UAE Corporate TAX

The UAE Federal Government introduced Corporate Tax effective from 1st June 2023 in UAE. Corporate tax will be effective from the fiscal year starting from 1st June 2023 for all UAE registered businesses with the exemption as per Article 4 of UAE federal decree law number 47 of 2022.

Exempt Person

UAE Corporate Tax (CT) is imposed on all UAE businesses except Government entities, Government controlled entities, a person engaged in natural resources business, extractive business, qualified entities, investments funds and pension funds. Any other Person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister.

Zero tax is applicable for qualified income for free zone entities subject to applicable provisions as per articles 18, 19, 34 and 55 of UAE federal decree law number 47 of 2022.

Tax Periods

UAE corporate tax (CT) imposed on UAE businesses from 1st June 2023

For example:

UAE COMPANIES WHOSE FINANCIAL YEAR STARTS ON 1ST JUNE 2023

The first tax period starts for the first fiscal from 1st June 2023 to 31st May 2024; the first Tax return should be filed the following tax period and tax paid within nine months of the completion following the tax period.

UAE COMPANIES WHOSE FINANCIAL YEAR STARTS ON 1ST JANUARY 2024

The first tax period begins for the first fiscal from 1st January 2024 to 31st December 2024; the first Tax return should be filed the following tax period and tax paid within nine months of the completion following the tax period.

UAE Corporate Tax Thresholds

1. A zero (0%) tax rate applies to taxable income up to AED 375,000.00

2.Tax rate of 9% on taxable income over AED 375,000.00

UAE Corporate Tax Rates

Corporate Tax shall be imposed on the Taxable Income at the following rates:

a. 0% on the portion of the Taxable Income not exceeding the amount specified in a decision issued by the Cabinet at the suggestion of the Minister.

b. 9% on Taxable Income that exceeds the amount specified in a decision issued by the Cabinet at the suggestion of the Minister.

The importance Accounting and Bookkееping Sеrvicеs

Corporate Tax shall be imposed on a Qualifying Free Zone Person at the following rates:

a. 0% on Qualifying Income. b. 9% on Taxable Income that is not Qualifying Income under Article 18 of this Decree-Law and any decision issued by the Cabinet at the suggestion of the Minister in respect thereof.

Tax Group

1. Must be UAE Resident Company

2. Both Taxable Persons are juridical persons.

3. Parent companies hold at least 95% of shares and voting rights

4. 95% of shareholding from subsidiaries

5. All branches or subsidiaries

6. Tax losses can be transferred between tax group member companies

7. The Parent Company and the Subsidiary have the same Financial Year

8. Neither the Parent Company nor the Subsidiary is an Exempt Person.

Freezone Persons

The free zone entities will be taxed at 0% on qualifying income. Free zone persons if they meet the following conditions.

1. Maintain adequate substance in UAE

2. Derives Qualifying Income as specified in the ministerial cabinet decision

3. Non-election of Freezone person to be subject to Corporate Tax at 9%

4. Compliant with Arm’s Length Principle and Transfer pricing documentation for related party transactions

Carry forward Tax Losses

1. Tax loss can be set off against taxable income of subsequent tax periods

2. Tax loss set-off cannot exceed 75% of taxable income

3. Taxable person cannot claim for the losses incurred before the commencement of Corporate Tax.

Transactions with Related Parties and Connected Persons

  1. A transaction or arrangement between Related Parties meets the arm’s length standard if the results of the transaction or arrangement are consistent with the results that would have been realised if Persons who were not Related Parties had engaged in a similar transaction or arrangement under similar circumstances.
  2. The arm’s length result of a transaction or arrangement between Related Parties must be determined by applying one or a combination of the following transfer pricing methods:
  • The comparable uncontrolled price method.
  • The resale price method.
  • The cost-plus method.
  • The transactional net margin method.
  • The transactional profit split method.

Income does not include taxable income under UAE Corporate tax (CT)

  1. Income derived from investments, owning shares or assets as dividends, interest, and capital gains in an individual capacity
  2. Qualifying intra-group transactions in UAE
  3. Rental income from the real estate from individual capacity if revenue is not generated from buying, selling, and leasing business activities.
  4. Salaried Income, if not from freelance activities

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