Private Pension and Social Security Fund – UAE CT Update

Introduction 

Private Pension and Social Security Funds play a crucial role in ensuring financial security for individuals and their families. The Ministerial Decision outlines the requirements and conditions for these funds to enjoy certain exemptions from Corporate Tax. By understanding the provisions and implications of this decision, individuals and organizations can make informed decisions regarding their private pension funds and private social security funds. 

Private Pension Fund 

A private pension fund can be exempt from Corporate Tax if it meets the following conditions: 

1. Consists of assets that are assigned as Pension Plan assets or their acquisition is financed or with the use of contributions to a Pension Plan for financing the Pension Plan benefits.

2. To grant Pension Plan Members or Beneficiaries a contractual claim against its assets or earnings.

3. The fund’s income must only include income as mentioned in Article 4 of this Decision.

4. To have an Auditor.

Private Social Security Fund 

A private social security fund can apply for a corporate tax exemption from the Authority if it meets these conditions: 

1. Assets Assigned to the Fund: The fund consists of assets that are legally or contractually assigned to the fund or acquired with contributions to the fund for the sole purpose of financing the End of Service Benefit.

2. The fund’s income must only include income as mentioned in Article 4 of this Decision.

3. To have an Auditor.

What is Income for Private Pension Fund and Social Security Fund?  

For both private pension funds and private social security funds, the income should originate from the following sources: 

1. Investments or deposits: The fund may earn income from investments or deposits held for fulfilling the obligations of the fund, but these investments should not constitute a business operated by the fund itself. 
2. Underwriting commissions: The fund can generate income through underwriting commissions charged for its purposes.  
3. Rebates of charges: Income can be derived from rebates of charges paid or due by the fund to individuals involved in managing part or all of its assets. However, these rebates should not be considered compensation for services provided by the fund.  
4. Other income: The fund may earn extra income as per a defined investment policy, intended for the benefit of Pension Plan Members or beneficiaries of the End-of-service Benefit.  

Contributions to a Private Pension Fund 

Taxable Persons who are employers have the opportunity to deduct the total value of contributions made to a private pension fund who are Pension Plan Members.  

The value of contributions that can be deducted for each Pension Plan Member should not exceed fifteen percent (15%) of the total Pension Plan Member’s remuneration, which is deductible for Corporate Tax purposes. 

Administration 

Administration of private pension funds or private social security funds that are exempt from Corporate Tax by the UAE Corporate Tax Law is essential. The paragraph covers the following points: 

1. Annual Compliance Confirmation: The Auditor of the fund must confirm its compliance with this Decision every year. 
2. Withdrawal of Exemption: Auditor has to report any fact that shows there is a breach of the conditions specified. 
3. Potential Additional Decisions: The FTA can withdraw the exemption in cases: 

• • The auditor confirms that the fund no longer meets the conditions 
  • The auditor doesn’t satisfy the above two conditions 
  • FTA finds that the fund no longer meets the conditions 

Conclusion 

The Ministerial Decision introduces significant updates and regulations for private pension and social security funds. These updates outline the requirements and conditions for enjoying tax exemptions, as well as the proper administration and compliance procedures.

Are you unsure about the exemption criteria? Contact us today.

FAQs

1. What do you understand by a Pension Plan? 

A pension plan is a legal arrangement that promises benefits beyond a specified retirement age. It might also provide benefits in circumstances of death and disability. 

2. Who is regarded as a member of the Pension Plan? 

UAE Corporate Tax Law accentuates that a natural person who contributes to a private pension fund or whose contributions are made and who builds up assets or entitlements in the fund is referred to as a pension plan member. 

3. Who is a Beneficiary in the context of the Pension Plan? 

A beneficiary is any individual who is qualified to receive a share of the pension plan following the passing of a pension plan member. 

4. What are End of Service Benefits? 

End-of-Service Benefits are those benefits that an employee is entitled to upon leaving their position.

5. What function does an auditor perform about private social security and pension funds? 

An auditor is a person who has been granted a license and registration by the state’s appropriate authorities. A private pension fund or a private social security fund appoints and pays them to audit their financial accounts. 

6. Does the amount of contributions that each Pension Plan Member may have withheld have a cap? 

Yes, each Pension Plan Member’s deduction for contributions cannot be greater than 15% of the entire amount of their compensation that is deductible for Corporate Tax purposes for the applicable Tax Period.