UAE CORPORATE TAX (UAE CT)
Let's Talk
Free Consultation
Let's Talk
Free Consultation
Introduction
The tax levy will be on taxable profits exceeding AED 3,75,000 and any profits below this limit will be subject to 0% thus providing small businesses & startups relief.
Scope & Rate
| Taxable Income Slab | Corporate Tax Rate |
|---|---|
| Taxable income upto AED 375,000 | 0% |
| Taxable income above AED 375,000 | 9% |
| Large Multinationals (with consolidated global revenue > AED 3.15Bn(Euro 750mn) | Effective tax rate 15% |
Taxable Persons:
Under the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022), a Taxable Person refers to any individual or entity subject to corporate tax in the UAE. The law divides Taxable Persons into two main categories: Resident Persons and Non-Resident Persons.
1. Resident Person
A Resident Person includes:
- Legal Persons:
Any legal entity incorporated or established in the UAE, including mainland companies, free zone entities, and public/private organizations.
Key points:- Subject to corporate tax on worldwide income, except for income explicitly exempt under the law.
- Includes businesses registered in UAE Free Zones, provided they meet the requirements for Free Zone Persons.
- Natural Persons (Individuals):
Individuals engaged in a business or commercial activity in the UAE, as defined by the law and subject to corporate tax.- Personal income (such as salary, dividends, or real estate income earned in a personal capacity) is not subject to corporate tax unless it arises from a business activity.
2. Non-Resident Person
A Non-Resident Person is someone not established or based in the UAE but earns income that is taxable under UAE Corporate Tax Law.
Non-Resident Persons are subject to corporate tax on:
- UAE-sourced income (income earned from activities conducted in the UAE).
- Income attributable to a Permanent Establishment (PE) in the UAE.
Permanent Establishment (PE):
A PE exists when a Non-Resident Person conducts business activities in the UAE through:
- A fixed place of business (e.g., office, factory, workshop).
- A dependent agent authorized to act on behalf of the non-resident.
Exempted Persons:
In the context of the UAE Corporate Tax Law, certain entities and persons are classified as Exempted Persons and are not subject to corporate tax under specific circumstances. These exemptions are designed to support key sectors and activities that align with the UAE’s strategic economic objectives. As per the Federal Decree-Law No. 47 of 2022 on Corporate Tax, Exempted Persons include the following:
- Government Entities:
Government bodies or departments conducting non-commercial activities are exempt from corporate tax. - Government Controlled Entities:
Entities wholly owned by the government that perform non-commercial activities or operate for the public good may qualify as exempt. - Qualifying Public Benefit Entities:
Organizations established for charitable, religious, educational, cultural, or social purposes and recognized by the Ministry of Finance as meeting the public benefit requirements. - Qualifying Investment Funds:
Investment funds meeting specific regulatory conditions, such as being publicly traded or regulated by competent authorities, may be exempt. - Wholly-Owned and Controlled UAE Subsidiaries of Exempted Persons:
If these subsidiaries are engaged in specific qualifying activities and meet regulatory requirements. - Entities Operating in Extractive and Non-Extractive Natural Resource Businesses:
Businesses engaged in the extraction or exploitation of natural resources, provided they pay Emirate-level royalties or taxes. - Social Security and Retirement Pension Funds:
Funds established for social security or retirement purposes and meeting prescribed conditions.
It is important to note that entities must meet specific conditions set by the law to qualify as Exempted Persons. Any exempt entity must still comply with registration and filing requirements, such as obtaining a Tax Registration Number (TRN) and filing returns or declarations, where applicable.
Free Zone Persons:
In the context of the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022), a Free Zone Person refers to an individual or legal entity established in a Free Zone and meeting certain conditions to benefit from a preferential corporate tax regime. Free Zones are designated areas in the UAE offering tax incentives and other benefits to encourage foreign investment and economic activity.
Key Features of a Free Zone Person:
- Established in a Free Zone:
The entity must be incorporated, registered, or licensed within one of the Free Zones in the UAE. - Subject to Free Zone Incentives:
The Free Zone Person must meet the requirements to benefit from the 0% corporate tax rate on Qualifying Income, as defined in the corporate tax law and relevant regulations. - Maintenance of Compliance:
To retain the preferential tax treatment, the Free Zone Person must:- Comply with the UAE Corporate Tax Law and maintain proper accounting records.
- Satisfy the economic substance requirements (if applicable).
- Ensure their activities align with the list of “Qualifying Activities” specified by the UAE Ministry of Finance.
Basis of taxation
Branches can be combined if they exist in one emirate and their activities are similar. For the branches in different emirates, a certificate for each license must be obtained.
Taxable Income
The fee for an ICV certificate varies depending on the size of the company and the procedures required to be performed.
| Deductible expenditure |
|---|
| Expenditure incurred wholly and exclusively for the purposes of the Taxable Person’s Business that is not capital in nature. |
| Non-Deductible Expenses | Limitation |
|---|---|
| Bribes, Fines & Penalties, Donations, Dividends & profits distribution, Corporate Tax & VAT, Exp. Not incurred for business purposes, Expenditure incurred for deriving exempt income, Amounts withdrawn from the Business by a natural person | No deduction at all |
| Entertainment expenditure (Meals, accommodation, transportation, admission fees, etc… for customers, Shareholders, suppliers, business partners, etc…) | 50% allowable |
| Net Interest expenditure | 30% of EBITDA |
Exempt Income
The Following income and related expenditure shall not be taken into account in determining taxable income:-
- Dividends and other profit distributions received from a resident juridical person
- Dividends and other profit distributions received from a participating interest (at least 5% holding for an uninterrupted period of 12 months, and applicable tax rate is at least 9%)
- Any other income from a participating interest.
- Income derived by a non-resident person from operating aircraft or ships in international transportation (if same exemption is available to UAE operators of aircrafts and ships in that country)
- Income of a foreign permanent establishment (if the person opted and the foreign tax rate is at least 9%).
Small Business Relief
- If the Revenue of a Resident Person does not exceed a threshold of AED 3 million in relevant tax period and previous tax period each, then such business may elect to be treated as not having derived any taxable income for the relevent tax period.
- If the above applies then Exempt income, reliefs, deductions, tax loss and transfer pricing provisions shall not apply.
Tax Groups
- Two or more Taxable Persons can be treated as a single Taxable Person.
- All taxable persons in the group should be resident & juridical.
- Parent Company owns at least 95% of the shares or voting rights or Profit/Net Assets either directly or indirectly.
- None of them is exempt and qualifying free zone person.
- Following same financial year.
- Using same accounting standards to prepare the financial statements.
Transactions with related parties & connected persons – Transfer Pricing
Transfer Pricing: –
Transfer Pricing refers to the pricing of transactions between Related Parties or Connected Persons. The UAE CT regime will have Transfer Pricing rules to ensure that the price of transaction is not influenced by relationship between parties involved.
The Arm’s Length Principle: – Corporate Tax Law mandates fair pricing for transactions between Related Parties or Connected Persons, treating them as if conducted between independent parties in similar circumstances.
The OECD Transfer Pricing guidelines recommend five widely used methods of establishing transfer pricing. They are: –
- Comparable Uncontrolled Price method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method
- Profit Split Method
Transfer Pricing Documentation requirements: –
Taxable persons must maintain a Local File and a Master File if they meet either of the following conditions during the tax period:
The taxable person is a Constituent Entity (i.e., mainland or free zone subsidiary, branch, or permanent establishment) of a Multinational Enterprise Group, with annual consolidated group revenues exceeding AED 3.15 billion, as defined under Cabinet Decision No. 44 of 2020.
The taxable person’s revenues exceed AED 200 million.
Tax Period
- Businesses will use their financial accounting period as their annual tax period. Where a business does not have a financial accounting period, their default tax period will be the Gregorian calendar year.
Registration and Deregistration
Every business to which corporate tax is applicable should register with FTA and obtain a Tax Registration number within the prescribed period.Where a business ceases to operate or ceases to be subject to CT due to any reason, it should apply to the FTA to be deregistered within 3 months from the date of cessation.
Filing, Payment and Refund
- One tax return for each tax period.
- Return filing and tax payment due date: Within 9 months from the end of the relevant tax period.
Transitional Provisions
The CT Law states that the opening balance sheet for tax purposes will be the prior period closing accounting balance sheet.
Record Retention
The retention periods are specified as follows:
a. For taxable individuals or businesses- keep records for five years after the relevant tax period.
b. For all other individuals or businesses- keep records for five years from the end of the calendar year in which the document was created.
c. For real estate records- keep records for seven years from the end of the calendar year in which the document was created.
The impact of corporate tax on UAE business
Moving from a tax free economy to an economy with corporate tax compliance, the ministry has taken an important milestone in building an integrated tax regime that supports the strategic objectives of the UAE as well as providing the economy with sufficient flexibility to step up with international financial systems. The Ministry of Finance will remain the competent authority and Federal Tax Authority will be responsible for the administration, collection and enforcement of the corporate tax law.
With the assistance of Corporate Tax Consultants in Dubai having exceptional experience in local and international taxation, the transition to corporate tax compliance will be hassle free. Our expert tax consultants can help you maintain your accounting & financial records in a way that would optimize your liability of taxes on corporate income.
How can we help you?
Our team of experts can help you assess the challenges and opportunities UAE CT brings in.
- Corporate Tax Consultancy Services.
- Corporate Tax Training and Awareness.
- Corporate Tax Registration Services
- Preparation and filing of Tax Returns.
- Representation Services before tax authorities.
Fill up our Corporate Tax Assessment Form
Consult with the best UAE Corporate Tax Consultants.
Email Us: info@elevateauditing.com