Corporate Tax Advisory

In line with global efforts to enhance tax transparency and prevent harmful tax practices, the United Arab Emirates (UAE) Ministry of Finance (MoF) has introduced a Federal Corporate Tax (CT) regime. This development aligns the UAE with international tax standards while maintaining its attractiveness as a leading business hub.

The UAE Corporate Tax Law came into effect for financial years beginning on or after 1 June 2023, with a headline tax rate of 9%, one of the most competitive rates globally. While certain clarifications are still awaited, the UAE MoF has issued 158 Frequently Asked Questions (FAQs), supplementing the legislation by providing insights into its scope, applicability, and various regulatory aspects.

For businesses operating in the UAE, understanding the Corporate Tax framework is crucial to ensure compliance and optimize tax efficiencies. This document outlines the key features of the UAE Corporate Tax Law.

Key Features of UAE Corporate Tax Law

Scope and Taxable Persons

The UAE Corporate Tax is a direct tax levied on the taxable income of entities operating within the UAE. Taxable income is determined after making relevant tax adjustments to the net accounting profit of corporations and businesses.

Taxable Persons include:

UAE Residents

• Juridical persons incorporated in the UAE, including entities established in Free Zones
• Natural persons conducting business in the UAE
• Foreign juridical persons effectively managed and controlled in the UAE (Place of Effective Management – POEM)
• Any other persons specified by the UAE authorities

Non-Residents

• Entities with a Permanent Establishment (PE) in the UAE
• Entities deriving UAE-sourced income
• Entities having a nexus in the UAE (detailed clarification awaited)

Corporate Tax Rates in the UAE

For details on Free Zones, refer to the Tax Credits and Incentives section.

Tax Period and Compliance

The financial year for Corporate Tax compliance in the UAE begins on or after 1 June 2023. Corporate tax returns must be filed within 9 months from the end of the tax period. Businesses must also ensure compliance with record-keeping, reporting, and transfer pricing regulations.

Exempt Entities and Incentives

Certain entities are exempt from Corporate Tax, provided they meet the prescribed conditions:

• UAE Government entities
• Government-controlled entities
• Entities engaged in extractive businesses (oil, gas, and natural resources)
• Non-extractive natural resource businesses
• Qualifying investment funds
• Public benefit entities
• Pension and social security funds
• Any other entity specified by Cabinet decision

Additionally, small businesses with revenues below a defined threshold can claim “Small Business Relief,” exempting them from taxable income and providing simplified compliance obligations. The specific revenue threshold will be determined through a Cabinet Decision.

Free Zone Businesses and Corporate Tax

To qualify for a 0% Corporate Tax rate, a Qualifying Free Zone Person (QFZP) must meet the following criteria:

Maintain adequate economic substance in the UAE
Derive Qualifying Income
Not elect to be subject to Corporate Tax
Comply with Transfer Pricing Regulations
Fulfill any additional conditions prescribed by the Ministry of Finance

Key Considerations for Businesses

Entities operating in the UAE must take proactive steps to:

Assess the impact of Corporate Tax on their operations
Ensure readiness for tax compliance and reporting obligations
Maintain proper documentation in accordance with Corporate Tax requirements

Frequently Asked Questions (FAQs)

Which industries are subject to UAE Corporate Tax?
All businesses in the UAE, except for exempt entities, are subject to Corporate Tax.

Are Free Zone businesses exempt from Corporate Tax?
Qualifying Free Zone Persons (QFZPs) are taxed at 0% on Qualifying Income and 9% on Non-Qualifying Income.

Are there incentives for R&D investment in the UAE?
Currently, the UAE Corporate Tax Law does not specify additional incentives for research and development investments.

What other taxes should UAE businesses consider?
In addition to Corporate Tax, businesses must comply with Value Added Tax (VAT), Economic Substance Regulations (ESR), and Ultimate Beneficial Ownership (UBO) regulations.

How can businesses benefit from Free Zone tax incentives?
Businesses must obtain a Free Zone license and satisfy the QFZP conditions outlined in Article 18 of the UAE Corporate Tax Law.

How does Corporate Tax impact foreign businesses in the UAE?
Foreign businesses are subject to UAE Corporate Tax if they:

• Have a Permanent Establishment (PE) in the UAE
• Earn UAE-sourced income
• Have a nexus in the UAE, as defined by the Ministry of Finance

Once subject to Corporate Tax, foreign businesses must:
Register for Corporate Tax
File tax returns and meet compliance obligations
Pay Corporate Tax on taxable UAE income

Are there penalties for non-compliance?
While penalties for Corporate Tax non-compliance have not yet been specified, a Cabinet Decision is expected to clarify penalties and enforcement measures.

Can businesses deduct expenses from taxable income?
Yes, Articles 28-33 of the UAE Corporate Tax Law outline deductible and non-deductible expenses. Proper record-keeping is essential to support deductions.

How can businesses navigate the UAE’s tax landscape?
Seeking guidance from experienced tax consultants, accountants, and legal advisors is recommended to ensure compliance and optimize tax efficiencies.

Can businesses carry forward losses to offset future tax liabilities?
Losses incurred before 1 June 2023 cannot be offset against taxable income. Losses incurred after the first tax year can be carried forward, with up to 75% of taxable income offset in a given year, and the remainder carried forward indefinitely.

Can businesses claim tax treaty benefits?
Yes, businesses can leverage tax treaties between the UAE and other countries to reduce their tax liabilities.

What is the process for filing Corporate Tax returns?
Taxpayers must file Corporate Tax returns online within 9 months from the end of their tax period.

Conclusion

The introduction of Corporate Tax marks a significant transformation in the UAE’s tax landscape. Businesses must proactively assess their tax obligations, ensure compliance with the evolving regulatory framework, and optimize their tax strategies to maintain competitiveness in the UAE market.

For tailored guidance, businesses should engage with tax professionals who can provide strategic insights and assist in navigating the complexities of the UAE Corporate Tax regime.