Corporate Tax FAQs
Important notice
The information on this page is meant to provide guidance on the UAE Corporate Tax (CT) regime. The Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Corporate Tax Law) can be found at this link.
Nothing in these questions and answers should be interpreted as legal or tax advice, and it should not be assumed that the guidance is comprehensive or that it provides a definitive answer in every case. These questions and answers are not intended to address all aspects of the UAE CT regime and taxpayer specific circumstances should be considered when using these questions and answers for individual or business decisions.
These questions and answers are subject to change without notice. Further information and guidance on the technical details and other specifics of the UAE CT regime will be made available in due course.
ِA. Corporate Tax - Overview
Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses. Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.
A competitive Corporate Tax regime based on international best practices is expected to cement the UAE’s position as a leading global hub for business and investment and accelerate the UAE’s development and transformation to achieve its strategic objectives.
Introducing a Corporate Tax regime also reaffirms the UAE’s commitment in meeting international standards for tax transparency and preventing harmful tax practices.
Most countries in the world have a comprehensive Corporate Tax regime, including most of the countries in the Middle East.
The UAE Corporate Tax regime is effective for Financial Years starting on or after 1 June 2023.
Examples:
- A Business that has a Financial Year starting on 1 July 2023 and ending on 30 June 2024 is subject to UAE Corporate Tax from 1 July 2023 (which is the beginning of the first Financial Year that starts on or after 1 June 2023).
- A Business that has a Financial Year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE Corporate Tax from 1 January 2024 (which is the beginning of the first Financial Year that starts on or after 1 June 2023).
UAE Corporate Tax applies to juridical persons incorporated in the UAE and to foreign juridical persons that are effectively managed and controlled in the UAE (see question 20: ‘Who is considered a Resident Person for UAE Corporate Tax purposes?’). A foreign juridical person that operates in the UAE through a Permanent Establishment or that has a taxable nexus in the UAE would also be subject to Corporate Tax (see Section M “Foreign persons”).
Natural persons will be subject to Corporate Tax only if they are engaged in a Business or Business Activity in the UAE, either directly or through an Unincorporated Partnership or sole proprietorship. Cabinet Decision No. 49 of 2023 specifies further information on what would bring a natural person within the scope of UAE Corporate Tax.
Yes. The application of UAE Corporate Tax does not differentiate between entities that are locally or internationally owned.
Juridical persons that are incorporated or resident in the UAE, or foreign entities that have a Permanent Establishment or taxable nexus in the UAE, will be subject to UAE Corporate Tax irrespective of the residence and nationality of the individual founders or (ultimate) owners of the entity.
Yes. The UAE Corporate Tax is a federal tax and will therefore apply across all the Emirates.
Businesses engaged in the extraction of the UAE’s Natural Resources and in certain non-extractive activities that are subject to Emirate level taxation will be outside the scope of UAE Corporate Tax, subject to meeting certain conditions.
Other businesses may be subject to both Corporate Tax and Emirate level taxation. Emirate level taxes paid will not be able to be credited against or otherwise reduce the amount of Corporate Tax Payable.
No, Corporate Tax and VAT are two different types of taxes. Both will apply in the UAE.
If you are a registered business for VAT, you will have to pay VAT and Corporate Tax separately. If your business is not registered for VAT you may still have to pay Corporate Tax.
No, Corporate Tax and Excise Tax are two different types of taxes. Both will apply in the UAE.
Yes. Applicable service fees will continue to be payable to the Federal or relevant Emirate Government.
Business set up, licence renewal and other Government fees and charges that are incurred in the ordinary course of business should generally be deductible expenses for UAE Corporate Tax purposes.
In-force international agreements (including international agreements for the avoidance of double taxation) to which the UAE is a party should be considered under the UAE Corporate Tax regime.
In case of a conflict between the Corporate Tax Law and an international agreement with respect to the right to tax a certain item of income, the relevant international agreement may limit the application of UAE Corporate Tax.
The Federal Tax Authority will be responsible for the administration, collection and enforcement of UAE Corporate Tax and other federal taxes. For the purpose of the administration, collection and enforcement of Corporate Tax, the Federal Tax Authority will issue guides, respond to clarifications and provide awareness sessions as required.
The Ministry of Finance is the competent authority for the purposes of bilateral/multilateral tax agreements and the international exchange of information for tax purposes. The Ministry of Finance also has the authority to issue further implementing regulations for UAE Corporate Tax and other federal taxes.
To assess what the UAE Corporate Tax regime means for your business, as a starting point, you should:
- Read the Corporate Tax Law, its implementing decisions, and the supporting information available on the websites of the Ministry of Finance and the Federal Tax Authority.
- Use the available information to determine whether your business will be subject to UAE Corporate Tax and if so, from what date.
- Understand the requirements for your business under the Corporate Tax Law, including, for example:
- Whether your business needs to register for UAE Corporate Tax.
- What the Tax Period is for your business.
- By when your business would need to file a UAE Corporate Tax Return.
- What elections or applications can or should your business make for UAE Corporate Tax purposes.
- How UAE Corporate Tax may impact your business’ obligations and liabilities under contracts with customers and suppliers.
- What financial information and records your business will need to keep for UAE Corporate Tax purposes.
- Regularly check the websites of the Ministry of Finance and the Federal Tax Authority for further information and guidance on the UAE Corporate Tax regime.
The Corporate Tax Law and its implementing decisions can be found via this link.
The relevant Cabinet Decisions and Ministerial Decisions that have been issued to date can be found via this link
The Ministry of Finance and the Federal Tax Authority will continue to release further decisions, guidance and other materials to provide the public with more information on the application of the Corporate Tax Law.
Members of the public are encouraged to regularly check the websites of the Ministry of Finance and the Federal Tax Authority for further information and guidance on the UAE Corporate Tax regime.
B. Scope and rate
The terms “Business” and “Business Activity” as defined in the Corporate Tax Law identify when the activities of certain Persons give rise to a UAE Corporate Tax liability by considering the Person to be a Taxable Person.
“Business” means any economic activity, whether continuous or short term, conducted by any Person. It is implied that a Business is conducted with a profit motive, and that there is the existence of some system and organisation to the activity conducted. However, a Business or Business Activity for UAE Corporate Tax purposes does not lose its identity simply because it does not make a profit.
For the application of the Corporate Tax Law to companies and other juridical persons, all activities conducted, and assets used or held will generally be considered activities conducted, and assets used or held, for the purposes of a “Business”.
For the definition of “Business” or “Business Activity” of natural persons see question 30: What is considered as a ‘Business or Business Activity’ conducted by a natural person that is subject to tax?.
UAE incorporated companies such as Limited Liability Companies, Private Joint Stock Companies, Public Joint Stock Companies and other UAE juridical persons will be subject to Corporate Tax as Resident Persons.
An entity that is incorporated in the UAE will automatically be considered a ‘Resident’ Person for the purposes of UAE Corporate Tax. Equally, a natural person who is engaged in a Business or Business Activity in the UAE will also be considered a Resident Person for UAE Corporate Tax.
A foreign company may be treated as a Resident Person for UAE Corporate Tax purposes if it is “effectively managed and controlled” in the UAE. All facts and circumstances must be considered in determining where a company is effectively managed and controlled, but a relevant indicator may include the place where the board of directors of the company make the strategic decisions affecting the company.
Under the Corporate Tax Law, a juridical person is considered a Non-Resident Person if it is incorporated in a foreign country and is effectively managed and controlled outside the UAE. A natural person is considered a Non-Resident Person for UAE Corporate Tax purposes if he or she is not engaged in a taxable Business or Business Activity in the UAE.
UAE resident juridical persons will be subject to UAE Corporate Tax on their income sourced from both the UAE and from abroad, although certain income earned through foreign subsidiaries and income of foreign branches that is subject to tax in another jurisdiction will generally be exempt from UAE Corporate Tax. Further details of these exemptions are set out under questions 171: ‘Will the income of foreign branches of a UAE Business be subject to UAE Corporate Tax’ and 202: ‘What is the Participation Exemption regime?’.
Where income earned from abroad is not exempt, relief for income taxes paid in the foreign jurisdiction can be taken as a credit against the Corporate Tax Payable in the UAE on the relevant income to prevent double taxation (see Section V: ‘Tax Credits’).
Non-Resident Persons will only be subject to UAE Corporate Tax on:
- income attributable to their Permanent Establishment in the UAE;
- income that is attributable to a nexus in the UAE as determined in Cabinet Decision No. 56 of 2023;
- income that is sourced in the UAE (subject to a 0% Withholding Tax).
The Taxable Income for a Tax Period will be the accounting net profit (or loss) of the business, after making adjustments for certain items specified in the Corporate Tax Law and related implementing decisions.
The accounting net profit (or loss) of a business is the amount reported in its financial statements prepared in accordance with International Financial Reporting Standards (IFRS).
Adjustments to the accounting net profit (or loss) will need to be made for the following items:
- Unrealised gains and losses (subject to the election made regarding the application of the realisation principle);
- Exempt Income such as qualifying dividends and capital gains;
- Gains or losses arising on transfers within a Qualifying Group;
- Gains or losses arising on transfers arising from qualifying business restructuring transactions as per article (27) of the corporate tax law;
- Deductions which are not allowable for Corporate Tax purposes;
- Transactions with Related Parties and Connected Persons;
- Transfers of Tax Losses within a group where the relevant conditions are met;
- Incentives or tax reliefs; and
- Any other adjustments as specified by the Minister.
Given Corporate Tax is imposed on an annual basis, it is necessary to specify the “Tax Period”. The Tax Period is the Financial Year used for preparing financial statements, which will normally be the Gregorian calendar year (i.e. from 1 January to 31 December), unless the business applies a different 12-month period for preparing its financial statements in which case it will follow that Financial Year.
Taxable Person | Applicable Corporate Tax rate |
Natural persons and juridical persons | 0% for Taxable Income up to and including AED 375,000. 9% for Taxable Income exceeding AED 375,000 |
Qualifying Free Zone Persons (see section H: ‘Free Zone’) | 0% on Qualifying Income. 9% on Taxable Income that is not Qualifying Income as specified in Cabinet Decision No. 55 of 2023. |
Each Taxable Person will be subject to the 0% Corporate Tax rate on their Taxable Income up to and including AED 375,000, irrespective of whether they conduct one Business or multiple Businesses. This does not include Qualifying Free Zone Persons, who will be subject to the 9% Corporate Tax rate on all of their non-Qualifying Income.
Each legal entity or natural person that is subject to UAE Corporate Tax is generally considered as one Taxable Person for Corporate Tax purposes. Where multiple legal entities apply to form a Tax Group and be treated as a single Taxable Person, these entities will only benefit from one AED 375,000 threshold. In other words, the AED 375,000 threshold for a Tax Group is not increased based on the number of legal entities that are part of the Tax Group.
Where the Federal Tax Authority establishes that a Taxable Person has artificially separated its business into several separate Taxable Persons to benefit from the AED 375,000 threshold more than once, this will be considered an abusive arrangement that can result in penalties and Taxable Income adjustments.
C. Natural Persons
The Corporate Tax Law refers to the term “natural person” that is defined as an individual.
A natural person shall be subject to UAE Corporate Tax in case they derive an annual Turnover exceeding AED 1 million from a ‘Business’ or ‘Business Activity’ in the UAE, as defined by the Corporate Tax Law and in Cabinet Decision No. 49 of 2023.
A natural person will be subject to UAE Corporate Tax when performing any Business or Business Activity generating an annual Turnover in excess of AED 1 million. This excludes income generated by a natural person from the following sources, that are not considered as Businesses or Business Activities:
- Employment income,
- Personal Investment income,
- Real Estate Investment income.
No. The Corporate Tax Law applies to natural persons that derive annual Turnover exceeding AED 1 million, regardless of their citizenship or visa status.
The Taxable Income of a natural person is all the income that is derived from the Business or Business Activity they conduct in the UAE. This would include income earned from outside the UAE insofar as it relates to the Business or Business Activity conducted by the natural person in the UAE.
In the case where several Businesses or Business Activities are conducted by one natural person, the aggregate of all Businesses and Business Activities will be considered when determining whether it exceeds the AED 1 million annual Turnover threshold.
UAE Corporate Tax does not apply on the salary and wages derived by employees in consideration for their services under an employment contract, including all allowances and bonuses.
Interest and other Personal Investment and savings income earned by a natural person in their personal capacity will not be subject to UAE Corporate Tax.
Personal Investment income is income earned by a natural person from investment activities conducted in their personal capacity including interest or dividends. It excludes income from a commercial business, or from activity conducted, or required to be conducted through a Licence from a Licensing Authority in the UAE.
Real Estate Investment income is income earned by a natural person from an investment activity related directly or indirectly to land or real estate property in the UAE, which is not conducted, or required to be conducted, through a Licence issued by a Licensing Authority in the UAE.
Such activity will qualify for exclusion for Corporate Tax purposes, provided it is not conducted, or required to be conducted through a Licence.
Yes, the natural person that is subject to Corporate Tax may elect for the application the Small Business Relief, provided they meet the conditions in Ministerial Decision No. 73 of 2023.
D. Juridical persons
A “juridical person” is an entity established or otherwise recognised under the laws and regulations of the UAE, or under the laws of a foreign jurisdiction, that has a legal personality separate from its founders, owners and directors. Examples of UAE domestic juridical persons include a limited liability company, a foundation, an ‘onshore’ trust, a public or private joint stock company, and other entities that have separate legal personality under the applicable UAE ‘mainland’ legislation or Free Zone regulations.
UAE branches of a domestic or a foreign juridical person are regarded as an extension of their “parent” or “head office” and, therefore, are not considered separate juridical persons.
Separate legal personality means that the entity has its own rights, obligations and liabilities. As a consequence, the owners of the juridical person would typically have limited liability when it comes to the debts and obligations of the entity.
All activities undertaken by a juridical person will be deemed “Business Activities” and are within the scope of UAE Corporate Tax, unless specifically exempted.
No (see question 175: ‘Will foreign companies and other juridical persons be subject to UAE Corporate Tax?’), unless the foreign juridical person is “effectively managed and controlled” in the UAE and treated as a resident entity for UAE Corporate Tax purposes.
This will need to be assessed on a case by case basis, and may look at the location where the key decision makers, such as the directors, make the strategic decisions affecting the juridical person.
Yes, however, , dividends from domestic shareholdings will be exempt without condition, and dividends from foreign shareholdings and capital gains from domestic and foreign shareholdings will be exempt, subject to meeting the conditions of the Participation Exemption.
No, but natural persons who conduct a Business in the UAE through a sole proprietorship or civil company may be subject to Corporate Tax where a relevant Business or Business Activity is undertaken. Please see section C for further details.
E. Exempt Persons
The following Persons are automatically exempted from UAE Corporate Tax:
- The UAE Federal and Emirate Governments and their departments, authorities and other public institutions;
- Companies wholly owned and controlled by a Government Entity that carry out a Mandated Activity, and that are listed in a Cabinet Decision;
- Businesses engaged in the extraction of UAE Natural Resources or related non-extractive activities that are subject to Emirate-level taxation, subject to meeting certain conditions; and
- Qualifying Public Benefit Entities that are listed in Cabinet Decision No. 37 of 2023 or any subsequent relevant decisions (click [here] to view the latest list).
The following Persons are exempted from UAE Corporate Tax upon approval of an application submitted to the Federal Tax Authority:
- Qualifying Investment Funds that meet the prescribed conditions;
- Public or private pension or social security funds that meet the conditions specified in Ministerial Decision No. 115 of 2023; and
- UAE juridical persons that are wholly-owned and controlled by certain exempted entities and undertaking activities specified in paragraph (h) of Clause 1 of Article 4 of the Corporate Tax Law.
Charities and other public benefit organisations that meet certain conditions that are listed in Cabinet Decision No. 37 of 2023 or any subsequent relevant decisions are exempt from UAE Corporate Tax (click [here] to view the latest list).
Yes, if the donation is made to a charity that is listed in Cabinet Decision No. 37 of 2023 or any subsequent relevant decisions as a Qualifying Public Benefit Entity (click [here] to view the latest list).
Yes, if the organisation meets the relevant conditions and is listed in Cabinet Decision No. 37 of 2023 or any subsequent relevant decisions as a Qualifying Public Benefit Entity (click [here] to view the latest list).
Yes, if the organisation is listed in Cabinet Decision No.37 of 2023 or any subsequent relevant decisions as a Qualifying Public Benefit Entity (click [here] to view the latest list.
Qualifying Public Benefit entities must be juridical persons. This includes incorporated companies, as well as foundations and trusts that have a separate legal personality. These entities must be established and operated exclusively for the promotion of social welfare or public benefit, and meet the other conditions specified in the Corporate Tax Law.
A private pension fund is a fund created to manage pension contributions and provide payments to retired natural persons above a defined retirement age.
A private social security fund is a fund created by a private employer for the purposes of providing statutory end of service gratuity payments to employees.
Public pension and social security funds in the UAE, are exempt from Corporate Tax once an application has been made to and approved by the Federal Tax Authority.
The exemption applies only to private pension funds or private social security funds that earn income from investments and deposits held for the benefit of pension plan members or beneficiaries of end of service gratuity payments.
This limitation is to prevent private pension funds or private social security funds from being used to avoid Corporate Tax by carrying on commercial activities that would otherwise be taxable in the UAE.
There is no restriction on the contributions a Person may make to a private pension fund or a private social security fund. However, contributions made are only deductible for Corporate Tax purposes up to 15% of each employee’s total remuneration.
A Qualifying Investment Fund, or a public pension or social security fund, or a juridical person wholly owned and controlled by an Exempt Person or any other Exempt Person as may be determined based on the relevant Cabinet Decision must first register for Corporate Tax. After registering, that Person must submit an application to the Federal Tax Authority and be approved as an Exempt Person that meets the conditions set out in the Corporate Tax Law or the relevant implementing Decisions.
A Government Entity, Government Controlled Entity, a Person engaged in an Extractive Business, a Person engaged in a Non-Extractive Natural Resource Business or a Qualifying Public Benefit Entity will not be required to apply for the exemption.
The annual financial statements of private pension funds or private social security funds that have applied for an exemption from Corporate Tax will be required to be audited by a licensed auditor.
The auditor will be required to confirm the compliance of the fund with the conditions of the exemption from Corporate Tax.
F. Conditions under which the presence of a natural person in the UAE would not create a Permanent Establishment for a Non-Resident Person
This Decision has no impact on natural persons that are employees. It only affects the employers’ tax position in the UAE.
The fact that the employee cannot determine when the employee can return to their original country of work, does not create a UAE Permanent Establishment, provided that the employee does not have any intention to remain in the UAE upon the cessation of the exceptional situation. Furthermore, the employee should be able to prove that they do not have an intention to remain in the UAE, if requested by the Federal Tax Authority.
The employee’s presence in the UAE would not create a Permanent Establishment, as long as the employee’s activities performed in the UAE are not part of the core income generating activity of the foreign employer (or its Related Parties) and the foreign employer does not derive income from the UAE, e.g. UAE-based customers.
If a natural person decides to travel to the UAE and they are aware that they will not be able to return to their original place of work because of exceptional circumstances (e.g. long-term travel restrictions that were announced prior to the planned date of departure), such circumstance would be considered as a circumstance that could have been reasonably predicted.
G. Small Business Relief
Businesses with Revenues of AED 3 million or below in a relevant Tax Period and previous Tax Periods can elect for ‘Small Business Relief’ for Tax Periods that end on or before 31 December 2026.
Electing for Small Business Relief means that a Taxable Person will be treated as having no Taxable Income during the relevant Tax Period and that they can benefit from simplified compliance obligations. To claim Small Business Relief, an election must be made in the Taxable Person’s Corporate Tax Return in the relevant Tax Period.
Small Business Relief releases certain businesses from the obligation to calculate and pay Corporate Tax and from having to comply with the regular Corporate Tax reporting requirements.
An eligible Taxable Person with Revenue of AED 3 million or below in the relevant Tax Period that ends on or before 31 December 2026 and prior Tax Periods can elect to be treated as having no Taxable Income in that Tax Period and will not have to calculate its Taxable Income or file a full Corporate Tax Return.
See question 66: ‘Who can claim Small Business Relief for UAE Corporate Tax purposes?’, for more information on the eligibility to claim Small Business Relief.
If a Taxable Person’s Revenue exceeds AED 3 million in any Tax Period, they will no longer be eligible for Small Business Relief for that Tax Period and any future Tax Periods.
- A natural person.
- A legal entity that is neither:
– a Constituent Company of a Multinational Enterprise Group as defined in Cabinet Decision No. 44 of 2020 that operates in more than one country and has a total consolidated group revenue of more than AED 3.15 billion in each financial period;
– nor a Qualifying Free Zone Person.
Revenue is the gross amount of income derived in a Tax Period from sales of inventory and properties, services, royalties, interest, premiums, dividends and any other amounts, before deducting any type of costs or expenditure. In the context of income from sales of goods or services, gross income means gross revenues from sales or services without deducting the cost of goods sold or the cost of services.
Where the annual Revenue of the business is AED 3 million or below, it can elect for Small Business Relief for Tax Periods that end on or before 31 December 2026 provided it also meets the other relevant conditions. The business will then be treated as if it earned no Taxable Income and no Corporate Tax will be payable.
If a Taxable Person that has earned Taxable Income of AED 1 million is not eligible for Small Business Relief or chooses not to elect for it, the Corporate Tax liability will be calculated as follows:
- Taxable Income of AED 375,000 subject to Corporate Tax at 0%: AED 375,000 x 0% = AED 0
- Taxable Income exceeding AED 375,000 subject to Corporate Tax at 9%: (AED 1,000,000 – AED 375,000) = AED 625,000 x 9% = AED 56,250
The UAE Corporate Tax liability for the Tax Period will be AED 0 + AED 56,250 = AED 56,250.
The total amount of UAE Corporate Tax Payable can be reduced by available tax credits (see Section V ‘Tax Credits’).
Eligible Taxable Persons will be able to elect for Small Business Relief in their Corporate Tax Return.
No. Once your Revenue exceeds AED 3 million in a Tax Period, you will no longer be eligible for Small Business Relief in the current or future Tax Periods.
Please note that the Small Business Relief threshold of AED 3 million is applicable for Tax Periods that end on or before 31 December 2026.
If your Revenue exceeds AED 3 million in a Tax Period, you will no longer be eligible to elect for Small Business Relief when you file your Corporate Tax Return for that period or subsequent periods.
There is no need to notify the Federal Tax Authority if you expect your Revenue to exceed AED 3 million for a Tax Period. You would need to ensure that you have kept adequate records to allow you to calculate your Taxable Income at the end of the Tax Period.
No. Eligibility for Small Business Relief is based on the Taxable Person’s overall Revenue, irrespective of the number of Businesses or Business Activities carried out by the Taxable Person.
No. Only Resident Persons that are neither a member of a Multinational Enterprise Group (see question 74: ‘What are Multinational Enterprise Groups?) nor a Qualifying Free Zone Person are eligible for Small Business Relief.
Multinational Enterprise Groups are groups of companies that operate in more than one country and that have a total consolidated group revenue of more than AED 3.15 billion.
Members of Multinational Enterprise Groups will not be able to apply for Small Business Relief.
Tax Losses accrued by a Taxable Person in a previous Tax Period prior to the Taxable Person claiming Small Business Relief can be carried forward so that these Tax Losses can be used in future periods where Small Business Relief has not been elected or does not apply.
Excess Interest expenditure accrued in a previous Tax Period prior to the Taxable Person claiming Small Business Relief can be carried forward so that the Interest expenditure can be used in future periods where Small Business Relief does not apply.
Any Tax Period that a Taxable Person claims Small Business Relief, and as such cannot use the excess Interest expenditure, will still count towards the ’10 year’ carry forward period.
Yes. As long as your Revenue did not exceed AED 3 million in the previous Tax Periods, you will be able to elect for Small Business Relief for the current Tax Period provided you meet all the relevant conditions (see question 66: ‘Who can claim Small Business Relief for UAE Corporate Tax purposes?’).
Businesses will be able to benefit from a number of compliance reliefs once they have elected for Small Business Relief in addition to being treated as having no Taxable Income.
Businesses benefiting from Small Business Relief will not be required to file transfer pricing documentation. This includes both the requirement to file a transfer pricing information disclosure form together with a Tax Return and the requirement to maintain a master file and a local file. However, businesses must still comply with transfer pricing rules and transactions with Related Parties must meet the arm’s length principle (see Section T: Transfer Pricing for more information).
Additionally, there is no requirement to calculate Taxable Income.
H. Free Zones
The Free Zone Corporate Tax regime is a form of UAE Corporate Tax relief which enables Free Zone companies and branches that meet certain conditions to benefit from a preferential 0% Corporate Tax rate on income from qualifying activities and transactions.
Free zones are an integral part of the UAE economy that continue to play a critical role in driving economic growth and transformation both in the UAE and internationally. In recognition of their continued importance and the tax related commitments that were made at the time Free Zone were established, Free Zone companies and branches that meet certain conditions can continue to benefit from 0% corporate taxation on income from qualifying activities and transactions.
A Free Zone Person is a legal entity that is incorporated or established under the rules and regulations of a Free Zone, or a branch of a mainland UAE or foreign legal entity that is registered in a Free Zone. A foreign company that transfers its place of incorporation to a Free Zone in the UAE would also be considered a Free Zone Person.
The Free Zone Corporate Tax regime is available only to Free Zone Persons, and this term is also used to determine what income can benefit from the regime by treating income from transactions with other Free Zone Persons as Qualifying Income.
A Qualifying Free Zone Person is a Free Zone Person that meets all the conditions of the Free Zone Corporate Tax regime and hence benefits from that regime.
The conditions of the Free Zone Corporate Tax Regime require a Qualifying Free Zone Person to:
- maintain adequate substance in a Free Zone;
- derive Qualifying Income;
- not have made an election to be subject to the regular UAE Corporate Tax regime;
- comply with arm’s length principle and transfer pricing rules and documentation requirements;
- prepare and maintain audited financial statements
Failure to meet any of the conditions results in a Qualifying Free Zone Person losing its qualifying status and not being able to benefit from the Free Zone Corporate Tax regime for five Tax Periods.
The Free Zone Corporate Tax regime is available only to Free Zone Persons, and this term is also used to determine what income can benefit from the regime by treating income from transactions with other Free Zone Persons as Qualifying Income.
Qualifying Free Zone Persons are subject to a 0% Corporate Tax rate on their taxable income from Qualifying Activities and transactions with other Free Zone Persons, unless the income is derived from an Excluded Activity.
Where a Qualifying Free Zone Person operates outside of a Free Zone through a Permanent Establishment in the mainland UAE or in a foreign country, the profits attributable to such Permanent Establishment will be subject to the UAE Corporate Tax rate of 9%.
To prevent foreign Permanent Establishment profits being taxed twice, both in the UAE and in a foreign country, relief from Corporate Tax is available under the extensive double tax treaty network of the UAE and as indicated under the UAE Corporate Tax Law.
Certain income from Immovable Property in a Free Zone is also subject to the 9% Corporate Tax rate. This applies to income from transactions with non-Free Zone Persons in respect of Commercial Property and to income derived from residential units, hotels and other Immovable Property that is not Commercial Property regardless of who the payor is.
“Commercial Property” is Immovable Property located in a Free Zone that is used exclusively for a Business or Business Activity and that is not used as a place of residence or accommodation.
Immovable Property means “Anything which is settled and fixed in its space and cannot be moved without deterioration or alteration of its shape.” (Article 101 of the Civil Transactions Law).
The benefits of the Free Zone Corporate Tax regime expire by no later than the end of the tax incentive period stated in the legislation of the relevant Free Zone, unless such period is extended by means of a Cabinet Decision issued in accordance with Article 18 of the Corporate Tax Law.
Contact your Free Zone Authority to confirm the eligibility of the Free Zone in which you operate for the 0% Corporate Tax rate.
A Designated Zone is a Free Zone that is recognised as a Designated Zone for UAE VAT purposes.
Qualifying Free Zone Persons can benefit from the 0% Corporate Tax rate on income derived from the wholesale distribution of goods or materials (i.e., not to the end consumer) from a Designated Zone to domestic and foreign businesses.
The conditions of the Free Zone Corporate Tax regime are set under the Corporate Tax Law and apply uniformly across all Free Zones in the UAE. This means that the conditions for being a Qualifying Free Zone Person and benefiting from the Free Zone Corporate Tax regime are the same, irrespective of the Free Zone in which the Free Zone Person is established or registered.
No. Only juridical persons can benefit from the Free Zone Corporate Tax regime. This includes any public or private joint stock company, limited liability company, limited liability partnership and other types of incorporated entities that are established under the rules and regulations of the Free Zone. A branch of a foreign or domestic juridical person that is registered in a Free Zone would also be considered a Free Zone Person.
A foreign company can become a Free Zone Person by transferring its place of incorporation to a UAE Free Zone and continue to exist as an entity incorporated or established in a Free Zone.
Yes. A foreign company can register a branch in a Free Zone and benefit from the Free Zone Corporate Tax regime in respect of the Qualifying Income that can be attributed to that Free Zone branch.
Additionally, there are no ownership restrictions or requirements that would prevent a Free Zone company benefiting from the Free Zone Corporate Tax regime if it was wholly or partially owned by a foreign person.
No. The Free Zone Corporate Tax regime is open to existing and newly established Free Zone companies and branches, and there is no requirement for an entity to be established in a Free Zone before its first Tax Period in order to benefit from the Free Zone Corporate Tax regime.
No. The Free Zone Corporate Tax regime does not impose any limitations or restrictions with regards to who can establish or own a Free Zone Person.
Yes. A foreign or mainland company that transfers its place of incorporation to a Free Zone and as a result becomes subject to the applicable laws and regulations of the Free Zone in the same manner as an entity that was incorporated in a Free Zone shall be considered a Free Zone Person.
A foreign company will not be considered a Free Zone Person solely on the basis of being considered a Resident Person for Corporate Tax purposes by virtue of being effectively managed and controlled in a Free Zone.
The Free Zone Corporate Tax regime is applicable only within the prescribed areas of the Free Zones and applies only to income derived from transactions with other Free Zone Persons and Qualifying Activities performed in or from within a Free Zone.
Where a Qualifying Free Zone Person conducts activities outside of a Free Zone that give rise to a Permanent Establishment in the mainland UAE or in a foreign country, the income attributable to such Permanent Establishment will be subject to Corporate Tax at 9%.
The Free Zone Corporate Tax regime does not restrict or prohibit a Qualifying Free Zone Person from operating outside of a Free Zone either in the mainland UAE or in a foreign jurisdiction. However, the income attributable to a domestic of foreign branch or Permanent Establishment of the Qualifying Free Zone Person will be subject to the regular UAE Corporate Tax rate of 9%.
In the case of a foreign Permanent Establishment, the Qualifying Free Zone Person can claim relief from any double taxation suffered under the Corporate Tax Law or the applicable double tax treaty.
To benefit from the Free Zone Corporate Tax regime, a legal entity must be established or registered in one of the Free Zones eligible for the 0% Corporate Tax rate and meet the following criteria:
- maintain adequate substance in a Free Zone;
- derive Qualifying Income;
- not have made an election to be subject to the regular UAE Corporate Tax regime;
- comply with arm’s length principle and transfer pricing rules and documentation requirements;
- prepare and maintain audited financial statements
No. The Free Zone Corporate Tax regime does not prescribe any minimum investment, job creation or business expansion requirements. However, a Qualifying Free Zone Person must have adequate staff and assets and incur adequate operating expenditure in a Free Zone relative to the Qualifying Income it earns.
Qualifying Income is the income that can benefit from the 0% Corporate Tax rate under the Free Zone Corporate Tax regime.
Qualifying Income includes income derived from transactions with other Free Zone Persons as well as domestic and foreign sourced income from any of the ‘Qualifying Activities’ specified in Ministerial Decision No. 139 of 2023 Regarding Qualifying Activities and Excluded Activities.
Qualifying Income does not include income derived from performing any of the ‘Excluded Activities’ that are also specified in the above mentioned Ministerial Decision.
Yes. A Qualifying Free Zone Person that continues to meet all relevant conditions will automatically benefit from the Free Zone Corporate Tax regime. There is no need to make an election or submit an application to the Federal Tax Authority.
A Qualifying Free Zone Person that does not want to benefit from the Free Zone Corporate Tax regime can elect to apply the standard UAE Corporate Tax regime instead.
Yes. In addition to maintaining audited financial statements and adequate transfer pricing documentation, a Qualifying Free Zone Person will need to maintain all relevant documents and records to evidence its compliance with the conditions to be considered a Qualifying Free Zone Person. This includes documentation in relation to the substance maintained in a Free Zone and the types of activities performed and income earned.
Failure to meet one or more of the conditions will result in a disqualification from the Free Zone Corporate Tax regime for five (5) Tax Periods, starting from the beginning of the Tax Period in which any of the conditions are no longer met. During this period, the Free Zone Person will be subject to the standard UAE Corporate Tax regime on all its Taxable Income.
Earning non-Qualifying Income disqualifies a Qualifying Free Zone Person from the Free Zone Corporate Tax regime, unless the income is attributable to a domestic or foreign Permanent Establishment or is non-Qualifying Income earned from Immovable Property located in a Free Zone.
There are de minimis requirements that prevent a Qualifying Free Zone Person losing the benefit of the Free Zone Corporate Tax regime as a result of earning a small or incidental amount of non-Qualifying Income.
Under the de minimis requirements, a Qualifying Free Zone Person can continue to benefit from the Free Zone Corporate Tax regime where its revenues from non-qualifying transactions and activities in a Tax Period do not exceed the lower or 5% of total revenues or AED 5 million.
Revenues attributable to a domestic or foreign Permanent Establishment of the Qualifying Free Zone Person and revenues derived from property located in a Free Zone that cannot benefit from the Free Zone Corporate Tax regime are excluded from the de minimis calculation. This is because the associated income is subject to the standard UAE Corporate Tax regime.
Where the de minimis requirements are met, any non-Qualifying Income earned in that Tax Period will also benefit from the 0% Corporate Tax rate.
A Qualifying Free Zone Person is responsible for ensuring that it continues to meet all the conditions to benefit from the Free Zone Corporate Tax regime and for filing its Corporate Tax return on this basis.
The Federal Tax Authority is responsible for the administration and enforcement of UAE Corporate Tax. In this capacity, the Federal Tax Authority can verify and make a final determination of whether a Qualifying Free Zone Person has complied with all the conditions of the Free Zone Corporate Tax regime.
A Qualifying Free Zone Person must have and be able to demonstrate adequate substance in a Free Zone relative to the nature and level of its activities and the Qualifying Income it earns. This means that the Qualifying Free Zone Person must have adequate staff and assets and incur adequate operating expenditure in the relevant Free Zone or in any other Free Zone for the purposes of undertaking its core income-generating activities.
A Qualifying Free Zone Person can outsource its activities to related or unrelated persons in a Free Zone, provided it exercises control and supervision over the outsourced activities.
What constitutes adequate substance varies depending on the particular circumstances of the Qualifying Free Zone Person and will need to be assessed on a case-by-case basis. This assessment should take into account the nature and level of activities performed by the Qualifying Free Zone Person, the Qualifying Income it earns, and any other relevant facts and circumstances.
A Qualifying Free Zone Person must maintain its economic and operational substance in the Free Zone where it is established or registered or in any other Free Zone. Activities performed by related or unrelated parties in the same or in another Free Zone on behalf and under the supervision of the Qualifying Free Zone Person would count towards the determination of substance of the Qualifying Free Zone Person.
Further information on the transition from the existing Economic Substance Regulations after the UAE Corporate Tax regime comes into effect and any substance related reporting and compliance obligations for Qualifying Free Zone Persons will be provided in due course.
Yes. Qualifying Free Zone Persons must transact with their Related Parties and Connected Persons in the UAE and abroad on arm’s length terms and maintain appropriate transfer pricing and other supporting documentation. This requirement applies irrespective of whether the Related Party or Connected Person also benefits from the Free Zone Corporate Tax regime, is subject to the standard UAE Corporate Tax regime or is subject to the tax regime of a foreign country.
A Qualifying Free Zone Person must prepare and maintain adequate documentation to support the arm’s length pricing of transactions with related parties, in accordance with the Corporate Tax Law.
A Qualifying Free Zone Person that meets the conditions prescribed by the Ministerial Decision No. 97 of 2023 Requirements for Maintaining Transfer Pricing will also need to prepare and maintain a transfer pricing master file and local file.
Yes. A Qualifying Free Zone Person must prepare and maintain financial statements that are audited by an independent audit firm.
All income derived from transactions with other Free Zone Persons is treated as Qualifying Income, unless the other Free Zone Person is not the beneficial recipient of the relevant transaction or supply or the income is derived from an Excluded Activity. Income derived from another Free Zone Person that is not derived from an Excluded Activity, will be treated as Qualifying Income irrespective of whether that other Free Zone Person can benefit from the Free Zone Corporate Tax regime.
A Free Zone Person is the beneficial recipient of a transaction where that other Free Zone Person has the right to use and enjoy the supply by the Qualifying Free Zone Person, without being under a legal or contractual obligation to pass on the service or good supplied to another person. Free Zone Persons acting as an intermediary, agent or conduit on behalf of another person would not be considered the beneficial recipient of the relevant transaction with the Qualifying Free Zone Person.
Excluded Activities are activities that would disqualify a Qualifying Free Zone Person from the Free Zone Corporate Tax regime, irrespective of whether those activities are performed exclusively within the Free Zone and regardless of whether the related income is derived from transactions with a Free Zone Person or as part of undertaking a Qualifying Activity.
The Ministerial Decision No. 139 of 2023 Regarding Qualifying Activities and Excluded Activities specifies the following Excluded Activities:
- Transaction with natural persons, except in relation to:
- Ownership, management and operation of ships
- Fund management services*
- Wealth and investment management services*
- Financing and leasing of aircraft
- Regulated banking activities
- Regulated insurance activities, other than reinsurance services
- Regulated finance and leasing activities, other than intra-group treasury and financing activities and aircraft finance and leasing activities
- Ownership or exploitation of Immovable Property, other than Commercial Property located in a Free Zone
- Ownership or exploitation of intellectual property assets
Any ancillary activities performed by the Qualifying Free Zone Person that serve no independent function but that are necessary for the performance of an Excluded Activity will also be considered an Excluded Activity.
*subject to regulatory oversight of the competent authority in the UAE
Where the revenues derived from performing Excluded Activities exceed the de minimis threshold this will result in a disqualification of the Qualifying Free Zone Person from the Free Zone Corporate Tax regime.
Qualifying Activities are activities that can benefit from the Free Zone Corporate Tax regime regardless of whether the income is derived from transactions with another Free Zone Person, a Person in the mainland UAE, or from a foreign Person.
The Ministerial Decision No. 139 of 2023 Regarding Qualifying Activities and Excluded Activities specifies the following Qualifying Activities:
- Manufacturing of goods or materials
- Processing of goods or materials
- Holding of shares and other securities
- Ownership, management and operation of ships
- Reinsurance services*
- Fund management services*
- Wealth and investment management services*
- Headquarter services to Related Parties
- Treasury and financing services to Related Parties
- Financing and leasing of aircraft, including engines and rotables
- Distribution of goods or materials in or from a Designated Zone
- Logistics services
*subject to appropriate regulatory oversight of the competent authority in the UAE
Any ancillary activities performed by the Qualifying Free Zone Person that serve no independent function but that are necessary for the performance of a Qualifying Activity will also be considered a Qualifying Activity.
Except for shipping, wealth and asset management, and aircraft finance and leasing activities, income from Qualifying Activities would only benefit from the Free Zone Corporate Tax regime where the income is derived from a juridical person. This is because transactions with natural persons are considered an Excluded Activity.
The list of Qualifying Activities and Excluded Activities can be found in Ministerial Decision No. 139 of 2023 Regarding Qualifying Activities and Excluded Activities. A copy of this decision can be found on the Ministry of Finance website.
No. Transactions with UAE mainland and foreign persons are treated the same under the Free Zone Corporate Tax regime.
A Qualifying Free Zone Person that is established in a Free Zone that is a Designated Zone can earn Qualifying Income from the wholesale distribution (i.e., not to the end consumer) of goods and materials to domestic and foreign businesses.
A Qualifying Free Zone Person that is established in a Free Zone that is not a Designated Zone, on the other hand, can only earn Qualifying Income from the sale of goods and materials to other Free Zone Persons.
More details and guidance regarding the scope and meaning of each Qualifying Activity will be provided as required in due course.
Royalties, licence fees and other forms of separately identifiable income from intellectual property assets such as patents, copyrights and trademarks are income from an Excluded Activity.
Where the revenue earned from intellectual property assets and other Excluded Activities exceeds the de minimis threshold, the Qualifying Free Zone Person will not be eligible to benefit from the Free Zone Corporate Tax regime.
Income derived from transactions with a Free Zone Person in respect of Commercial Property located in a Free Zone is Qualifying Income that can benefit from the 0% Corporate Tax rate.
Income derived from transactions with a natural person, a mainland or foreign company or any other Person that is not a Free Zone Person in respect of Commercial Property (whether located in Free Zone or mainland UAE) is treated as Taxable Income that is subject to the standard UAE Corporate Tax regime at 9%.
“Commercial Property” is Immovable Property (or part thereof) located in a Free Zone that is used exclusively for a Business or Business Activity and that is not used as a place of residence or accommodation.
Immovable Property means “Anything which is settled and fixed in its space and cannot be moved without deterioration or alteration of its shape.” (Article 101 of the Civil Transactions Law)
Income earned from Immovable Property located outside a Free Zone is treated as income from an Excluded Activity.
Depending on the level of revenue from this and any other Excluded Activities, a Qualifying Free Zone Person that earns income from Immovable Property located outside a Free Zone would not be eligible to benefit from the Free Zone Corporate Tax regime.
No. The AED 375,000 zero tax band does not apply to the income of a Qualifying Free Zone Person that is subject to the 9% Corporate Tax rate.
A Free Zone Person that is not a Qualifying Free Zone Person will be able to benefit from the AED 375,000 zero tax band.
A domestic or foreign Permanent Establishment is determined based on the same criteria used in the Corporate Tax Law to determine when a Non-Resident Person has a Permanent Establishment in the UAE.
Generally, a domestic or foreign Permanent Establishment would arise where the Qualifying Free Zone Person:
- has a fixed or permanent place outside of a Free Zone through which the business of the Qualifying Free Zone Person is carried on; or
- There is a person who has and habitually exercises an authority to conduct business outside of a Free Zone on behalf of the Qualifying Free Zone Person.
A Free Zone Person that is not eligible for the Free Zone Corporate Tax regime will not need to determine whether it has a domestic Permanent Establishment, as it will be subject to the regular UAE Corporate Tax regime on all of its income.
The attribution of income and expenditure to a domestic or foreign Permanent Establishment of a Qualifying Free Zone Person must be performed in accordance with internationally accepted profit attribution methods such as the Authorised OECD Approach and the relevant provisions of the Corporate Tax Law for the determination of Taxable Income. This requires the application of the arm’s length principle with regards to any transactions between the Qualifying Free Zone Person and its Permanent Establishment as if the Permanent Establishment was a separate and independent party.
Where the profits of a foreign Permanent Establishment are subject to Corporate Tax in the UAE and are also subject to tax in the relevant foreign country where the Permanent Establishment is located, the following mechanisms may be available to prevent double taxation:
- Application of an applicable double tax agreement (Article 66 of Corporate Tax Law)
- Application of the foreign Permanent Establishment Exemption (Article 24 of Corporate Tax Law)
- Claiming a credit for any foreign taxes paid (Article 47 of Corporate Tax Law)
Where a mixed-use property such as a residential building with retail space generates both Qualifying and non-Qualifying Income, the Qualifying Free Zone Person must attribute and apportion income and expenditure between both types of income, and maintain relevant transfer pricing documentation and other records to support such allocations. Certain income and expenditure may be directly attributable, whereas other income and expenditure may need to be apportioned on a fair and reasonable basis in accordance with the arm’s length principle.
No. A Qualifying Free Zone Person cannot be a member of a Tax Group or be part of a Qualifying Group. A Qualifying Free Zone Person can also not transfer or receive Tax Losses or claim Small Business Relief or Business Restructuring Relief.
Yes. All Free Zone Persons will be required to register, obtain a Tax Registration Number, and file a Corporate Tax return, irrespective of whether they are a Qualifying Free Zone Person or not.
No. Only the Qualifying Free Zone Person will be required to register and file a single UAE Corporate Tax return reporting both its Qualifying Income and the Taxable Income that is attributable to its domestic or foreign Permanent Establishment.
There is no requirement for the domestic of foreign Permanent Establishment to separately register and file a UAE Corporate Tax return with the Federal Tax Authority.
No. Only the mainland or foreign juridical person will be required to register and file a UAE Corporate Tax return. This Corporate Tax return will include the profits attributable to the mainland or foreign juridical persons’ Free Zone branch.
There is therefore no separate requirement to register or file a UAE Corporate Tax return for the Free Zone branch with the Federal Tax Authority.
Payments to a Qualifying Free Zone Person are not subject to a withholding tax in the UAE.
Where a Qualifying Free Zone Person earns income that is subject to a withholding tax in a foreign country, an exemption or reduction of withholding tax may be available under the applicable double tax treaty between the UAE and that foreign country. No foreign tax credit can be claimed by the Qualifying Free Zone Person for any remaining foreign withholding tax suffered on its Qualifying Income.
There are no specific rules or limitations for the deductibility of payments made to a Qualifying Free Zone person. The general rules under Corporate Tax Law will determine whether and to what extent payments made to a Qualifying Free Zone Person qualify as deductible business expenditure.
Qualifying Free Zone entities that are part of a large multinational group are expected to be subject to the Pillar Two global minimum tax rules once these rules have been implemented.
Subject to the application of a double tax treaty, legal entities that are incorporated or established under the rules and regulations of a Free Zone will be treated as Resident Persons for UAE Corporate Tax purposes and Cabinet Decision No. 85 of 2022 on Determination of Tax Residency. A foreign company that transfers its place of incorporation to the UAE and continues to exist as an entity incorporated or established in a Free Zone would also be considered a Resident Person under the UAE Corporate Tax Law.
A branch is an extension of its parent or head office and, as such, a foreign legal entity that registers a Free Zone branch would be considered a Non-Resident Person.
Relief from taxation under a double tax treaty is available only to persons who are a “resident” of one or both of the countries that are party to the relevant treaty. Residency is defined differently in double tax treaties, but typically requires a company or individual seeking treaty benefits to either be liable to tax, have a legal connection (e.g. incorporation), or economic connection (e.g. effective management or substantial presence) (or a combination thereof) in the relevant treaty country.
A Free Zone Person is a ‘Resident Person’ in the UAE for Corporate Tax purposes by virtue of being incorporated in the UAE, in the same way as any other UAE company. A Qualifying Free Zone Person is also ‘liable to tax’ in the UAE, albeit at a 0% on its Qualifying Income.
The ability to benefit from double tax treaties is also subject to other conditions and would need to be assessed on a case by case basis taking into account all relevant facts and circumstances and the specific conditions of the applicable double tax treaty.
I. Partnerships
The Corporate Tax Law makes a distinction between unincorporated and incorporated partnerships.
“Unincorporated Partnerships” (as defined in the Corporate Tax Law) are essentially a contractual relationship between two or more Persons, as opposed to being a distinct juridical person separate from their partners / members. Unincorporated Partnerships are treated as ‘transparent’ for UAE Corporate Tax purposes. This means that an Unincorporated Partnership is not subject to UAE Corporate Tax in its own right. Instead, each partner is subject to UAE Corporate Tax on their share of the income from the Business conducted through the partnership.
Incorporated partnerships include limited liability partnerships, partnerships limited by shares and other types of partnerships where none of the partners have unlimited liability for the partnership’s obligations or other partners’ actions. Such partnerships are subject to Corporate Tax in the same manner as a corporate entity (see Section D: ‘Juridical persons’).
An Unincorporated Partnership is a relationship established by contract between two Persons or more, such as a partnership or trust or any other similar association of Persons, in accordance with the applicable legislation in the UAE.
No, a written contract is not necessary. A verbal agreement, or even the conduct between the parties, can give rise to an Unincorporated Partnership.
Unless an application is made to be treated as a Taxable Person in its own right, an Unincorporated Partnership will be treated as tax transparent.
This means that the Unincorporated Partnership itself will not be subject to Corporate Tax. Instead, the individual partners will be taxed on their share of income of the Unincorporated Partnership.
The income and expenditure of the Unincorporated Partnership (that is tax transparent) is allocated to each partner in proportion to their distributive share in that Unincorporated Partnership. This will generally follow the contract establishing the Unincorporated Partnership. Where the distributive share of a partner cannot be identified, it will be allocated in a manner prescribed by the Federal Tax Authority.
The minimum number of partners is two. There is no maximum number.
Yes. The partners in an Unincorporated Partnership can make an application to the Federal Tax Authority for the Unincorporated Partnership to be treated as a Taxable Person in its own right. If the application is approved, the profits will be taxed directly at the Unincorporated Partnership level, rather than with the partners. The application shall be irrevocable, except under exceptional circumstances and subject to approval by the Federal Tax Authority.
Natural persons that are engaged in a Business or Business Activity through an Unincorporated Partnership are individually subject to UAE Corporate Tax on their share of the income from the Unincorporated Partnership. Accordingly, where the natural person is a partner in the Unincorporated Partnership, they would be required to register for UAE Corporate Tax purposes and comply with the requirements of the Corporate Tax Law, (see Question 30: What is considered as a ‘Business or Business Activity’ conducted by a natural person that is subject to tax?).
The partners in an Unincorporated Partnership can make an application to the Federal Tax Authority for the Unincorporated Partnership to be treated as a separate and standalone Taxable Person for the purposes of UAE Corporate Tax. If the application is approved, one partner in the Unincorporated Partnership will be appointed as the partner responsible to file a Corporate Tax Return on behalf of the partners in the Unincorporated Partnership.
A juridical person that is a partner in an Unincorporated Partnership and that is already registered for Corporate Tax purposes as a Resident or Non-Resident Person, will not have an additional Corporate Tax Registration requirement.
For UAE Corporate Tax purposes, a Foreign Partnership will generally be considered as an Unincorporated Partnership subject to meeting certain conditions, including that the partnership is not subject to tax in the relevant foreign jurisdiction (see question 137 ‘How will the UAE Corporate Tax regime apply to partnerships?’).
The two are different by definition: a Foreign Partnership is established in accordance with the laws of a foreign jurisdiction, while an Unincorporated Partnership is established in accordance with the laws of the UAE.
However, for the purposes of the UAE Corporate Tax, a Foreign Partnership can be treated as an Unincorporated Partnership (and therefore be tax transparent), where it meets certain conditions.
J. Trusts and Family Foundations
A Family Foundation (as defined in the UAE Corporate Tax Law) is a foundation, trust or similar entity used to protect and manage the assets and wealth of a natural person or family.
The principal activity of a Family Foundation would generally be to receive, hold, invest, disburse, or otherwise manage funds and assets associated with savings or investment for the interest of individual beneficiaries or to achieve a charitable purpose. Such activities would typically not constitute a “Business” or “Business Activity” for UAE Corporate Tax purposes if they were undertaken directly by the founder, beneficiary or any other natural person.
Family Foundations (including certain trusts) are independent juridical persons with separate legal personality, and would therefore prima facie be subject to UAE Corporate Tax in their own right. However, these types of Family Foundations can apply to be treated as transparent “Unincorporated Partnerships” for UAE Corporate Tax purposes, resulting in the founder/settlor and the beneficiaries of the foundation to remain to be seen as owners of the assets held by the foundation. This would generally prevent the income of the foundation from attracting UAE Corporate Tax.
Other types of trusts (for example, trusts established in DIFC or ADGM) are a contractual relationship between two or more Persons (e.g., the beneficiary, settlor, and trustee) and do not have separate legal personality. These types of trusts will by default be treated as transparent vehicles for UAE Corporate Tax purposes.
Yes, a Family Foundation can apply to be treated as an Unincorporated Partnership and benefit from tax transparent treatment. Where the Family Foundation is not treated as a Taxable Person in its own right, the Corporate Tax liability will flow to the beneficiaries, subject to satisfying certain conditions.
In order to be treated as an Unincorporated Partnership, the Family Foundation must:
- Meet the conditions stipulated in Article (17) of the Corporate Tax Law and Ministerial Decision No. 127 of 2023.
- Make an application to the Federal Tax Authority to be treated as an Unincorporated Partnership.
Yes, the beneficiaries of a Family Foundation that is treated as an Unincorporated Partnership will be considered as partners in the Unincorporated Partnership and will be treated as individual Taxable Persons for Corporate Tax purposes.
Natural persons that are beneficiaries of a Family Foundation that is treated as an Unincorporated Partnership are individually subject to UAE Corporate Tax. Accordingly, these natural persons would each be required to register for UAE Corporate Tax purposes if they are conducting a Business or Business Activity and comply with the requirements of the Corporate Tax Law, (see Question 30: What is considered as a ‘Business or Business Activity’ conducted by a natural person that is subject to tax?).
Public benefit entities that are not Qualifying Public Benefit Entities will be considered as Taxable Persons in accordance with the provisions of the Corporate Tax Law, even if they are beneficiaries of a Family Foundation.
If the beneficiaries are Non-Resident Persons, the income received from the Family Foundation may be subject to UAE Corporate Tax in accordance with Article (12) of the Corporate Tax Law, and Cabinet Decision No. 49 of 2023 where the beneficiaries are natural persons.
K. Investment Funds and Investment Managers
A Qualifying investment fund is an entity whose principal activity is the issuing of investment interests to raise funds or pool investor funds or establish a joint investor fund with the aim of enabling the holder of such an investment interest to benefit from the profits or gains from the entity’s acquisition, holding, management or disposal of investments, in accordance with the applicable legislation and when it meets the conditions set out in Article 10 of the Corporate Tax Law.
Investment funds are commonly organised as limited partnerships (as opposed to corporate entities) to ensure tax neutrality for their investors. This tax neutrality follows from the fact that most countries treat limited partnerships as transparent (‘flow through’) for domestic and international tax purposes, which puts investors in the fund in a similar tax position as if they had invested directly in the underlying assets of the fund. Investment funds that are structured as partnerships, unit trusts and other unincorporated vehicles would generally be treated as fiscally transparent “Unincorporated Partnerships” for the purposes of UAE Corporate Tax.
Investment funds that are structured as corporate entities, including Real Estate Investment Trusts, or partnership funds that apply to be treated as a “Taxable Person” for UAE Corporate Tax purposes in their own right, can apply to the Federal Tax Authority to be exempt from UAE Corporate Tax as Qualifying Investment Funds subject to meeting certain requirements.
A Recognised Stock Exchange includes:
- UAE: Any stock exchange established in the UAE that is licensed and regulated by the relevant competent authority (e.g. Nasdaq Dubai, Abu Dhabi Securities Exchange, or Dubai Financial Market);
- Foreign: Any stock exchange established outside the UAE of equal standing to the stock exchange in the UAE.
Yes. If the investment fund manager is a UAE resident, or if it operates in the UAE through a Permanent Establishment, the investment fund manager will be subject to UAE Corporate Tax on the income it earns.
For the investment fund exemption, either the investment fund or the manager of the fund is required to be subject to regulatory oversight, not both.
Under the “Investment Manager Exemption”, regulated UAE Investment Managers can provide discretionary investment / asset management services to foreign funds and customers without creating a Permanent Establishment for the foreign investors or the foreign investment fund in the UAE, where certain conditions are met.
Where the conditions of the Investment Manager Exemption are met, a UAE-based Investment Manager should not create UAE residency for Corporate Tax purposes for the foreign investment fund / investment vehicle it manages.
Wholly-owned UAE investment holding companies and other special purpose vehicles used by a Qualifying Investment Fund to deploy capital and hold investments can apply to the Federal Tax Authority to benefit from the UAE Corporate Tax exemption.
Generally, yes. However, Investment funds that have been established for less than two Financial Years are not obliged to meet the ownership conditions to be eligible for the Corporate Tax exemption if there is sufficient evidence to demonstrate the intention of the investors to meet the ownership conditions after the first two Financial Years.
The Authority will determine what could be considered as sufficient evidence, but this may include correspondence emails with potential investors, an internal communication showcasing the existing investors’ strategy to attract additional investors, etc. Further guidance on the requirements will be published by the Authority in due course.
No, an institutional investor can only be a juridical person, and cannot be a natural person.
Yes, natural persons can invest in a REIT that is a Qualified Investment Fund that has at least 20% of its share capital floated on a Recognised Stock Exchange.
Yes, an Unincorporated Partnership that has made an application to the Authority to be treated as a Taxable Person can apply to be treated as a Qualified Investment Fund, provided it meets the relevant conditions under the Corporate Tax Law and corresponding Cabinet Decision.
L. Branches
No. UAE branches of a domestic or a foreign juridical person are an extension of their “parent” or “head office” and, therefore, are not considered separate juridical persons.
Yes. The income of UAE branches will be included in the Taxable Income and UAE Corporate Tax Return of their UAE “parent” or “head office”.
UAE branches of a UAE resident juridical person are not required to separately register or file for UAE Corporate Tax.
The income of foreign branches or Foreign Permanent Establishments of a UAE business will be included in the Taxable Income and UAE Corporate Tax Return of their UAE “head office”, unless the UAE “head office” elects to claim an exemption for its foreign branch profits. This exemption is available for foreign branch profits that have already been subject to tax in the foreign jurisdiction.
A UAE branch of a foreign business will be subject to Corporate Tax and is required to register for Corporate Tax purposes if the branch constitutes a Permanent Establishment in the UAE for the foreign business under the Corporate Tax Law. The registration functionality for UAE branches of foreign businesses will be available in due course.
A UAE branch of a foreign business would generally be subject to UAE Corporate Tax, unless the activities of the branch do not give rise to a Permanent Establishment in the UAE for Corporate Tax purposes (see Section M ‘Foreign persons’).
Preparatory or auxiliary activities are those performed in preparation or in support of more substantive Business Activities of the foreign entity. Examples of preparatory and auxiliary activities include storage, display or delivery of goods or merchandise belonging to the foreign entity, limited marketing and promotional activities, performing market research and attending seminars or conventions.
Where relevant, the application of an international agreement for the avoidance of double taxation should be taken into consideration when determining whether a Permanent Establishment exists or whether the activities performed are preparatory or auxiliary in nature.
M. Foreign persons
A Foreign entity will be subject to UAE Corporate Tax if the foreign entity is effectively managed or controlled in the UAE, has a Permanent Establishment in the UAE, earns income from a nexus in the UAE or earns income sourced from the UAE.
Merely earning UAE sourced income would not trigger Corporate Tax Payable or require the foreign entity to register and file for UAE Corporate Tax.
Income will generally be considered to be sourced from the UAE where it is derived from a UAE Resident Person, a UAE Permanent Establishment, or the income is derived from activities performed or from assets located, capital invested and rights used in the UAE.
A foreign juridical person may be treated as a UAE resident for Corporate Tax purposes and subject to UAE Corporate Tax on its income sourced from both the UAE and abroad if it is effectively managed and controlled in the UAE (see question [20] ‘Who is considered a resident for Corporate Tax Purposes’).
A foreign natural person will be subject to UAE Corporate Tax as a “Resident Person” insofar as he or she is engaged in a Business or Business Activity in the UAE. Being treated as a Resident Person for UAE Corporate Tax purposes does not automatically mean the foreign natural persons will be considered resident in the UAE for all other taxes or for the application of a double tax agreement.
For natural persons, Cabinet Decision No. 49 of 2023 specifies further information on what would bring a natural person within the charge to Corporate Tax.
A foreign natural person that does not conduct a taxable Business or Business Activity in the UAE (see question [177] ‘Can a foreign natural person be subject to UAE Corporate Tax as a Resident Person?’) would generally not be subject to UAE Corporate Tax.
Generally, a foreign juridical person will have a Permanent Establishment in the UAE if:
- It has a fixed or permanent place in the UAE through which the business of the foreign person is carried on; or
- There is a Person who has and habitually exercises an authority to conduct business in the UAE on behalf of the foreign juridical person.
A fixed place of business would not be considered a Permanent Establishment if it is used solely to store, display or deliver goods or merchandise belonging to the foreign juridical person or to conduct any activities that are of a preparatory or auxiliary nature.
A Permanent Establishment would not arise if the juridical person who has and habitually exercises an authority to conduct business in the UAE on behalf of the foreign juridical person acts as an independent agent.
Where relevant, the application of an international agreement should be taken into consideration when determining whether a Permanent Establishment exists.
A foreign natural person that invests in real estate property in the UAE in his or her personal capacity without a Licence would generally not be subject to UAE Corporate Tax and related compliance obligations.
Income earned from UAE real estate by a foreign juridical person may give rise to a taxable nexus in the UAE and as such may be subject to Corporate Tax.
Income will be considered to be sourced from the UAE, if:
- the income is derived from a UAE resident;
- the income derived is attributed to a Permanent Establishment in the UAE of a non-UAE resident; or
- the income is derived from activities performed, assets located, capital invested, rights used or services performed or benefited from in the UAE.
The Corporate Tax Law includes a non-exhaustive list of income that is considered as being sourced in the UAE.
A Cabinet Decision may be issued in due course specifying the types of UAE sourced income subject to Withholding Tax. The UAE Withholding Tax rate is currently set at 0%.
Generally, income from dividends, capital gains, interest and royalties earned by foreign juridical persons or natural persons will not be subject to UAE Corporate Tax, unless such income can be attributed to a Permanent Establishment in the UAE of the foreign person.
Further, until a Cabinet Decision is issued specifying which State Sourced Income will be subject to Withholding Tax (currently at 0%), such income when derived by a foreign investor will not be subject to UAE Withholding Tax.
N. Accounting Standards and Methods
Taxable Persons will be required to apply the International Financial Reporting Standards (“IFRS”). In case their Revenue does not exceed AED 50,000,000, they are allowed to use IFRS for SMEs.
An accounting method under which the Taxable Person recognises income and expenditure when cash payments are received and paid.
A Person can use Cash Basis of Accounting if their Revenue does not exceed AED 3,000,000.
If the Person’s Revenue exceeds the AED 3 million threshold, they may use Cash Basis of Accounting under exceptional circumstances and pursuant to an application approved by the Federal Tax Authority.
There are no specific standards applicable solely on Persons that prepare their Financial Statements using the Cash Basis of Accounting, however the Federal Tax Authority has the right to request any relevant supporting information, documents or records (e.g. bank statements, receipts).
The application of the consolidated Financial Statements according to the International Financial Reporting Standards (IFRS) would result in a significant difference in the Corporate Tax calculation for a group that elected to be a Tax Group compared to one that did not. Therefore, the Financial Statements should be consolidated by way of aggregation of standalone Financial Statements in order to remove any difference in the Taxable Income calculation.
O. General Rules for Determining Taxable Income
The Taxable Income for a Tax Period is the accounting net profit (or loss) of the business, after making adjustments for certain items as defined in the Corporate Tax Law.
For UAE Corporate Tax purposes, the Financial Statements of UAE entities and other businesses should be prepared in accordance with the International Financial Reporting Standards (IFRS). In case the Person’s Revenue does not exceed AED 50,000,000, it is acceptable to use IFRS for SMEs. In case the Person’s Revenue does not exceed AED 3,000,000, it is acceptable to use the Cash Basis of Accounting.
Taxable Persons should prepare their Financial Statements, and determine their Taxable Income on an accrual basis, unless they are permitted to use the Cash Basis of Accounting instead. Ministerial Decision No. 114 of 2023 prescribes the instances where a Taxable Person can prepare Financial Statements using the Cash Basis of Accounting.
The accounting net profit (or loss) would need to be adjusted for the items prescribed in the UAE Corporate Tax Law, including:
- Unrealised gains/losses (subject to the election made regarding the application of the realisation principle);
- Exempt Income such as dividends;
- Gains or losses arising on transfers within a Qualifying Group;;
- Gains or losses arising on transfers under business restructuring transactions as per article (27) of the corporate tax law;
- Deductions which are not allowable for Corporate Tax purposes;
- Adjustments for transactions with Related Parties and Connected Persons;
- Transfers of Tax Losses within a group where the relevant conditions are met.
- Any incentives or tax reliefs; and
- Any other adjustment specified by the Minister.
As under many other Corporate Tax systems, the UAE Corporate Tax regime allows Taxable Persons to apply the realisation principle for determining their Taxable Income. This means that income will be taxable, and a deduction would be allowed, only when a gain or loss is realised. Realisation would happen, for example, when the relevant asset is sold or terminated.
Under the realisation principle, the Taxable Income for each Tax Period would exclude unrealised gains and losses in respect of assets or liabilities that are subject to fair value or impairment accounting or held on the capital account, depending on the election made by the Taxable Person.
All Taxable Persons are allowed to elect to use the realisation basis method, provided they prepare their Financial Statements on an accrual basis. It is important to note that Banks and Insurance Providers can only elect to use the realisation basis with respect to assets and liabilities held on the capital account.
The election to use the realisation basis method will be considered irrevocable, except under exceptional circumstances and upon approval by the Federal Tax Authority.
Generally, Taxable Persons have the following three options:
- Recognise unrealised gains and losses for UAE Corporate Tax purposes; or
- Recognise gains and losses on a realisation basis with respect to all assets and liabilities that are subject to fair value or impairment accounting; or
- Recognise gains and losses on a realisation basis with respect to all assets and liabilities held on capital account.
Where a business prepares their Financial Statements on an accrual basis, it may elect to use either of the following options in respect of the UAE Corporate Tax treatment of unrealised accounting gains and losses:
- Option 1: The Taxable Person can elect to recognise gains and losses on a ‘realisation basis’ for UAE Corporate Tax purposes for all assets and liabilities that are subject to fair value or impairment accounting – that is, any and all unrealised gains would not be taxable (and conversely, any and all unrealised losses would not be deductible) until they are realised;
- Option 2: The Taxable Person can elect to recognise gains and losses on a ‘realisation basis’ for UAE Corporate Tax purposes for all assets and liabilities held on capital account only (i.e. not expected to be sold or traded with during the regular course of the business operations) – that is, only unrealised gains and losses in respect of all assets and liabilities held on the capital account would not be taxable or deductible, respectively, until they are realised. Unrealised gains and losses arising from assets and liabilities held on the revenue account, on the other hand, would continue to be included in Taxable Income on a current basis.
No distinction is made between gains arising from the sale of capital assets and those arising from the sale of non-capital (revenue) assets. Capital gains derived from the disposal of assets are included in annual Taxable Income in the same manner as other income from the business. Capital gains on the sale of shares may be exempt from Corporate Tax, subject to meeting certain conditions (see question 201] ‘Are capital gains exempt from UAE Corporate Tax?’).
P. Income exempt from Corporate Tax
The following income is exempt from UAE Corporate Tax:
- Dividends and other profit distributions received from UAE incorporated or resident juridical persons;
- Dividends and other profit distributions received from a Participating Interest in a foreign juridical person (see Question [200] [Are all dividends and other profit distributions from foreign juridical persons exempt from UAE Corporate Tax?]);
- Certain other income (e.g., capital gains, foreign exchange gains / losses and impairment gains or losses) from a domestic or foreign Participating Interest (see Question [202] ‘what is the participation exemption regime’);
- Income from a foreign branch or Permanent Establishment where an election is made to claim the “Foreign Permanent Establishment” exemption; and
- Income earned by non-residents from the operation or leasing of aircrafts or ships in international transportation where certain conditions are met (see Question [276] ‘How will international airlines and shipping companies be taxed?’).
Subject to the Participation Exemption requirements, dividends and other profit distributions earned from a Participating Interest in a foreign juridical person are exempt from UAE Corporate Tax. A Participating Interest is a 5% or greater ownership interest or has an acquisition value of at least AED 4,000,000 in the capital or equity of the foreign juridical person that meets the conditions of the Participation Exemption regime.
Under the Participation Exemption regime, capital gains earned from a Participating Interest in either foreign and domestic juridical persons are exempt from UAE Corporate Tax. Also, there is relief from Corporate Tax for capital gains that may arise on intra-group transfers and reorganisation and restructuring transactions.
Other capital gains would be treated as ordinary income and subject to Corporate Tax.
The background to the Participation Exemption regime is to prevent double taxation within a group where an underlying group company (that pays the dividend or whose shares are being sold) has already been taxed on its profits.
The Corporate Tax Law fully exempts dividends derived from UAE entities, as well as dividends from foreign subsidiaries that qualify as a “Participation”. A Participation is a juridical person in which the UAE shareholder company owns a 5% or greater ownership interest or has an acquisition value of at least AED 4,000,000 (a “Participating Interest”) for at least 12 months, and that meets the conditions of the Participation Exemption regime.
Similarly, capital gains on the sale of shares in domestic and foreign entities would also be exempt from Corporate Tax. This exemption is subject to the same minimum ownership threshold, duration and other conditions mentioned above.
There can be instances where a UAE business makes a strategic investment in another company that does not result in a 5% or greater ownership interest, or where the percentage ownership in the Participation falls below the 5% ownership threshold because of events outside of the control of the UAE shareholder company.
To address such instances and reduce the administrative burden associated with monitoring the continued compliance with the minimum ownership requirement under the Participation Exemption regime, an ownership interest with an acquisition cost that equals to or exceeds AED 4 million will be deemed to meet the minimum ownership requirement. This means that the income derived in relation to such an ownership interest will be exempt under the Participation Exemption regime, provided that all other conditions are met.
Dividends received from a UAE resident company are automatically exempt under Article 22 of the Corporate Tax Law.
There is no need to claim an exemption using the Participation Exemption for dividends received from UAE resident companies.
Generally, a foreign company that is resident in a country with a corporate income tax system which is similar to the UAE Corporate Tax regime and that has a headline statutory rate of 9% or higher would be considered to have met the “subject to tax” test for the purposes of the Participation Exemption.
Additionally, a foreign juridical person will be considered to have met the subject to tax test if it is able to demonstrate that it is subject to tax on its income or profits at an effective rate of 9% or more.
Where the foreign company is a resident in a country that does not impose tax on business profits solely, but rather on a different basis (e.g. on the company’s income, equity, or net worth, or a combination of the above – e.g. Zakat), this foreign company can still be considered as meeting the “subject to tax” test if the foreign company can demonstrate that it is subject to tax at an effective tax rate of 9% or more on accounting profits calculated in accordance with the basis provided for in the Corporate Tax Law. The same would apply to a foreign company that is not subject to tax in the country of its residence but that operates through a Permanent Establishment in a third country that taxes the relevant income.
A Taxable Person can meet the minimum ownership requirements of the Participation Exemption in relation to a Participation if it either:
- holds a 5% or greater ownership interest in the Participation; or
- the acquisition cost of its ownership interest in the Participation is at least AED 4 million.
When measuring the ownership interest, different types of ownership interests (e.g. ordinary shares, preferred shares, options, etc.) held by the Taxable Persons should be aggregated together.
Ownership interests in the Participation that are held by members of a Qualifying Group to which the Taxable Person belongs can also be counted towards the ownership of the Taxable Person in the Participation.
Ownership interests include:
- ordinary shares,
- preferred shares,
- redeemable shares,
- membership and partner interests,
- and other types of securities, capital contributions and rights that entitle the owner to receive profits and liquidation proceeds.
However, the above will only be treated as ownership interests where they are treated as equity under International Financial Reporting Standards (IFRS).
Yes, provided that the branch is a Taxable Person under the Corporate Tax Law, and meets all other required conditions to benefit from the exemption in respect of an ownership interest in a Participation that can be attributed to the branch.
Option rights will qualify as an ownership interest for the purpose of Participation Exemption where, under International Financial Reporting Standards (IFRS), both the control and beneficial ownership of the (underlying) shares are in the hands of the option holder.
A financial instrument that is in compliance with Shariah principles may also benefit from the Participation Exemption provided that it is classified as equity under the accounting standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions. If the ownership interests consist of Islamic financial instruments, and the conditions for the exemption are met, income in relation to these instruments will be exempt under the Participation Exemption.
The accounting standards that are relevant for Islamic financial instruments are the accounting standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions. This organisation is an Islamic international autonomous non-for-profit corporate body that prepares accounting, auditing, governance, ethics and Shariah standards for Islamic financial institutions.
Yes. If an ownership interest is exchanged for another ownership interest as part of a Business restructuring transaction, and that newly acquired ownership interest will meet the conditions of the Participation Exemption, the new ownership interest shall be treated as the same continuous ownership interest.
The Participation shall meet the requirement of a “principal objective and activity of the Participation is the acquisition and holding of shares or equitable interests” when the Participation meets all of the following conditions:
- The holding company should be directed and managed in the relevant country or territory,
- The holding company complies with requirements to submit documents and records to the relevant authority,
- The holding company has adequate personnel and premises, and
- The holding company should not conduct any other non-incidental or auxiliary activities to the acquisition and holding of shares or equitable interests.
A holding company’s income will substantially consist of income from Participating Interests if, during the relevant Tax Period and the preceding Tax Period, its income on average consisted of 50% or more of dividends, capital gains and other income from Participating Interests.
The monetary minimum acquisition cost threshold of AED 4 million will be determined considering the value of the equity or capital contribution made, including any consideration paid in cash, value of any subsequent equity and capital contributions made to the Participations, and expenditure in relation to the acquisition.
If the acquisition is conducted using another currency than UAE Dirhams, the acquisition cost shall be determined using the applicable exchange rate at the date of acquisition or formation of the ownership interest.
The cost is not adjusted for inflation or an increase in value of the (underlying) ownership interest.
Where an ownership is partly sold or disposed of, the acquisition cost shall be reduced in proportion to the average acquisition costs attributable to the portion that is sold or disposed of.
Q. Adjustments under the Transitional Rules
- Qualifying Immovable Property.
- Qualifying Intangible Assets.
- Qualifying Financial Assets
- Qualifying Financial Liabilities.
It is an Immovable Property that meets all of the following conditions:
- It is owned prior to the first Tax Period.
- It is measured in the Financial Statements on a historical cost basis.
- It is disposed of or deemed to be disposed of during or after the first Tax Period, for a value exceeding the net book value.
It is an intangible asset as defined in the International Financial Reporting Standards (IFRS), that meets all of the following conditions:
- It is owned prior to the first Tax Period.
- It is measured in the Financial Statements on a historical cost basis.
- It is disposed of or deemed to be disposed of during or after the first Tax Period, for a value exceeding the net book value.
They are financial assets or financial liabilities as defined International Financial Reporting Standards (IFRS), that meet all of the following conditions:
- They are owned prior to the first Tax Period.
- They are measured in the Financial Statements on a historical cost basis.
The election must be made during the submission of the first Tax Return, and will be considered irrevocable except under exceptional circumstances and pursuant to approval by the Federal Tax Authority.
The rules are as follows:
- Qualifying Immovable Property: the election may apply to any of the Qualifying Immovable Property.
- Qualifying Intangible Assets: the election should apply to all of the Qualifying Intangible Assets.
- Qualifying Financial Assets and Qualifying Financial Liabilities: the election should apply to all of the Qualifying Financial Assets and Qualifying Financial Liabilities.
With respect to Qualifying Immovable Properties, the Taxable Person may make one of the following adjustments:
- Exclude the amount of gain that would have arisen, at the start of the first Tax Period, had the Qualifying Immovable Property been disposed of at Market Value and the cost of the Qualifying Immovable Property was the higher of the original cost and the net book value; or
- Upon disposal of the Qualifying Immovable Properties, exclude the amount of gain recognised in respect of the relevant Qualifying Immovable Property calculated in accordance with Ministerial Decision No. 120 of 2023.
Upon disposal of a Qualifying Intangible Asset, the Taxable Person should exclude the amount of gain recognised in respect of the relevant Qualifying Intangible Asset calculated in accordance with Ministerial Decision No. 120 of 2023.
With respect to Qualifying Financial Assets or Qualifying Financial Liabilities, the Taxable Person should exclude the amount of gain or loss that would have arisen, at the start of the first Tax Period, had the Qualifying Financial Assets or Qualifying Financial Liabilities been disposed of at Market Value and the cost of the Qualifying Financial Assets or Qualifying Financial Liabilities was the higher of the original cost and the net book value.
There are no specific adjustments to be made with regards to the release of a provision that was created prior to the effective Corporate Tax date. Therefore, the relevant credit to the P&L will be subject to Corporate Tax.
The period where the relevant assets or liabilities were held by members of the same Tax Group or Qualifying Group, even before the Corporate Tax effective date, will be considered as part of the period of ownership held by the relevant Taxable Person, based on the conditions stipulated in Ministerial Decision No. 120 of 2023.
R. Deductions
Generally, business expenses incurred to derive Taxable Income are deductible, subject to exceptions and restrictions specified in the Corporate Tax Law. The timing of the deduction may vary for different types of expenses and the accounting method applied. For capital assets, expenditure would generally be recognised by way of depreciation or amortisation deductions over the economic life of the asset or benefit.
Expenditure that has a dual purpose, such as expenses incurred for both personal and business purposes, will need to be apportioned with the relevant portion of the expenditure treated as incurred wholly and exclusively for the purpose of the Taxable Person’s business.
Article 33 of the UAE Corporate Tax Law lists certain specific expenses for which no deduction will be allowed, such as bribes, fines and penalties, and no deduction is available for expenditure incurred in deriving income that is exempt from Corporate Tax or losses that are not connected with or arising out of a Taxable Person’s Business. Additionally, certain restrictions may apply to the deduction of Interest expenditure (see question 226: ‘Will my interest expenditure be fully deductible?’).
The Corporate Tax Law provides for certain restrictions on the deductibility of Interest expenditure to discourage excessive debt financing, and to ensure that debt financing used or arising as a result of certain specific intra-group transactions will only be deductible if there is a valid commercial reason for obtaining the loan.
General Interest Deduction Limitation Rule
Businesses with Net Interest Expenditure above AED 12 million will be allowed to deduct Net Interest Expenditure up to the greater of 30% of their adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) or AED 12 million.
Any Net Interest Expenditure which exceeds this limit may be carried forward and utilised in the subsequent 10 Tax Periods.
Businesses with Net Interest Expenditure below AED 12 million will not be subject to the General Interest Deduction Limitation Rule.
The General Interest Deduction Limitation Rule will not apply to Banks and other finance institutions, Insurance Providers or natural persons.
Specific interest deduction limitation rule
Where a loan is obtained from a Related Party and is used to finance income that is exempt from Corporate Tax, the interest on the Related Party loan will not be deductible unless the Taxable Person can demonstrate that the main purpose of obtaining the loan and carrying out the transaction is not to gain a Corporate Tax advantage.
Dividends paid by UAE companies will not be deductible for Corporate Tax purposes.
The payment of a royalty to a foreign group company should generally be deductible if the payment is a necessary business expense.
In addition, a foreign group company would typically be considered a Related Party of the UAE business for UAE Corporate Tax purposes, which requires the royalty payment to be at arm’s length – i.e., reflect a market rate. If the payment is not at arm’s length, then any amount paid that is above the arm’s length price would not be deductible.
Only irrecoverable input Value Added Tax may be deductible for Corporate Tax purposes. Otherwise, Value Added Tax charged and Value Added Tax incurred would not impact the calculation of Taxable Income.
Remuneration paid to the management of a business will generally be a deductible expense for Corporate Tax purposes.
There are a few specific cases that may impact on the amount of remuneration that can be deducted. These are:
- Where the remuneration is paid to a director or owner of the business or to someone who is related to the director or the owner and considered a Connected Person, the remuneration should reflect the market rate for the relevant role and services performed. Any amount paid that is above the market rate would not be deductible.
- Where a company pays a management fee to its parent or any other Related Party, transfer pricing rules will need to be considered to ensure that the fee is at arm’s length. Any amount paid that is above the arm’s length price would not be deductible.
The Corporate Tax treatment of a revaluation loss depends on whether the Taxable Person has made an election to recognise gains and losses on a realisation basis.
If no election has been made, then the tax treatment should follow the accounting treatment. This means that revaluation gains and losses reflected in the accounts are subject to Corporate Tax in the relevant Tax Period.
If the Taxable Person has elected to recognise gains and losses on a realisation basis, then any gains or losses which relate to a change in the value of the asset or liability above its original cost shall be ignored for Corporate Tax Purposes. Instead, such gains and losses would be subject to Corporate Tax when the underlying asset or liability has been sold or settled.
Employee entertainment costs will generally be deductible for Corporate Tax purposes provided they are incurred for business purposes.
Yes, doubtful debts are allowed as deductible expenditure, in alignment with the International Financial Reporting Standards (IFRS).
S. General Interest Deduction Limitation
The Corporate Tax Law provides for certain restrictions on the deductibility of interest expenditure to discourage excessive debt financing and ensure that interest from debt relating to certain intra-group transactions will only be deductible if there is a valid commercial reason for obtaining the loan.
General Interest Deduction Limitation Rule
Net Interest Expenditure is defined as a Taxable Person’s Interest expenditure amount incurred in excess of the Interest income amount received. Businesses with a Net Interest Expenditure below the AED 12 million de minimis amount for a Tax Period will not be subject to the General Interest Deduction Limitation Rule for that Tax Period.
Where the Net Interest Expenditure is greater than AED 12 million, Net Interest Expenditure will be deductible up to the greater of 30% of the Taxable Person’s adjusted earnings before Interest, taxes, depreciation and amortisation (EBITDA) in the Tax Period or the de minimis amount. Any Net Interest Expenditure which exceeds this limit may be carried forward and used to reduce the Taxable Income of the Taxable Person in the subsequent 10 Tax Periods.
The General Interest Deduction Limitation Rule will not apply to Banks and other finance institutions, Insurance Providers or natural persons.
Specific Interest Deduction Limitation Rule
Where a loan is obtained from a Related Party and is used to finance income that is exempt from Corporate Tax, the Interest on the Related Party loan will not be deductible unless the Taxable Person can demonstrate that the main purpose of obtaining the loan and carrying out the transaction is not to gain a Corporate Tax advantage.
Yes, the threshold is set at AED 12 million. This means that if a Taxable Person’s Net Interest Expenditure (i.e. Interest expenditure incurred less Interest income received) is less than AED 12 million for a Tax Period, they will not need to apply the General Interest Deduction Limitation Rule for that Tax Period, and all of the Taxable Person’s Interest expenditure for that Tax Period can be deducted in full.
For example, Company A earns Interest income in a Tax Period of AED 4 million. Company A also incurs Interest expenditure of AED 18 million in the same Tax Period. Hence, Company A has Net Interest Expenditure of AED 14 million for the Tax Period.
Company A’s adjusted earnings before Interest, taxes, depreciation and amortisation (EBITDA) for the Tax Period is AED 30 million.
For this Tax Period, Company A has incurred Net Interest Expenditure exceeding the de minimis threshold of AED 12 million, and in accordance with Article 8(1) and (2) of Ministerial Decision No. 126 of 2023, Company A may deduct the higher of AED 12 million or 30% of their adjusted EBITDA. 30% of their adjusted EBITDA of AED 30 million is AED 9 million.
Company A may deduct AED 12 million of Net Interest Expenditure in the Tax Period, and has AED 2 million of Net Interest Expenditure disallowed. This amount can be carried forward and deducted in the subsequent 10 Tax Periods, subject to meeting the relevant conditions.
Net Interest Expenditure that exceeds 30% of a Taxable Person’s adjusted earnings before Interest, taxes, depreciation and amortisation (EBITDA) for a Tax Period (and is therefore disallowed as a deduction in a Tax Period) can be carried forward and used in the 10 subsequent Tax Periods, in the order the disallowed Interest was incurred, to reduce the Taxable Person’s Taxable Income.
This is provided that the Taxable Person’s Net Interest Expenditure in a future Tax Period (where the Taxable Person is seeking to claim the deduction) is below 30% of their adjusted EBITDA for that Tax Period.
If there is an Interest equivalent component on an Islamic Financial Instrument, this component will be treated as economically equivalent to Interest and be subject to the General Interest Deduction Limitation Rule.
When considering whether an Islamic Financial Instrument includes an Interest equivalent component, a substance over form approach should be adopted, and the treatment of returns on Islamic Financial Instruments should be aligned with the treatment of returns on equivalent conventional financial instruments under International Financial Reporting Standards (IFRS).
Banks, Insurance Providers and natural persons are excluded from the scope of the General Interest Deduction Limitation Rule. This means these Taxable Persons will not need to consider the de minimis or their adjusted EBITDA when deducting their Net Interest Expenditure. Interest expenditure incurred by these types of Taxable Persons would be treated in line with other expenses, and would be deductible if the normal rules of the Corporate Tax Law are satisfied (e.g. incurred during the course of their taxable Business).
In addition, deductions for Interest incurred in financing certain long-term infrastructure projects for the benefit of the UAE, provided they meet the certain conditions, will not be subject to the General Interest Deduction Limitation Rule.
The General Interest Deduction Limitation Rule also includes a grandfathering rule, where the rules will not apply to loan agreements entered into prior 9 December 2022, to the extent that the interest paid on these loans is in accordance with the terms of these loans as they stood on that date.
A Tax Group’s deductible Net Interest Expenditure will be limited where the Net Interest Expenditure is greater than AED 12 million or the greater of 30% of the Tax Group’s adjusted earnings before Interest, taxes, depreciation and amortisation (EBITDA) in the Tax Period or the de minimis threshold of AED 12 million.
Where members of a Tax Group include Banks or Insurance Providers, their Interest income and expenditure should be excluded in full when calculating the Tax Group’s EBITDA for the purposes of the General Interest Deduction Limitation Rule.
Where a loan is obtained from a Related Party, any Interest relating to that loan would not be deductible if the loan was used to finance any of the following transactions:
- A dividend or profit distribution to a Related Party (e.g. paying a dividend to a company’s parent).
- A redemption, repurchase, reduction or return of share capital to a Related Party (e.g. undertaking a share buyback transaction).
- A capital contribution to a Related Party (e.g. increasing investment in a subsidiary company).
- The acquisition of an ownership interest in a Person who is or becomes a Related Party following the acquisition (e.g. acquiring shares in another company, which becomes a subsidiary company after the acquisition).
The restriction is put in place to prevent financing between Related Parties from being used to shift profits. As such, if the Taxable Person can demonstrate the financing arrangement was not used to gain a Corporate Tax advantage, Interest expenditure relating to that financing arrangement may be deducted. If the Related Party is subject to Corporate Tax, or an equivalent tax, at a rate not less than 9%, there will be deemed to be no Corporate Tax advantage.
If a Taxable Person’s adjusted EBITDA is negative for a Tax Period, their adjusted EBITDA is considered to be AED 0 for the purposes of the General Interest Deduction Limitation Rule.
Under the General Interest Deduction Limitation Rule, a Taxable Person may deduct their Net Interest Expenditure up to the greater of the de minimis (AED 12 million) or 30% of their adjusted EBITDA.
On this basis, a Taxable Person that has Net Interest Expenditure greater than the de minimis of AED 12 million and has negative adjusted EBITDA for a Tax Period would be able to deduct AED 12 million of Net Interest Expenditure.
T. Transfer pricing
Transfer pricing rules seek to ensure that transactions between Related Parties are carried out on an arm’s length basis, as if the transaction was carried out between independent parties. To prevent the manipulation of Taxable Income, various articles in the Corporate Tax Law require that the consideration of transactions with Related Parties and Connected Persons needs to be determined by reference to their “Market Value”.
Yes. Transfer pricing rules apply to UAE businesses that have transactions with Related Parties and Connected Persons, irrespective of whether the Related Parties or Connected Persons are located in the UAE mainland, a Free Zone or in a foreign jurisdiction.
Generally, Related Parties of a natural person refer to the natural person’s relatives as well as companies in which the natural person, alone or together with their Related Parties, has a controlling ownership interest (typically 50% or more of shares of the company).
Similarly, Related Parties of a company refers to any other companies in which the company, alone or together with their Related Parties, has a controlling ownership interest (typically 50% or more of shares of the company), or that are have greater than 50% common ownership.
Further detail on the definition of Related Parties can be found in Article 35 of the Corporate Tax Law.
Connected Persons are different from Related Parties.
A Person will be considered “connected” to a business that is within the scope of UAE Corporate Tax if they are:
- The owner of the business;
- A director or officer of the business; or
- A Related Party of either of the above.
Generally, Taxable Persons are required to apply one or more of the following methods to determine the arm’s length prices for transfer pricing purposes:
- The comparable uncontrolled price method
- The resale price method
- The cost-plus method
- The transactional net margin method
- The transactional profit split method
Businesses will be required to maintain information regarding their transactions with Related Parties and Connected Persons, and certain businesses will be required to submit this information along with their Tax Return. Businesses that claim Small Business Relief will not have to comply with the transfer pricing documentation rules.
Certain businesses may be requested to maintain a master file and a local file please refer to question [249] [who should maintain a master and a local file].
Businesses will be required to maintain information regarding their transactions with Related Parties and Connected Persons, and certain businesses will be required to submit this information along with their Tax Return. Businesses that claim Small Business Relief will not have to comply with the transfer pricing documentation rules.
Certain businesses may be requested to maintain a master file and a local file please refer to question [249] [who should maintain a master and a local file].
Generally, transactions between members of a Tax Group are eliminated in the consolidation of the Tax Group’s financial statements and hence do not need to comply with the transfer pricing rules.
However, where a member of a Tax Group has pre-Grouping Tax Losses and in other specific cases where there is a need to calculate the Taxable Income of an individual member of the Tax Group, transfer pricing will need to apply and adequate transfer pricing documentation will need to be maintained in respect of transactions and arrangements between members of the Tax Group.
The degree of kinship is determined by the number of generations between two natural persons who are related through family, including those who are related by way of marriage, adoption or through guardianship.
For example:
- The natural person’s first degree of kinship would include their parents and children.
- The natural person’s fourth degree of kinship would include their great great grandparents or great great grandchildren, as well as their first cousins (the children of their parent’s siblings).
A master file is a report that provides an overview of a Multinational Enterprise Group’s business, including, for example, the nature of its business and economic activity in each jurisdiction it operates in and its overall transfer pricing policy(ies).
The Federal Tax Authority will issue guidelines with more detail on the information that should be included in a master file.
A local file provides more detailed information relating to specific transactions with a Taxable Person’s Related Parties, including, for example, showing how the arm’s length principle has been applied on these transactions.
The Federal Tax Authority will issue guidelines with more detail on the information that should be included in a local file.
These documents ensure businesses give appropriate consideration to the transfer pricing of transactions between Related Parties.
The documents can also be used to support that the transfer prices used by a Taxable Person have been determined in accordance with the arm’s length principle and provide the Federal Tax Authority and other tax administrations with useful information to understand and assess a Taxable Person’s transfer pricing risks.
A Taxable Person will need to maintain a master file and a local file if either:
- their Revenue in the relevant Tax Period is AED 200 million or more; or
- they are part of a Multinational Enterprise Group as defined in Cabinet Decision No. 44 of 2020 (which cover groups that operate in more than one country and have total consolidated group revenue of AED 3.15 billion or more in each financial period).
Exempt Persons will not be required to maintain transfer pricing documentation so long as they maintain their exemption status.
Also, businesses benefitting from the Small Business Relief will not be required to maintain transfer pricing documentation.
A Taxable Person will only be required to submit their master file and local file to the Federal Tax Authority upon request by the Federal Tax Authority.
Upon receiving a request, the Taxable Person must submit their master file and local file within 30 days or another time period prescribed by the Federal Tax Authority.
A Taxable Person will be required to include all their transactions with their Related Parties or Connected Persons in the local file with the exception of transactions with the following Persons:
- A natural person, to the extent that the parties to the transaction or arrangement are acting as if they were independent of each other.
- A legal entity that is considered to be a Related Party or a Connected Person solely by virtue of being a partner in an Unincorporated Partnership, to the extent that the parties to the transaction or arrangement are acting as if they were independent of each other.
- A Resident Person whose Taxable Income is subject to the same Corporate Tax rate as that of the Taxable Person.
- A UAE Permanent Establishment of a Non-Resident Person whose Taxable Income is subject to the same Corporate Tax rate as that of the Taxable Person.
Two parties are “acting as if they were independent of each other” if:
- the transaction or arrangement takes place as part of the ordinary course of their business operation; and
- the parties are not exclusively or almost exclusively transacting only with each other.
The Federal Tax Authority will consider all of the relevant facts and circumstances to determine whether the parties are acting as if they were independent of each other.
All businesses will need to comply with the transfer pricing regulations set out in the Corporate Tax Law.
However, businesses that elect for Small Business Relief and Exempt Persons will not have to comply with the transfer pricing documentation requirements.
However, to the extent Exempt Persons undertake a taxable Business, the taxable Business would need to comply in full with the transfer pricing regulations.
Yes, the arm’s length principle is a general principle and it applies to all transactions and arrangements between a Taxable Person and its Related Parties or Connected Persons regardless of the Taxable Person’s Revenue figure for a Tax Period.
Yes, the arm’s length principle shall apply to all transactions and arrangements between a Taxable Person and its Related Parties or Connected Persons affecting the Taxable Income of each Tax Period.
This means that the pricing of the Related Party transactions or arrangements will need to reflect the price two independent parties would have agreed in the same circumstances.
Please see question [241], ‘What transfer pricing methods can be used to determine the arm’s length price’ for further information.
U. Losses
A loss for Corporate Tax purposes (“Tax Loss”) would arise when the total deductions a business can claim are greater than the total income that is subject to tax for the relevant Tax Period, resulting in negative Taxable Income.
Tax Losses can, subject to certain conditions, be offset against the Taxable Income of future periods, up to a maximum of 75% of the Taxable Income in each of those future periods. Any excess (unused) Tax Losses can be carried forward and used against Taxable Income of future Tax Periods indefinitely.
Example
A Taxable Person has Taxable Income of AED 100,000 and carried forward losses of AED 125,000. It can offset (75% x AED 100,000) = AED 75,000 of its losses carried forward in the relevant Tax Period, reducing its Taxable Income to AED 25,000.
The amount of Tax Losses available for carry forward to subsequent Tax Periods would reduce to AED 50,000 (AED 125,000 – AED 75,000).
Tax Losses can be carried forward indefinitely without limitation provided the same Person or Persons continue to own at least 50% of the entity with the losses. Where there is a greater than 50% change in ownership, Tax Losses may still be carried forward provided there is no major change in the nature or conduct of the entity’s Business.
See question 263 ‘Will the UAE Corporate Tax regime allow prior year Tax Losses to reduce Taxable Income?’ for more information on how Tax Losses can be utilised to reduce Taxable Income.
No, losses incurred before the business becomes subject to Corporate Tax are not considered “Tax Losses” for Corporate Tax purposes.
Therefore, the amount cannot be used or carried forward.
Tax Losses from one UAE group company may be used to offset Taxable Income of another UAE group company where there is 75% or more common ownership and certain other conditions are met.
No Tax Loss transfers will be allowed from companies that are exempt or that benefit from the 0% Free Zone Corporate Tax regime.
The UAE companies must meet the following conditions to transfer an amount of Tax Losses from one company to another in the same Tax Period:
- Both companies are UAE resident juridical persons;
- Either owns 75% or more of the other, or a third Person owns 75% or more of both entities and this ownership existed at the start and end of the Tax Period in which the loss was incurred;
- Neither company is an Exempt Person;
- Neither company is a Qualifying Free Zone Person; and
- The financial statements must be prepared using the same accounting standards, and using the same Financial Year.
V. Tax Credits
Withholding Tax is a form of Corporate Tax collected at source by the payer on behalf of the recipient of the income. Withholding Taxes exist in many tax systems and typically apply to the cross-border payment of dividends, interest, royalties and other types of income.
A 0% Withholding Tax may apply to certain types of UAE sourced income paid to non-residents. Because of the 0% rate, in practice, no Withholding Tax would be due and there will be no Withholding Tax related registration and filing obligations for UAE businesses or foreign recipients of UAE sourced income.
Withholding Tax does not apply to transactions between UAE Resident Persons.
Yes. Foreign tax paid on income that is also subject to UAE Corporate Tax can be deducted as a Foreign Tax Credit from the UAE Corporate Tax Payable. The maximum Foreign Tax Credit is the lower of the foreign tax paid and the UAE Corporate Tax Payable on the relevant income. Any excess Foreign Tax Credit cannot be carried forward or back to a different Tax Period.
Withholding Tax and other forms of foreign taxes on income or profits can be offset against the UAE Corporate Tax liability, subject to any conditions as may be set out in an applicable agreement or treaty made between the UAE and the foreign jurisdiction.
W. Sectors
Businesses engaged in the extraction of the UAE’s Natural Resources and in the non-extractive aspects of the Natural Resources value chain that are subject to Emirate-level taxation will be outside the scope of the UAE Corporate Tax regime, subject to certain conditions and safeguards as specified in Article 7 and Article 8 of the Corporate Tax Law, respectively.
Yes. UAE headquartered banks and UAE branches of foreign banks will be subject to UAE Corporate Tax.
Yes. Businesses engaged in real estate management, construction, development, agency and brokerage activities will be subject to UAE Corporate Tax.
The asset management and broader financial services sectors will be subject to UAE Corporate Tax, although investment funds that meet certain conditions can apply to be exempt from UAE Corporate Tax. Further, under the Investment Manager Exemption, UAE based and regulated fund managers and other Investment Managers can perform discretionary asset / investment management services without creating a taxable presence in the UAE for their foreign clients.
Income earned by foreign operators of aircrafts and ships will be exempt from UAE Corporate Tax in respect of:
- providing international transportation of passengers, livestock, mail, parcels, merchandise or goods by air or by sea;
- leasing or chartering aircrafts or ships used in international transportation; or
- leasing or chartering equipment which are integral to the seaworthiness of ships or the airworthiness of aircrafts used in international transportation.
This exemption would only apply where the country of the foreign airline or shipping company would grant a similar exemption to UAE operators of aircrafts and ships.
X. Tax Groups
UAE resident companies can apply to form a Tax Group and be treated as a single Taxable Person if the UAE parent company (directly or indirectly) holds at least 95% of the share capital and voting rights of each of the companies, and meet all other relevant conditions.
Example: Company A owns, 20% of company B, and 100% of Company C. Company C owns 80% of the shares of Company B. Because Company A indirectly owns 100% of the shares of Company B (80% via Company C), it can form a Tax Group with both Company B and Company C.
For this purpose, a Tax Group can only be formed between companies that are Resident Persons under the UAE Corporate Tax Law and any applicable double tax agreement the UAE has with another jurisdiction.
To form a Tax Group, neither the Parent Company nor any of the Subsidiaries can be an Exempt Person or a Qualifying Free Zone Person, and all companies must use the same Financial Year and prepare their financial statements using the same accounting standards.
Being (ultimately) owned by a foreign parent company does not preclude UAE subsidiaries from forming a Tax Group, but the UAE subsidiaries must be held by an intermediary UAE parent company that will be the “parent” of the Tax Group for UAE CT purposes.
No, unless the foreign entity is effectively managed and controlled in the UAE and considered a UAE resident entity for UAE Corporate Tax purposes. This is because only UAE resident juridical persons can form or be part of a Tax Group.
For example, a Tax Group can be formed between a UAE Parent Company and a wholly-owned subsidiary company incorporated in Singapore that is effectively managed and controlled in the UAE, provided that the subsidiary is not a tax resident in Singapore.
The foreign entity shall maintain documentation that supports the position that it is in fact considered a UAE tax resident for UAE Corporate Tax purposes and not in another country under an applicable double tax treaty. This documentation can either be a confirmation issued by the relevant tax authority of the foreign country, or a confirmation issued by the relevant competent authorities for the purposes of the application of a double tax treaty in force in the UAE (e.g. a tax residency certificate).
Yes. The AED 375,000 threshold for Taxable Income subject to the 0% Corporate Tax rate will apply to the Tax Group as a single Taxable Person, irrespective of the number of entities in the Tax Group.
Once formed, the Tax Group is treated as a single Taxable Person, with the Parent Company responsible for the administration (e.g. filing of Tax Returns) and payment of Corporate Tax on behalf of the Tax Group.
For the period they are Tax Group members, the Parent Company and each Subsidiary will be jointly and severally liable for the UAE Corporate Tax obligations of the Tax Group. This joint and several liability can be limited to one or more named members of the Tax Group, following application to and approval by the Federal Tax Authority.
Yes. To determine the Taxable Income of the Tax Group, the Parent Company will in general have to consolidate the financial accounts of each Subsidiary for the relevant Tax Period through aggregation of the financial statements of each member and eliminate transactions between the Parent Company and each Subsidiary and amongst the Subsidiaries themselves. However, there may be cases where transactions between the group may not be eliminated. This includes but is not limited to circumstances where a member of the Tax Group has pre-grouping tax losses.
The 95% or greater ownership requirements should be met continuously throughout each Tax Period. If the ownership requirements are not met by a member of the Tax Group at any time during a Tax Period, that member shall be treated as leaving the Tax Group from the beginning of the Tax Period in which the conditions are no longer met.
A Tax Group can only be formed with companies that are resident in the UAE for Corporate Tax purposes, and are not considered tax resident in another jurisdiction under any applicable double tax treaty in force in the UAE.
Where an existing member of a Tax Group becomes a tax resident in another jurisdiction, that member shall be treated as leaving the Tax Group from the beginning of the Tax Period in which it became a tax resident in that other jurisdiction.
Further, members that may be tax resident in multiple jurisdictions should maintain documentation to support the position that they are in fact considered a UAE resident for UAE Corporate Tax purposes, and not in another country under an applicable double tax treaty. This documentation can either be a confirmation issued by the relevant tax authority of the foreign country or a confirmation issued by the relevant competent authorities for the purposes of the application of a double tax treaty in force in the UAE (e.g. a tax residency certificate).
No, the application to form a Tax Group or to join an existing Tax Group must be submitted before the end of the Tax Period specified in that application.
In principle, a UAE resident company that meets all of the relevant conditions may join a Tax Group from the beginning of the Tax Period specified in the application. An exception to this rule is made for entities that are newly incorporated in the UAE, where they may join an existing Tax Group from the date of their incorporation. Similarly, a newly established Parent Company replacing an existing Parent Company may also join an existing Tax Group (and become the Parent Company) from the date of its incorporation.
If a member leaves a Tax Group or if a Tax Group ceases to exist when the conditions are no longer met, the Tax Group needs to notify the Federal Tax Authority within 20 business days from the date the member leaves the Tax Group or the conditions are no longer met.
Where a Subsidiary leaves a Tax Group, this Subsidiary needs to prepare standalone Financial Statements using the same accounting basis as the Tax Group, and the opening value of the Subsidiary’s assets and liabilities would be those recorded in the Tax Group.
Similarly, where a Tax Group ceases to exist, each member would need to prepare its standalone Financial Statements on the same accounting basis as the Tax Group. The opening value of each member’s assets and liabilities will be the values of the relevant assets and liabilities as recorded by the Tax Group.
Members of a Tax Group may undertake business mergers and certain other restructuring and reorganisation transactions without any taxable gain or loss.
If the Tax Group consists of two members, and one of the two members transfers its entire Business to the other member, the Tax Group shall cease to exist on the date that the transfer is effective. Please see question 296, ‘What happens when a Tax Group ceases to exist?’ for more information.
If the Tax Group consists of more than two members, and one member transfers its entire Business to another member, the member that transfers its entire business shall be deemed to remain a member of the Tax Group until the transfer is effective. The Tax Group shall continue to exist after the transfer is effective.
No election for the Business Restructuring Relief is required as the restructuring transaction will be eliminated for the purposes of determining the Taxable Income of the Tax Group.
Pre-Grouping Tax Losses are Tax Losses that are accrued by a Taxable Person prior to them joining or forming a Tax Group.
Pre-Grouping Tax Losses have a separate treatment as they can only be used to offset Taxable Income of a Tax Group that is attributable to that specific member.
The amount of pre-Grouping Tax Losses that can be used is either the amount of Taxable Income of the Tax Group that is attributable to the member that has any pre-Grouping Tax Losses available, or 75% of the Taxable Income of the Tax Group, whichever is lower.
Example:
A Tax Group that consists of two members A and B has a Taxable Income of AED 100,000. Member A has pre-Grouping Tax Losses of AED 40,000. In this case, the Taxable Income of the Tax Group shall be offset by the lower of either AED 40,000 (i.e. the pre-Grouping Tax Losses of member A) or AED 75,000 (i.e. 75% of the Taxable Income of the Tax Group), being AED 40,000. The Tax Group’s Taxable Income after the Tax Loss offset is therefore AED 60,000 (AED 100,000 – AED 40,000).
Yes. However, the pre-Grouping Tax Losses must first be utilised to offset Taxable Income of the Tax Group before any other carried forward Tax Losses can be utilised in the same Tax Period. For more information on how pre-Grouping Tax Losses may be utilised to offset against Taxable Income of the Tax Group, please refer to question 292, ‘Do any limits apply to the amount of pre-Grouping Tax Losses that may be used to offset the Taxable Income of a Tax Group?’.
Generally, no. Only where the following situations apply would members of a Tax Group be required to disclose information regarding transactions and arrangements between the relevant members and other members of the Tax Group and their Related Parties and Connected Persons:
- where a member of a Tax Group has pre-Grouping Tax Losses, or
- where there is a need to calculate the Taxable Income of an individual member of the Tax Group (e.g. where the Tax Group is seeking to claim Foreign Tax Credits).
In principle, a company may not join a Tax Group on a date other than at the beginning of a Tax Period. This ensures that there is no need for the joining company to file a part year return, as the company would have filed a return for a complete 12-month Tax Period prior to joining the Tax Group.
An exception to this timing rule exists when a newly established company wants to join an existing Tax Group. In such a case, the newly established entity may join the Tax Group from the date of incorporation.
On the basis of the above, there would be no circumstances where an entity joining an existing Tax Group would be required to file a part year return, as either:
- The entity would join at the date of its incorporation and hence it has never been a Taxable Person outside of the Tax Group; or
- The entity would join from the beginning of a Tax Period and hence would have submitted a return for a full 12-month Tax Period as its final return outside of the Tax Group.
Where a Tax Group ceases to exist, each (former) member Company shall be subject to Corporate Tax as a separate Taxable Person.
To the extent a (former) member company has unutilised pre-Grouping Tax Losses, these pre-Grouping Tax Losses shall remain with the (former) member company.
To the extent the Tax Group has generated Tax Losses, and to the extent the (former) Parent Company continues to exist after the cessation of the Tax Group, these Tax Losses shall remain with the (former) Parent Company.
Where the (former) Parent Company ceases to exist following the cessation of the Tax Group, the Tax Losses of the Tax Group shall be lost.
Assuming the other conditions of forming a Tax Group are met by these two companies, a Tax Group can only be formed if the foreign subsidiary is not also considered a tax resident in the country of incorporation under the applicable double tax treaty between the UAE and the foreign country, and the foreign company is able to provide the relevant evidence.
In this regard, the foreign-incorporated subsidiary should maintain documentation that supports the position that it is in fact only considered a UAE resident for UAE Corporate Tax purposes and not (also) in the country of incorporation. This documentation can either be a confirmation issued by the relevant tax authority of the foreign country, or a confirmation issued by the relevant competent authorities for the purposes of the application of a double tax treaty in force in the UAE (e.g. a tax residency certificate).
Y. Transfers within a Qualifying Group
Yes. Companies that are part of a ‘Qualifying Group’ can transfer assets and liabilities from one company to another without giving rise to a gain or loss for Corporate Tax purposes.
This relief is optional, and companies seeking to benefit from this treatment should make an election in their Corporate Tax Return for the relevant Tax Period.
The election for the transfers within a Qualifying Group relief is irrevocable and shall apply to all transfers of capital assets and liabilities in future Tax Periods.
A Qualifying Group exists where all of the following conditions are met:
- The Taxable Persons are juridical persons which are UAE residents or Non-Resident Persons that have a Permanent Establishment in the UAE;
- Either Taxable Person has a 75% or more ownership interest of the other, or a third party has a 75% or more ownership interest of both entities;
- Neither Taxable Person is an Exempt Person;
- Neither Taxable Person is a Qualifying Free Zone Person; and
- The Taxable Persons prepare their financial statements using the same accounting standards, and have the same Financial Year.
If any of these situations happen within two years of the original transfer, it would result in a claw back of the relief claimed under Transfers within a Qualifying Group. Where this happens, in most cases, the Person that transferred the asset or liability initially (the Transferor) will need to calculate the taxable gain or loss based on the Market Value of the asset or liability at the date of the original transfer.
Any gain or loss that arises as a result of this claw back should be reflected in the Tax Return for the period in which the asset or liability was either transferred out of the Qualifying Group or either the Transferor or the Person that acquired the asset or liability (Transferee) no longer meet the conditions to claim the Transfers with a Qualifying Group relief.
Where the Transferor is no longer subject to UAE Corporate Tax when the claw back event happens, the claw back of the relief claimed under the Transfers within a Qualifying Group relief must be recognised and reported by the Transferee in the Tax Return for the period in which the clawback of the relief is triggered.
Under the Transfers within a Qualifying Group relief, the Person that acquires the asset or liability shall treat the asset or liability received as being transferred at the net book value recorded by the Person who transferred the asset or liability.
Yes, the relief will be available where an asset is exchanged for another asset within a Qualifying Group where at least one of the Taxable Persons elects or has elected to benefit from the relief.
Where this happens, this transfer shall be treated as two separate transfers for the purposes of applying the relief.
Where the relevant conditions are met, the Transferor will need to elect to benefit from the relief for Transfers within a Qualifying Group.
In making this election, however, both the Transferor and the Transferee must maintain a record of the agreement between themselves to transfer the asset or liability at the value prescribed under the Transfers of Qualifying Group relief and other relevant implementing decisions.
Therefore, both the Transferor and the Transferee will need to be aware of and consent to the application of the relief.
Ownership interests include:
- ordinary shares,
- preferred shares,
- redeemable shares,
- membership and partner interests,
- and other types of securities, capital contributions and rights that entitle the owner to receive profits and liquidation proceeds.
The above will only be treated as ownership interests where they are treated as equity under International Financial Reporting Standards (IFRS).
Islamic financial instruments may also be treated as an ownership interest for the purposes of the relief where the instrument is classified as equity under IFRS.
Qualifying Groups are a group of Taxable Persons who may elect to transfer assets and liabilities within the Qualifying Group at no gain or loss when determining Taxable Income.
Tax Groups are a group of Taxable Persons who have submitted an application to the Federal Tax Authority, which has been approved by the Authority, to be treated as a single Taxable Person.
Z. Business Restructuring Relief
Yes. The UAE Corporate Tax regime allows for legal mergers, business mergers, spin-offs and other transfers and restructuring transactions that meet the conditions specified under Article 27 of the Corporate Tax Law to be carried out without triggering a gain or loss for Corporate Tax purposes.
Business Restructuring Relief allows for mergers and certain other corporate restructuring and reorganisation transactions to take place without triggering a gain or loss for Corporate Tax purposes.
The application of Business Restructuring Relief is optional and the Transferor will need to make an election in their Corporate Tax Return for the relevant Tax Period if they wish to benefit from the relief.
Yes. Business Restructuring Relief may apply where, in addition to receiving shares of the acquiring company or its direct or indirect parent company, other forms of considerations such as cash are also received, provided that the Market Value of any cash or other form of consideration does not exceed the lower of:
- The net book value of the assets and liabilities that are being transferred; or
- 10% of the nominal value of the shares received.
If the Market Value of the other forms of consideration received exceeds the above limits, then Business Restructuring Relief will not be available.
Yes. A natural person wanting to turn their sole proprietorship into a company or incorporate any other taxable Business Activity that is undertaken in their personal name can benefit from Business Restructuring Relief when transferring their Business to a company provided all the relevant conditions are met.
A sale of the Business that was transferred or a disposal of the shares that were received in exchange within two years of the original transfer would result in a claw back of the Business Restructuring Relief claimed.
Where this happens, in most cases, the Person that transferred the Business initially (the Transferor) will need to calculate the taxable gain or loss based on the Market Value of the Business at the date of the original transfer. Any gain or loss that arises as a result of the disposal should be reflected in the Tax Return for the period in which the claw back of Business Restructuring Relief is triggered.
Where the Transferor is a natural person, or where the Transferor is no longer in existence or subject to UAE Corporate Tax when the claw back event happens, the claw back of Business Restructuring Relief must be recognised and reported by the Person that acquired the business.
Any unutilised Tax Losses of a Person that transferred the Business initially (the Transferor) can become the available carried forward Tax Losses of the Person that acquired the Business (the Transferee) following the Business Restructuring Relief provided that the Transferee continues to conduct the same or a similar Business or Business Activity that was conducted by the Transferor prior to the transfer.
Under the Business Restructuring Relief, the Person that acquires the Business shall treat the assets and liabilities received as being transferred at the net book value recorded by the Person that transferred the Business.
Yes. Business Restructuring Relief may still be available where the shares of the Person who acquired the Business are issued or transferred to a Person that directly or indirectly owns at least 50% of the shares of the Transferor, provided all other relevant conditions for claiming Business Restructuring Relief are met.
Yes. Business Restructuring Relief may still be available where the shares are issued by someone other than the Person that received the Business provided that the shares are issued by a Person which directly or indirectly owns at least 50% of the shares of the Transferee.
Where the relevant conditions are met, the Transferor will need to elect to benefit from Business Restructuring Relief.
In making this election, however, both the Transferor and the Transferee must also maintain a record of the agreement between themselves to transfer the Business at the value prescribed under Business Restructuring Relief and the relevant implementing decisions.
Therefore, both the Transferor and the Transferee will need to be aware of and consent to the application of Business Restructuring Relief.
AA. Financial Records
Taxable Persons are expected to prepare and maintain financial statements for the purposes of calculating their Taxable Income and should maintain all documents and records that support the information in the Corporate Tax Return or in any other filing made with the Authority.
Exempt Persons are required to maintain all records to support their exempt status.
Records and documents should be kept for 7 years following the end of the relevant Tax Period.
No, unless the group only comprises UAE resident entities that have applied to form a Tax Group and the relevant adjustments are made. Otherwise, each UAE entity that is subject to Corporate Tax will need to prepare and maintain stand-alone financial statements for UAE Corporate Tax purposes.
The following Persons are required to prepare and maintain audited financial statements:
- A Taxable Person that derives Revenue exceeding AED 50 million during the relevant Tax Period.
- A Qualifying Free Zone Person.
The financial statements must be audited by a registered auditor, pursuant to Federal Law No. 12 of 2014 on the Regulation of the Auditing Profession and its amendments, read together with Ministerial Resolution No. 403 of 2015 Concerning the International Standards of the Auditing Profession, or any other applicable legislation.
There is currently no obligation to prepare certified Financial Statements.
It is not allowed to substitute audited Financial Statements with “certified” Financial Statements.
Ministerial Decision No. 82 of 2023 does not alter current obligations under the domestic legislation to prepare audited Financial Statements, but rather confirms such obligation solely for the purpose of the application of the Corporate Tax Law.
Taxable Persons with Revenue over AED 50 million in a Tax Period will be required to prepare and maintain audited Financial Statements. Therefore, if a Tax Group’s Revenue for a Tax Period exceeds this amount, their financial statements will need to be audited.
The Federal Tax Authority may request for the Financial Statements to be submitted in the form and manner and within the timeline prescribed by the Federal Tax Authority.
A Taxable Person’s income, deductions and credits must be measured in UAE Dirhams, and income derived and expenses incurred in a foreign currency need to be translated into UAE Dirhams.
The Federal Tax Authority will prescribe the method of currency conversion to be applied by Taxable Persons.
For UAE Corporate Tax purposes, all amounts must be converted to UAE Dirhams based on the applicable exchange rate set by the Central Bank of the UAE at the time the foreign currency transaction is to be translated into the national currency.
The Federal Tax Authority will prescribe the method under which this conversion is to be undertaken.
AB. Tax registration
All Taxable Persons will be required to register for UAE Corporate Tax and obtain a Corporate Tax Registration Number.
Non-Resident Persons earning State Sourced Income that do not have a Permanent Establishment or nexus in the UAE do not need to register. This is because they will not have a Corporate Tax liability in the UAE and their home jurisdiction will have primary taxing rights.
Persons seeking to be exempt from Corporate Tax upon application to the Federal Tax Authority (for example an investment fund seeking to be treated as a Qualifying Investment Fund) must first register with the Federal Tax Authority before they can make an application to be exempt from Corporate Tax.
All Taxable Persons must be registered before they file their first Corporate Tax Return. The Federal Tax Authority may register a Taxable Person, who is not otherwise registered, at their discretion.
There is no registration threshold for UAE Corporate Tax.
Taxable Persons will be able to electronically register for UAE Corporate Tax through the EmaraTax Portal (click [https://eservices.tax.gov.ae/#/Logon] for access). Further guidance on this will be provided in due course.
Yes. Taxable Persons will be required to register for UAE Corporate Tax (and update their details, if required), even if they are already registered for VAT.
All Taxable Persons, including those with no Corporate Tax liability, will be required to register for Corporate Tax and obtain a Corporate Tax Registration Number.
Public and qualifying private pension funds and social security funds, Qualifying Investment Funds, and juridical persons owned by certain Exempt Persons will also need to register for Corporate Tax before they can be exempt from Corporate Tax.
Qualifying Public Benefit Entities that are listed in Cabinet Decision No. 37 of 2023 or any subsequent relevant decisions must also register for Corporate Tax.
Government Entities, Government Controlled Entities and Extractive Businesses and Non-Extractive Natural Resource Businesses that meet the relevant conditions in the Corporate Tax Law must register for Corporate Tax if they conduct a taxable business.
A natural person who conducts multiple taxable Businesses will be considered as one single Taxable Person for UAE Corporate Tax purposes irrespective of how many taxable Businesses or Business Activities he/she undertakes. This means that each natural person should register for Corporate Tax once and prepare a single Corporate Tax Return, which includes the income and expenses from all of their taxable businesses.
No, because branches do not have a separate legal personality and are treated as one and the same person as their UAE ‘head office’. The UAE company will need to include details of all of their UAE branches within the registration form.
This depends on the status of each partner in the Unincorporated Partnership.
Natural persons who are partners in an Unincorporated Partnership through which they are seen as conducting a taxable business will each be required to register for Corporate Tax individually. The same is true for foreign legal entities where the activities performed by or through the Unincorporated Partnership give rise to a Permanent Establishment in the UAE for the foreign partners.
Domestic legal entities and any other partner in an Unincorporated Partnership that is already registered for Corporate Tax purposes as a Resident or Non-Resident Person will not have an additional Corporate Tax Registration requirement by virtue of being a partner in an Unincorporated Partnership.
Yes, any resident juridical person will need to register for Corporate Tax regardless of its level of Revenue.
A natural person or legal entity can apply to the Federal Tax Authority to deregister for Corporate Tax if they cease to conduct their Business or cease to exist, respectively, provided all Tax Returns (including the Tax Return for the Tax Period up to and including the date of cessation) have been filed and all Corporate Tax and any Administrative Penalties due have been settled.
AC. Other administrative matters
A self-assessment regime is one where Taxable Persons are responsible for calculating, reporting and paying their taxes.
Only one UAE Corporate Tax Return will need to be filed per Tax Period. The Corporate Tax Return will be due within 9 months following the end of the Tax Period. No provisional or advance UAE Corporate Tax filings will be required.
Businesses can change their Financial Year in accordance with the applicable regulatory and corporate governance (e.g. memorandum of association) requirements.
Once the business becomes subject to Corporate Tax, a change in Financial Year will require an application to be filed with, and approved by, the Federal Tax Authority to change the Tax Period. Please refer to Federal Tax Authority Decision No. 5. of 2023 issued on 7 April 2023 on Conditions for Change in Tax Period for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.
As long as a Taxable Person is registered, they are required to file a Corporate Tax Return, irrespective of the level of income or the status of the company. This is subject to the Corporate Tax Law which requires a Person to deregister where they have ceased to carry on a Business or Business Activity. Deregistered Persons are not required to file a Corporate Tax Return.
Taxable Persons are required to file a Corporate Tax Return, irrespective of whether they have made a profit or not. Taxable Persons with Tax Losses should ensure they file a Corporate Tax Return in order to ensure that these losses can be used to reduce Taxable Income of future years.
If the companies meet the requirements to form a Tax Group (see section X ‘Tax Groups’) and their application to form a Tax Group is approved, they can file a single UAE Corporate Tax Return covering all the members of the Tax Group.
Where companies cannot form a Tax Group, they will each be required to file a UAE Corporate Tax Return on a standalone basis.
UAE Corporate Tax Returns will need to be filed electronically. Further guidance on this will be provided in due course.
UAE Corporate Tax will need to be paid on or before the end of the 9 months following the end of the relevant Tax Period.
Further guidance on the approved payment methods will be provided in due course.
No. UAE businesses will not be required to make advance UAE Corporate Tax payments. The Corporate Tax liability for a Tax Period will be due for payment by the end of the 9th month following the end of the relevant Tax Period.
Similar to other taxes in the UAE (e.g. VAT), businesses will be subject to penalties for non-compliance with the UAE Corporate Tax regime.
Further information on the UAE Corporate Tax compliance obligations and applicable penalties can be found in Cabinet Decision 75 of 2023.
AD. Pillar Two rules
The UAE is a member of the OECD BEPS Inclusive Framework and is committed to addressing the challenges faced by tax jurisdictions internationally. As such, the introduction of a Corporate Tax regime helps to provide the UAE with a framework to adopt the Pillar Two rules.
Until such time as the Pillar Two rules are adopted by the UAE, multinationals will be subject to Corporate Tax under the regular UAE Corporate Tax regime.
Further information will be released in due course on the potential implementation of the Pillar Two rules in the UAE.
A multinational corporation is a corporation that operates in its home country, as well as in other countries through a foreign subsidiaries, branches or other entity forms of presence / registration. Merely earning foreign sourced income from outside its home country without a foreign presence or registration in a foreign country would not make a business a multinational corporation.
In the context of the global minimum effective tax rate as proposed under ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project,” large” refers to a multinational corporation that has consolidated global revenues in excess of the UAE Dirham equivalent of EUR 750 million.
The Ministry of Finance has announced that Pillar Two will not apply in the UAE in 2024. However, the Ministry will be releasing a public consultation in Quarter 1 of 2024 on the Pillar Two proposals. This consultation will seek input on the design and timing of the Pillar Two rules in the UAE from the relevant stakeholders.
The UAE is intending to allow the Pillar Two or the GLoBE Information Return (GIR) in relation to 2024 to be submitted via the UAE competent authorities. Further information on this will be provided by the Ministry of Finance in due course