Corporate Tax (CT) is a direct tax applied to the net income or profit generated by corporations and various types of businesses. It is also known as “Business Profits Tax” or “Corporate Income Tax” in different regions.

The introduction of a Corporate Tax regime in the UAE aligns with global best practices, enhancing its appeal as an investment and business destination. It supports the UAE’s growth and strategic objectives, while also demonstrating commitment to international tax standards and transparency

Corporate tax will take effect in the UAE for fiscal years starting on or after June 1, 2023. For example, a business with a fiscal year beginning on July 1, 2023, will be subject to corporate tax from that date.

 It appears that the UAE’s corporate tax will be applied uniformly across all emirates, as it is a federal tax.

Businesses involved in specific activities like natural resource extraction might pay Emirate-level taxes. Some businesses may have obligations for both Emirate-level taxes and corporate tax, but taxes paid at the Emirate level cannot be used to offset corporate tax.

No, Corporate Tax is a separate tax and will not replace VAT. Both taxes will be levied on businesses in the UAE.

If your business qualifies for both VAT and CT, you’ll need to pay both taxes concurrently. Even if your business doesn’t meet VAT criteria, compliance with CT laws might still be necessary.

No, Excise Tax and CT serve distinct purposes and will coexist in the UAE.

Yes, service charges remain payable to relevant Federal and Emirate authorities. Certain charges related to normal business operations can be deducted when calculating CT.

The FTA is responsible for enforcing, collecting, and administrating corporate tax in the UAE.

The MoF acts as the competent authority for international tax information exchange and provides guidance for multilateral/bilateral agreements.

To prepare for CT in the UAE, follow these steps:

• Study UAE CT laws and related information from the FTA and MoF websites.
• Determine if your business falls under CT and its effective date.
• Understand compliance requirements, registration, tax periods, and other specifics.
• Regularly check FTA and MoF websites for updates.

You can find the CT law by clicking on this link.

You can find the corporate tax law by clicking on this link.

Exemptions from CT apply to businesses in natural resource extraction, certain government institutions, entities for public benefit, and more.

Companies incorporated in the UAE, including various juridical persons, are considered residents for CT purposes. Entities established in the UAE are automatically considered residents.

Juridical persons established outside the UAE and effectively controlled abroad are non-residents. Natural persons not engaged in taxable business activities within the UAE are also non-residents.

Resident juridical persons are subject to CT on worldwide income, but certain income from foreign branches and subsidiaries might be exempt. Foreign taxes paid can be credited against UAE CT to avoid double taxation.

Non-residents are subject to UAE CT if they have UAE-sourced income or income from their Permanent Establishment in the UAE.

Taxable income, also known as the accounting/business net profit or loss, is adjusted for specific items such as exempt income, unrealized gains/losses, transactions with related parties, and more.

CT rates in the UAE vary for different entities:

For juridical and individual persons:

0% tax on taxable income up to AED 375,000

9% tax on taxable income above AED 375,000

Different rates may apply to large multinationals meeting specific conditions.

Free zone persons face 0% tax on qualifying income and 9% on other taxable income.

For a business with AED 400,000 taxable income:

0% tax on the first AED 375,000

9% tax on the remaining AED 25,000

The total CT liability would be AED 2,250, reduced by any taxes paid abroad on relevant income.

Yes, small businesses with income below a specific threshold can apply for relief. They might be considered to have no taxable income for a Tax Period, with simplified compliance requirements.

Resident juridical persons or individuals with revenues below the Ministry-specified threshold and meeting set conditions can apply for and claim small business relief.

In UAE CT, a Natural person refers to an individual.

Only individuals involved in business activities specified by a forthcoming Cabinet Decision will be subject to UAE CT. Other activities won’t fall under CT.

Civil companies or sole proprietorships formed by natural persons might be classified as either a natural person or the persons owning them for CT purposes.

A natural person involved in UAE business activities is subject to CT on income generated from those activities. Income earned outside the UAE related to UAE activities is also subject to CT.

CT doesn’t affect salary income. Investment income, like capital gains and dividends, remains unaffected by CT.

A juridical person is an entity established in accordance with UAE or foreign regulations, possessing a legal status distinct from its owners, directors, and founders. Examples include foundations, limited liability companies, joint-stock companies, and more, each having separate rights and obligations.

Having a separate legal status implies that an entity possesses distinct liabilities, obligations, and rights from its founders or owners. Consequently, the owners’ liability is generally limited concerning the entity’s obligations and debts.

Any activity conducted by a UAE juridical person is considered a business activity under the Corporate Tax Regime unless explicitly exempted. The income generated from such activities is subject to Corporate Tax, except when specifically excluded under UAE regulations.

UAE-based holding companies are subject to Corporate Tax based on their location, either in the mainland or a Free Zone. However, capital gains and dividends from foreign and domestic shareholdings can be exempt from Corporate Tax under certain conditions.

The Corporate Tax treatment varies for incorporated and unincorporated partnerships. Incorporated partnerships with limited liability or similar structures are treated similarly to corporations for tax purposes. Unincorporated partnerships entail legal relationships among members/partners and are treated separately from their members

In unincorporated partnerships, individual partners must individually file Corporate Tax returns and pay tax on their share of partnership income. However, these partnerships can apply to be considered separate taxable entities if approved by the FTA.

An investment fund issues investment interests to generate funds or pool investor funds for holding, managing, acquiring, or disposing of investments in line with relevant laws.

Investment funds organized as unit trusts or partnerships are typically treated as unincorporated partnerships for CT. The tax treatment aims to reflect investors’ taxation as if they invested directly in the fund’s assets.

A UAE-based fund manager falls under CT if it’s considered a resident or operates through a permanent establishment in the UAE.

Either the fund manager or the investment fund should be subject to regulatory oversight to qualify for CT exemption.

No, branches of foreign or domestic juridical persons in the UAE are extensions of the head office or parent company.

A UAE-based parent company includes branch income in its CT return as taxable income.

Foreign entities operating in the UAE through a permanent establishment or treated as UAE residents are subject to Corporate Income Tax.

A non-resident in the UAE must comply with Corporate Tax requirements if it earns income in the UAE or has a permanent establishment there.

Taxable income refers to a business entity’s accounting profit or loss after adjustments according to CT laws.

Financials in the UAE must comply with relevant UAE accounting standards. IFRS is commonly used.

Income exempt from CT includes dividends from UAE entities, impairment gains/losses, certain capital gains, and more.

Business expenses incurred to generate taxable income are deductible. Expenditures with dual purposes are apportioned.

Non-deductible expenses include fines, penalties, expenses generating exempt income, and losses unrelated to business.

Transfer pricing rules ensure arm’s length terms for transactions among Related Parties, preventing manipulation of financial performance.

Yes, transfer pricing rules apply to transactions with Connected Persons and Related Parties, regardless of location.

Losses occur when total deductions exceed total income, resulting in negative taxable income.

Yes, prior period losses can be adjusted against future taxable income, up to 75% of future taxable income for each period. Unused losses can be carried forward indefinitely.

To transfer tax losses between companies within a UAE tax group, the following conditions must be met:

All companies in the group are considered residents of the UAE.

A member holds a 75% or greater ownership in another entity within the group (or a third entity with at least 75% ownership in both companies if more than two companies exist), and this ownership is consistent at the start and end of the tax year.

Neither entity is a Qualifying Free Zone entity.

Neither entity has been granted any form of exemption, including the mentioned exemptions.

The entities maintain their financial records using the same reporting standards and fiscal year.

Withholding tax is a tax collected at the source by the payer of income on behalf of the recipient. It is commonly applied to cross-border incomes such as dividends, royalties, and interest.

Withholding tax at a 0% rate may apply to specific income sourced in the UAE and paid to non-resident entities for Corporate Tax purposes. This implies no withholding tax is payable, and there’s no related filing or registration obligation.

For UAE Free Zone entities adhering to Free Zone CT regime conditions:

Qualifying Income is taxed at 0%.

Non-Qualifying Income is taxed at 9%.

Qualifying Free Zone entities complying with the set conditions will automatically enjoy the benefits of the 0% CT regime.

To qualify as a “Qualifying Free Zone Person”:

The entity must have adequate substance within the UAE.

The entity must generate “Qualifying Income” as defined by relevant authorities.

Compliance with transfer pricing rules and maintenance of related documentation.

No election to be subject to full Corporate Income Tax.

Yes, all entities operating in Free Zones must file a Corporate Tax return, regardless of whether they qualify as a Qualifying Free Zone Person.

No, the treatment for Corporate Tax purposes remains consistent across all entities within Free Zones.

Yes, banks operating in the UAE will be subject to Corporate Tax.

Entities engaged in real estate activities such as construction, management, brokerage, etc., will be subject to Corporate Tax.

Charitable and benevolent organizations working for public welfare will be exempt from Corporate Income Tax if they meet specific government-set conditions.

Foreign entities operating ships and aircraft for international transportation may receive exemptions from Corporate Tax on certain income, subject to conditions.

Yes, entities in the UAE can form a Group if specific conditions are met, allowing them to be treated as a single entity for Corporate Tax purposes.

Yes, subsidiaries of foreign entities in the UAE can form a Group for CT purposes, provided they operate under an intermediary UAE-based parent company.

Foreign entities can be included in a Group for CT purposes if they are controlled and managed in the UAE and treated as UAE residents.

Yes, the 0% threshold rate of AED 375,000 applies to the entire Group as if it were a single entity.

Yes, the parent company in the Group must prepare consolidated accounts based on the individual accounts of group members.

A Qualifying Group meets criteria such as residency, ownership percentages, absence of Qualifying Free Zone status, no exemptions, and standardized financial reporting.

Yes, the Corporate Income Tax regime allows for certain transactions involving restructuring, mergers, and spin-offs to be conducted without triggering tax implications.

Taxable entities must maintain financial records and supporting documents to determine taxable income and validate information in their Corporate Tax return.

Records and documents should be retained for at least seven years following the end of a tax year.

Only if all members are part of a Group for tax purposes, can consolidated financials be used. Otherwise, separate financial records are required.

Only entities specified in a Ministry decision must get their financial records audited by a registered UAE auditor.

No, only specified taxable persons must have their financials audited by a registered UAE auditor.

The FTA may request accounts alongside a Corporate Tax return or as needed.

The UAE national currency, AED, is used for CT purposes. Foreign entity results are translated into AED.

For Corporate Tax purposes, foreign currency amounts are translated into AED using exchange rates provided by the UAE’s Central Bank.

A self-assessment regime requires taxpayers to calculate, report, and pay their own taxes.

All taxpayers specified by the Ministry must register for CT and obtain a Registration Number.

Taxable persons should register for CT before submitting their first Corporate Tax return.

No, there is no threshold for CT registration.

Taxable persons can register for CT online through the FTA’s website.

Yes, VAT-registered entities must register for Corporate Tax.

Only one Corporate Tax return per Tax Period needs to be submitted within 9 months of the entity’s Tax Period end.

Corporate Tax returns must be submitted online. Further guidance will be provided by the FTA.

CT payments are due before the end of the 9 months following the entity’s Tax Period.

Guidance for payment methods will be issued by the Ministry or FTA.

Penalties for non-compliance with Corporate Tax laws and regulations will be applicable, similar to other taxes in the UAE.