The United Arab Emirates (UAE) introduced Federal Decree-Law No. 47 of 2022 on December 9, 2022, outlining the framework for the taxation of corporations and businesses. This legislation establishes the foundation for the implementation of a federal corporate tax (CT) system. The CT regime came into effect for business profits starting from the financial year commencing on June 1, 2023.
The main attributes of the UAE CT Law are outlined in the following table, organized by chapter order:
|Imposition of CT and Applicable Rates
|UAE Corporate Tax rates:
CT shall be imposed on the taxable income of businesses at the following rates:
CT shall be imposed on a Qualified Free Zone Person at the following rates:
The following persons shall be exempt from Corporate Tax in UAE:
a) A Government entity;
A resident person is any of the following persons:
A non-resident person is a person who is not considered a resident person and that either:
|Corporate Tax Base
|Corporate Tax Base:
A non-resident person has a PE in the UAE in any of the following instances:
|Calculating Taxable Income
|Determining Taxable Income Guidelines:
Taxable income is ascertained based on standalone financial statements prepared in accordance with the accounting standards accepted in the UAE.
Taxable income represents accounting income, incorporating adjustments for:
Taxable entities employing an accrual accounting basis have the option to consider gains and losses on a realization basis concerning
Small business relief:
A taxable person that is a resident person may elect to be treated as not having derived any taxable income for a tax period where revenue in that tax period and previous tax periods does not exceed a threshold 3Million AED
|Dividend and other profit distribution from a resident juridical person:
Dividend and other profit distributions from a resident juridical person shall be exempt from CT.
Income related to a participating interest, such as dividends, other profit distributions, capital gains, and any other income (including foreign exchange and impairment gains tied to the participating interest), is eligible for CT exemption provided that the subsequent conditions are fulfilled:
|Transfers within a qualifying group:
Business restructuring relief:
Expenditures that are incurred entirely and solely for the purpose of the taxable person’s Business and are not of a capital nature can be deducted during the tax period in which they are incurred. This deduction is permissible unless otherwise specified in the CT Law as disallowed or partially disallowed for a tax deduction. Examples of such disallowed expenses include donations, fines or penalties, bribes, related payments, dividends or profit distribution, and taxes including VAT.
• Interest Expenses: The net interest expenditure can be deducted up to a limit of 30% of the taxable person’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITA), excluding exempt income, for the relevant tax period. This deduction is subject to exemptions and exclusions, if net interest expenditure for a tax period does not exceed AED 12,000,000.
• Entertainment Expenses: A deduction of up to 50% is permitted for any expenditure related to entertainment, amusement, or recreation incurred during a tax period. This deduction is subject to exclusions.
|Tax Loss provisions
|Tax loss relief:
Transfer of tax loss:
A tax loss or a portion thereof may be offset against the taxable income of another person where the following
conditions are met:
Limitation on tax losses carried forward:
|Calculation of CT Payable
All amounts must be in AED. Any non-AED amounts must be converted to AED following exchange rates set by the UAE Central Bank and subject to any decisions issued by the FTA.
|General anti-abuse rule:
The CT introduces a general anti-abuse rule where the FTA may counteract or adjust the taxable basis in cases where tax advantages are obtained as a result of any transaction or arrangement where its main purpose or one of its main purposes is to obtain a tax advantage.
|Tax Returns and Clarifications
The Taxable Person may be requested by the Federal Tax Authority to submit the Financial Statement that was used by it for ascertaining its Taxable Income for the relevant Tax Period.
The request by the Authority can be through a notice or decision issued by it.
Partner of an Unincorporated Partnership to provide Financial Statements
A partner of an Unincorporated Partnership may be requested by the Federal Tax Authority to submit the Financial Statements for the relevant Tax Period with additional details such as :
Transfer Pricing Documentation:
The tax period corresponds to the financial year or any portion thereof necessitating the filing of a tax return. Adjustment of the tax period can be sought by taxable persons, contingent upon specific conditions.
Taxable persons have the option to apply for:
To ensure a seamless and prosperous collaboration, we propose a structured project division into three distinct phases: Pre-Implementation, Transitional, and Post-Implementation, all tailored to your specific needs for the UAE Corporate Tax 2023. The breakdown of each phase is outlined in detail below:
- Pre-Implementation Phase:
- Help with Tax Registration: Guide you through the company’s tax registration process, ensuring all requirements are met.
- Team Training: Provide tailored Corporate Tax Law training for your Finance Team.
- System Readiness: Assist in setting up the local ERP system for tax compliance and integration.
- Compliance Analysis: Review financials for adherence to UAE tax regulations, identify risks, and offer mitigation recommendations.
- Advisory Services: Advise on tax implications for transactions and provide guidance for tax-efficient decisions.
- Transitional Phase:
- Tax Planning: Develop a comprehensive tax strategy aligned with business goals and UAE tax laws.
- Transfer Pricing Guidance: Assist in structuring transactions for optimal tax efficiency and compliance.
- Post-Implementation Phase:
- Corporate Tax Return Filing: Aid in preparing and filing the First Corporate Tax Return due in 2025.
- Tax Audit Support: Assist in responding to tax audit queries, review findings, and offer resolution advice.
- Dispute Resolution: Represent your company during tax audits, aiming for favorable resolutions.
- Legislation Monitoring: Keep you updated on changes in UAE tax laws for ongoing compliance.
We are your dedicated tax consultants in Dubai, committed to delivering effective Corporate Tax Services in the UAE throughout these phases.
To avail of Corporate Tax Services in UAE get in touch with us at: