The laws regarding social security and pensions in the UAE have been changed, requiring employers to register Emirati workers with the General Pension and Social Security Authority. Emirati nationals are entitled to pension benefits, gratuities at the end of employment, and damages for work-related accidents or fatalities after a certain number of years of service. This article will delve into the role of a corporate tax consultant in Dubai by ensuring compliance with tax regulations affecting private pension funds and social security contributions in the UAE. 

Treatment of Public and Private pension funds under UAE Corporate Tax 

Public and Private pension funds are components of the financial governance of the UAE with a significant role in society’s welfare and economic stability. These funds are established and overseen by government entities working for retirees to ensure a stable and secure financial future. The tax obligations can be complex while determining the tax liability of these funds from the exemption point of view for beneficiaries and fund managers.  

Treatment of Social Security in the UAE 

Social Security is a government programmed that provides financial assistance to eligible individuals in the event of retirement, disability, or the passing of a loved one. UAE nationals are required to make pension plan contributions under Federal Law No. 7 of 1999. The New Federal Decree Law No. 57 of 2023 aims to enhance pension and social security services for Emirati workers who join the workforce on or after October 31, 2023. 

What Are Qualifying Public Benefit Entities Under Corporate Tax UAE? 

Public benefit entities in the UAE, such as NGOs, charitable organizations, and non-profit organizations, can attain tax exemption status by meeting specific conditions outlined in Article 4(1e) of the Corporate Tax Law. These entities must operate for the public good, not under government authority, and refrain from distributing profits to private parties. Requirements for tax exemption may vary depending on the nature and goals of the entity, and they may need to undergo a registration process or obtain a certificate of public benefit status. 

What Are the Fundamental Purposes of Public/Private Pensions and Social Security Funds? 

Social security and public pension funds are qualified to seek corporate tax exemption, due to their social significance. When the Federal Tax Authority (FTA) grants this exemption, it becomes effective on the first day of the tax period indicated in the application or on a different date that the FTA specifies. 

• Private social security funds: Due to their essential nature for providing post-retirement services such as end-of-service rewards, these funds are exempt from UAE corporate tax laws. The fund’s assets must be specifically assigned by law or contract for it to be eligible for tax exemption. By granting exemption to private social security funds, the new law intends to guarantee retirement earnings and protection for workers by incentivizing and encouraging them to have full access to social security coverage. 

• Public Social Security and Pension funds: Public pension and social security funds are commonly governed, established, and sponsored, by Government entities(federal or state) yet their control does not rest entirely with the sponsored government body. The difference between wholly owned government assets and these funds is that the beneficiaries of these funds hold the entitlement to the advantages and any surplus assets.  

Analysis of social security and private pension funds:  

Objective And Role:-Private pension funds are established to manage pension  

contributions and ensure payments to retirees who have reached a defined age of retirement. Similarly, private social security funds are set up by employers to manage statutory end-of-service gratuity payments for their employees. 

Path To Exemption: These private entities may also attain exempt person status, subject to meeting certain conditions and receiving approval from the FTA.  

• Their assets must be legally or contractually designated as “pension plan assets” or “fund assets,” and they must be under the regulatory supervision of an appropriate UAE authority to meet the qualifying requirements.  

•  These assets are strictly allocated for financing pension or end-of-service benefits. 

• Plan members or beneficiaries should have a legal or contractual right to the fund’s assets or earnings. This requirement, however, does not apply to social security funds.  

• An approved Auditor must annually verify the fund’s compliance with the exemption requirements and report any breaches to the FTA. 

Permissible Income Sources 

The income of these funds is restricted to specific sources, such as: 

• Investments or deposits aimed at fulfilling fund obligations, provided these do not constitute a business operation. 

• Underwriting commissions intended for fund purposes. 

• Rebates from fund managers are not deemed as service compensation. 

• Other income generated through investments benefiting plan members or end-of-service beneficiaries, aligned with a defined investment policy. 

The FTA reserves the right to revoke the tax exemption under circumstances where the fund no longer meets the exemption criteria, compliance is not confirmed annually by the Auditor, or breaches are not reported to the FTA. 

What Is the Status of the Exempt Person’s Subsidiaries?  

Qualifications: – A subsidiary of a governmental or private pension or a social security fund meets certain criteria, it may be eligible for corporate Tax exemption in the UAE. Let’s break down these conditions: 

Incorporation in the UAE: The subsidiary must be a juridical person incorporated within the UAE. 

Completely managed and owned: The Exempt person should be the exclusive owner and manager of the subsidiary. 

Permissible Activities 

The subsidiary can engage in any of the following activities: 

• engaging in all or a portion of the exempt person’s activities. 

• keeping ownership of assets or solely investing for the benefit of the exempt person. 

• Doing supplementary tasks that are connected to the exempt person’s work. 

• Limitations on Foreign Jurisdiction Despite being efficiently managed and controlled within the United Arab Emirates, a subsidiary incorporated in a foreign jurisdiction is ineligible to apply for exempt person status under Article 4(1)(h). 

Wholly controlled subsidiaries 

A subsidiary is considered wholly controlled by an exempt person if the entity has direct influence over the subsidiary, whether through its rights, agreements, or other means. 

Pension & Social Security Funds Contributions 

• For EmployeesTax deductible: Taxable persons can benefit from tax deductions when contributing to a pension or social security fund. Here are the key points: 

• General Principles: As per Chapter 9 of Corporate Tax UAE, employer contributions are deductible tax. 

• Exempt Person Requirement: Unlike the subsidiary case, there is no requirement for the fund to be an exempt person to qualify for deductions under the general pension plan during the applicable tax period. 

• Restrictions: Each pension plan Member’s allowable contributions cannot exceed 15% of their total deductible compensation. 

Role of Corporate tax Consultant in Dubai UAE  

A company tax consultant in Dubai can recommend tax implications associated with personal pension funds and social safety contributions within the UAE. They provide guidance on compliance with nearby tax laws, optimizing contributions, and secure retirement planning techniques are used by organizations and personnel alike.  

Contact us for corporate tax advice.   

FAQs 

What are private pension funds? 

Investment vehicles known as private pension funds are made to give people retirement income. They operate apart from official government activities. Employer and employee contributions are combined in these accounts to provide long-term revenue. 

What Distinguishes Private Pension Funds From Social Security? 

Coverage:- Employers fund and voluntarily participate in private pension programmes; the government oversees and legitimizes Social Security. 

Payroll taxes support Social Security, while employer and employee contributions support private pension plans. 

Asset control: Private pension funds are directly managed by the individual, in contrast to social security benefits, which are calculated using a formula. 

The benefits listed below are offered by individual retirement plans. 

Depending on their risk tolerance and retirement goals, participants can choose their assets. 

Portability:-  An employee’s private pension savings can be transferred if they change jobs. 

Additional Income:- The money in these accounts is added to social security benefits. 

Can people engage in both private pension plans and social security programmes?  

A large number of people pay into private pension plans and social security both. Private pension plans improve retirement savings, while social security serves as a safety net.