Law.

They announced Federal Decree-Law No. 57/2023 will apply to citizens joining work for the first time from 31 October 2023.

The Authority added that entities affiliated with it are employers in the federal and local governments in all of the Emirates, apart from local government employees in Abu Dhabi and Sharjah.

The Authority is also affiliated with employers in the private sector in all emirates of the country, except for private sector employers in Abu Dhabi.

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UAE: New Pension Law Approved

Gulf News (United Arab Emirates), 17 November 2023: The UAE’s General Pension and Social Security Authority has announced it has approved a new Pension and Social Security Law.

Under Federal Decree Law No. 57/2023, the maximum contribution account salary for Emiratis working in the private sector has been increased from 50,000 to 70,000 AED.

It will apply to Emirati employees who have joined the labour market for the first time.

This will be case from the date of its publication in organisations participating in schemes run by the Authority.

Existing participants will continue to be covered by Federal Law No. 7/1999 on Pension and Social Security.

A pensioner who receives a pension in line with Federal Law No. 7/1999 or any other previous law will also continue to be covered by the existing law.

An insured individual who has received an end-of-service bonus in line with Federal Law No. 7/1999 or any previous law, will continue to be covered by Federal Law No. 7/1999, even if they started a new job after Federal Decree Law No. 57/2023 was issued.

Under the Law, an insured employee is authorised to consolidate previous periods of service, for any employer covered by the Law to their total pension. The insured individual can also consolidate the period of service before acquiring UAE nationality. The periods of prior service in any entity approved by the UAE Cabinet will be suggested by the Authority’s Board of Directors.

The minimum age for the insured individual to be entitled to a retirement pension is 55.

The minimum subscription period is 30 years.

The new Law grants working mothers’ more flexibility and benefits. It states that working mothers can apply for a retirement pension entitlement when they are younger and can benefit from a shorter subscription period as well.

They can also maintain their optional subscription if they have chosen to take leave to care for their children, in line with the terms and conditions. The new Law authorises the insurer to benefit from optional subscription where they requested unpaid leave to pursue postgraduate study.

The monthly subscription salary for the public sector consists of the basic monthly salary of the insured individual, in addition to the monthly allowances. This includes the cost-of-living allowance, the social allowance for children, the social allowance for UAE nationals, and the housing allowance, provided that the value of the insured individual’s contribution account salary does not exceed 100,000 AED.

However, in the private sector, the contribution account salary is specified by the employment contract. The monthly subscription amount must be between 3,000 and 70,000 AED.

The new Law allows an insured individual to request the purchase of a nominal period of adjoining to be added to their actual service periods provided they have actually worked at least 25 years when submitting a purchase request or 15 years if they have reached 60. The period required to be purchased should not exceed five years for men and women.

The new Law introduces further equality between insurers from the public and private sectors. A pensioner whose subscription period has reached 30 years, has the right to combine the pension with salary, regardless of their value. This combination applies to retirees from the public and private sectors.

The Law also states that the payment of the pension will be suspended if a pensioner joins a new job covered by the provisions of the new Law in exchange for compensation, whether a monthly salary, a lump sum, or a reward if this compensation is equal to or greater than the value of the pension and they will be paid the difference if the new salary is less than the pension amount. The pension will be repaid at the end of service in line with Federal Decree-Law No. 57/2023.

Monthly contributions for insured individuals will be 26% of their contribution account salary. The insurer’s contribution will be 11% of the insured’s contribution account salary and the employer’s contribution will be 15% of the insured’s contribution account salary.

The government’s contribution will be 2.5% of the private sector employer’s share for Emirati nationals whose contribution account salary is less than 20,000 AED.

This will be the case to encourage UAE nationals to be recruited into the private sector.

To unify general rules between the public and private sectors, the pension calculation mechanism will be determined based on the average contribution account salary of the last six years of the subscription period or the entire contribution period if less for employees in both sectors.

Under the Law, the Authority has been authorised to draft the Implementing Regulations to the Law and conditions for employers and self-employed people to benefit from the new Law.

The Finance Minister will issue a Decision once approved by the Authority’s Board of Directors.

The Authority is also authorised to draft the necessary Implementing Regulations and conditions to apply the provisions of the GCC Insurance Protection Extension Programme.

It has been issued to improve the Authority’s policies as well as how it works and ensure financial resources of pensions are sustainable.

It has also been issued to honour the Authority’s future commitments.

It also aims to improve the flexibility of pension and social security services in the UAE and mitigate against any gaps in services and policies provided to UAE nationals working in the public and the private sectors. Moreover, the Law will bring further equality in insurance benefits to encourage UAE nationals to join private sector companies.

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UAE: Guide on Accounting Standards and Interaction with Corporate Income Tax Issued

The UAE’s Federal Tax Authority has issued a guide on accounting standards and interaction with corporate income tax.

Ministerial Decision No. 114/2023 specifies that the only accounting standards accepted in the UAE for corporate income tax purposes are the International Financial Reporting Standards and the International Financial Reporting Standard for small and medium-sized entities.

The Guide states the cost method of accounting will be based on the definition of International Financial Reporting Standards, or an equivalent method of accounting under the accounting standards applied by the taxable person.

The Guide specifies the equity method of accounting will be based on the definition of International Financial Reporting Standards, or an equivalent method of accounting under the accounting standards applied by the taxable person.

More information related to accounting standards that govern how particular types of transactions and events should be reported in financial statements, will be released by the relevant standard setter or accounting standards board.

The taxable income of each taxable person will be determined separately on the basis of properly prepared, unconsolidated financial statements for financial reporting purposes in line with the accounting standards accepted in the UAE for corporate income tax purposes.

Taxable persons will use International Financial Reporting Standards as the accepted accounting standards in the UAE for corporate income tax purposes.

Taxable persons may only use the International Financial Reporting Standard for small and medium-sized entities if they derive revenue of less than 50 million AED in a tax period. If they do not meet this revenue requirement, they must use the International Financial Reporting Standard.

While Taxable persons must use International Financial Reporting Standards and the International Financial Reporting Standard for small and medium-sized entities to calculate taxable income for corporate income tax purposes or face penalties, they can opt to use other accounting standards for non-corporate income tax purposes.

An exempt person under the Corporate Income Tax Law may use other accounting standards. However, if an exempt person, specifically a government entity, a government controlled entity, an extractive business or a non-extractive natural resource business, has business or business activities treated as a separate taxable business, or businesses, under the Corporate Income Tax Law, the exempt person is required to use International Financial Reporting Standards or the International Financial Reporting Standard for small and medium-sized entities to prepare the financial statements for that taxable activity.

This would also be the case where an entity is not considered to be exempt anymore.

The accounting standards specify the amount of revenue and expenditure and the period in which they are recognised, for the purpose of calculating taxable income. They will then be specifically adjusted if required to calculate taxable income under the Corporate Income Tax Law.

A tax group has to prepare consolidated financial statements using International Financial Reporting Standards or the International Financial Reporting Standard for small and medium-sized entities for determining their taxable income.

This means they must prepare standalone financial statements on the basis of aggregation of the standalone financial statements of the parent company and each subsidiary that is a member of the tax group, as if the tax group were a single taxable person. The financial results, assets and liabilities of all members of the tax group must be consolidated, eliminating any transactions between the parent company and each subsidiary.

Transactions between certain members of the tax group should be determined in line with the arm’s length principle.

Taxable persons whose revenue exceeds 50 million AED during the relevant tax period and all qualifying free zone persons, irrespective of the level of revenue must prepare and maintain audited financial statements for the purposes of the Corporate Income Tax Law.

The 50 million AED threshold is not pro-rated if a tax period is longer or shorter than 12 months. The audit must be performed by a UAE-registered auditor, in line with Federal Law No. 12/2014 (as amended) and read with Ministerial Decision No. 403/2015.

If a tax group derives revenue exceeding 50 million AED on a consolidated basis during the relevant tax period, the consolidated financial statements of the tax group as the taxable person will be required to be audited. However, the Corporate Income Tax Law does not require separate financial statements of the parent company and subsidiary members to be audited, even when a member’s revenue exceeds 50 million AED.

In addition, private pension or social security funds that have made an application to and received approval from the Authority to be exempt from Corporate Income Tax must have an auditor. The auditor must, on an annual basis, confirm the compliance of the fund with the provisions of Ministerial Decision No. 115/2023.

The Guide also provides an overview of the preparation of financial statements, the cash basis of accounting, the realisation basis of accounting, other adjustments under Article 20(2)(i) of Federal Decree-Law No. 47/2022 (the Corporate Income Tax Law) and adjustments under the transitional rules.

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UAE: Corporate Tax Regulations for Free Zones Updated

Gulf News (United Arab Emirates), 3 November 2023: The UAE’s Finance Ministry has announced it has updated the corporate tax regulations for free zones.

The Ministry issued Cabinet Decision No. 100/2023 and Ministerial Decision No. 265/2023 to effect these changes.

Cabinet Decision No. 100/2023 expands the definition of Qualifying Income to include income from the ownership or exploitation of Qualifying Intellectual Property, following the methodology of the Organisation for Economic Co-operation and Developments modified nexus approach outlined in Ministerial Decision No. 265/2023.

Ministerial Decision No. 265/2023 lists the trading of Qualifying Commodities as a Qualifying Activity, allowing a 0% corporate tax rate for income generated from physical trading of various commodities on recognised stock exchanges. It also covers derivative trading income used for risk hedging in these trading activities.

In addition, it clarifies the scope of Qualifying and Excluded Activities. This provides free zone businesses with transparency.

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