UAE CORPORATE TAX

BY

CA JURAIJ CALICUT

Type of Taxes

Corporate Tax
Value Added Tax (VAT)
Excise Tax
Customs Duties

What is corporate tax ?

Corporate Tax is a form of direct tax levied on the net income of corporations
and other businesses.
Corporate Tax is sometimes also referred to as “Corporate Income Tax” or
“Business Profits Tax” in other jurisdictions.

Introduction
● The need to introduce corporate tax in UAE arose
● To Discourage Profit Shifting
● OECD BEPS Framework Requirements

Why is the UAE introducing CORPORATE TAX

Achieve its strategic objectives and accelerate its development.

UAE’s commitment to meet with international Standards for tax transparency.
Preventing harmful tax practices.
Strengthen the UAE’s position as a leading global business & investment hub.
RATE OF corporate tax

1. Corporate Tax shall be imposed on the Taxable Income at the following rates:
• a) 0% (zero percent) on the portion of the Taxable Income not exceeding
375,000 AED.
• b) 9% (nine percent) on Taxable Income that exceeds 375,000 AED.

2. Corporate Tax shall be imposed on a Qualifying Free Zone Person at the

following rates:
• a) 0% (zero percent) on Qualifying Income.
• b) 9% (nine percent) on Taxable Income that is not Qualifying Income under
Article 18 of the Decree-Law and any decision issued by the Cabinet at the
suggestion of the Minister in
respect thereof.

How does corporate tax work ?

● Person
● Business
● Taxable Income

Taxable person

Corporate Tax shall be imposed on a Taxable Person.

A Taxable Person shall be either a Resident Person or a Non-Resident Person.
Taxable person

Juridical Person Includes

● Limited Liability Companies (LLCs) in Mainland;
● Private Stock Companies in Mainland
● Public Joint Stock Companies in Mainland
● Branch of Foreign Companies in Mainland
● Free Zone Establishments (FZEs) in Free Zones
● Free Zone Companies (FZCs) in Free Zones
● Limited Liability Companies (LLCs ) in Free Zone
● Branch of Foreign Companies in Free Zone
Taxable income

What is Business?
Business can be defined as any activity conducted regularly, independently, and
on an ongoing basis by any person, in any location. This includes a range of
activities such as industrial, commercial, agricultural, professional, service or
excavation activities, as well as any other activity related to the use of tangible
or intangible properties.
To put it simply, if you are regularly engaged in an activity with the intention of
making a profit, then you are running a business. This can be applicable to
individuals as well as companies and can range from a small-scale venture to a
large corporation.
What is Income?
Income can be defined as the amount of money earned by a business or an
individual from their business activities
This can include revenue generated from the sale of goods or services, as well
as any other type of income that is earned in the course of running a business.
computation of business income for tax purposes is a complex process that
involves various rules and regulations
Taxable income

Applicability of Tax on Natural person resident in UAE

Salary Income
Freelancing –Business or Business Activity
Interest Income –Bank
Other Income –Investment returns
Business Income-Direct Business Income
Unincorporated Partnership Income
Sole Establishment Income
Taxability of foreign entities and individuals

● Foreign Companies are considered Resident in UAE if:

○ Effectively managed and controlled in UAE
● Such Foreign Entities are Subject to corporate Tax on:-
○ Local income earned from UAE
○ Foreign income earned from outside UAE

Foreign Individuals are subject to Corporate Tax in UAE if:

● Engaged in a business or business activity in UAE
Such Foreign Individuals are subject to UAE Corporate Tax on UAE
Sourced Business Income, subject to DTAA.
Exempt Person

Government entity

Who is a Government Entity?

The Federal Government, Local Governments, ministries, government
departments, government agencies, authorities and public institutions of the
Federal Government or Local Governments.
Government controlled entity

Who is Government Controlled Entity?

A Government Controlled Entity is any juridical person, directly or indirectly
wholly owned and controlled by a Government Entity, as specified in a decision
issued by the Cabinet at the suggestion of the Minister.

Extractive Business
Non-Extractive Natural Resource Business

Qualifying Public Benefit Entity

1. Purpose: Established and operated for religious, charitable, scientific, artistic,

cultural, athletic, educational, healthcare, environmental, humanitarian, animal
protection or similar purposes; or as a professional entity, chamber of commerce
or similar entity operated exclusively for the promotion of social welfare or
public benefit.

2. Business Activity: Not Permitted

3. Income and Assets: Exclusively used for the purpose for which it is
established
4. No personal benefit to members

Taxable Person and Corporate Tax Base

Corporate Tax base for resident and non-resident person

Sl Type of Person Basis of Taxable Income

No
1 Resident juridical person Taxable income derived from the
(Companies) UAE or from outside the UAE
2 Resident natural person Income derived from UAE or from
(Naturally resides in UAE or outside the UAE, insofar as it
Who stays more than 183 Days or relates to the Business or Business
90 Days for GCC Citizens) Activity conducted by the natural
person in the UAE.
3 Non-Resident Person A. Taxable income attributable
to Permanent Establishment*
in the State
B. UAE Sourced* Income not
attributable to Permanent
 Establishment in the UAE
C. Taxable income attributable
to nexus* in the State, as
determined by Cabinet
decision

State sourced income

State Sourced Income Examples

Derived from a Resident Person. Income received from a company
incorporated or established in the
State.
Derived from a Non-Resident Person Income received from a foreign
with a Permanent Establishment in company with a branch or office in
the State. the State.
Derived from activities, assets, Income received from activities
capital, rights, or services in the State. performed, assets located, capital
invested, rights used, or services
performed or benefited from in the
State.

Inclusions in State Sourced Income

Income from sale of goods in the State.

Income from provision of services in the State.
Income from a contract performed or benefited from in the State.
Income from movable or immovable property in the State.
Income from disposal of shares or capital of a Resident Person.
Income from use of intellectual or intangible property in the State.
Interest secured by property in the State.
Interest from Resident Person or Government Entity.
Insurance or reinsurance premiums.

Permanent establishment

Permanent establishment

A. A fixed or permanent place in the State includes:

B. A place of management where management and commercial decisions
that are necessary for the conduct of the Business are, in substance, made.
C. A branch.
D. An office.
E. A factory.
F. A workshop.
Permanent establishment

A fixed or permanent place in the State shall not be considered a PE if it is used

solely for any of the following purposes:
A. Storing, displaying or delivering of goods or merchandise belonging to
that Person.
B. Keeping a stock of goods or merchandise belonging to that Person for the
sole purpose of processing by another Person.
C. Purchasing goods or merchandise or collecting information for the
Non-Resident Person.
D. Conducting any other activity of a preparatory or auxiliary nature for the
Non-Resident Person.
E. Conducting any combination of activities mentioned in paragraphs (a),
(b), (c) and (d) above, provided that the overall activity is of a preparatory
or auxiliary nature.

A fixed or permanent place in the State includes:

F. Land, buildings and other real property.
G. An installation or structure for the exploration of renewable or
non-renewable natural resources.
H. A mine, an oil or gas well, a quarry or any other place of extraction of
natural resources, including vessels and structures used for the extraction
of such resources.
I. A building site, a construction project, or place of assembly or
installation, or supervisory activities in connection therewith, but only if
such site, project or activities, whether separately or together with other
 sites, projects or activities, last more than (6) six months, including
connected activities that are conducted at the site or project by one or
more Related Parties of the Non-Resident Person.

Taxation of Unincorporated partnership

Taxation of Unincorporated partnership

Scenario 1: No application made to FTA

If no application is made to the FTA, the partnership will not be considered a
taxable person in its own right, and the two partners will be treated as individual
taxable persons for the purposes of Corporate Tax. Each partner will be
responsible for paying tax on their respective share of the partnership's income.
Assuming the income of the Unincorporated Partnership is AED 1,000,000, and
there are two partners with 45% and 55% share respectively, the tax treatment
will differ depending on whether an application is made to the FTA or not.
In this scenario, Partner 1 would be responsible for paying Corporate Tax on
AED 450,000 (45% of AED 1,000,000), and Partner 2 would be responsible for
paying Corporate Tax on AED 550,000 (55% of AED 1,000,000).

Scenario 2: Application made to FTA and approved

If an application is made to the FTA and is approved, the Unincorporated
Partnership will be treated as a taxable person in its own right, and will be
responsible for paying Corporate Tax on its income. The partnership will need
to obtain a Tax Registration Number (TRN) and file tax returns with the FTA.
In this scenario, the partnership would be responsible for paying Corporate Tax
on AED 1,000,000. The partners would not be individually liable for paying
Corporate Tax on their share of the partnership's income.

Free zone person

Who is the Qualifying Free Zone (“FZ”) Person?

Juridical Person incorporated, established or registered in the FZ meeting all the
below conditions:
● Maintains adequate substance
● Derives Qualifying Income
● Not elected to be subject to regular CT rates
● Complies with Transfer Pricing rules and maintains relevant Transfer
Pricing Documentation**
● Non qualifying revenues do not exceed AED 5 million or 5% of the total
revenues, whichever is a lower
● Maintain Audited Financial Statements
Taxation of Unincorporated partnership

Rate of Tax

Rate Type of Income

0% Qualifying Income
9% Taxable Income that is Non Qualifying Income

Qualifying Income
 Qualifying Activities

Income other than Qualifying Income

*As per Cabinet Decision 56 of 2023 Immovable Property: Means any of the
following:
A. Any area of land over which rights or interests or services can be
created.
B. Any building, structure or engineering work attached to the land
permanently or attached to the seabed.
C. Any fixture or equipment which makes up a permanent part of the land
or is permanently attached to the building, structure or engineering
work or attached to the seabed
**Commercial Property: Immovable property or part thereof:
 A. used exclusively for a Business or Business Activity.
B. not used as a place of residence or accommodation including hotels,
motels, bed and breakfast establishments, serviced apartments and the
like.

Summary of Qualifying Free Zone Person

Income generated Nature of activity Tax implication

from
Free Zone Persons Any transaction Qualifying income-tax
including commercial @ 0%
property location in FZ
(except excluded
activities and
non-commercial
property related
transaction)
Non-Free Zone Persons Only qualifying Qualifying income-tax
activities (which are not @ 0%
excluded activities)
Natural persons Any transaction (except Taxable income - tax @
certain specific 9%
qualifying activities)
Domestic or Foreign Any transaction Taxable income-tax @
Permanent 9%
establishments
Immovable Property In relation to
located within Free commercial property
Zone with Non- Free Zone
Person Taxable income-tax @
9%
In relation to
non-commercial
property with any
 person
Any other source De-Minimis Qualifying income - tax
(except PE or requirements satisfied @ 0%
immovable property)

Summary of Qualifying Free Zone Person

Example: Facts of the case

● A FZE is a Free Zone Entity ("FZE"), registered in JAFZA which is into

Logistic service provider
● Service contract exists with mainland entities and freezone entities
● A FZE owns a warehouse which is leased to company B FZE
● A FZE has given interest bearing loans to:
○ Related party - Non Free Zone entity
○ Non-related party - Non Free Zone entity
 ● A FZE has technology transfer agreement to provide the use of tracking
system to mainland and freezone entities
● A FZE also owns a staff accommodation which is partly leased to B FZE.
● All other conditions of qualifying freezone person are met

Facts of the case*:

Identifying Qualifying Income*

Identifying Qualifying Income*

IV. Identify income other than qualifying income subject to 9%

Particulars (AED '000s)

a. Rental Income from B FZE

(i) Accommodation 0.5

Calculation of De Minimis Exception:

Particulars (AED '000s)

Total income from Qualifying FZ 522.5

Less: Rental Income 0.5
(staff accommodation)

Total Revenues 522.0

Royalties 15
Interest on non-related party loans 1

Non-Qualifying Revenues 16

% Non-Qualifying Revenues viz-a- viz Total 3%

revenues

Company A is a Free Zone Entity ("FZE"), registered in JAFZA (a Designated

Zone) which is into import of goods for onward sale. It also has a branch in
mainland - dealing in wholesale.
Identifying Qualifying Income
Identifying Qualifying Income*

IV. Identify income subject to 9% (i.e other than qualifying income)

Computation of income

General Rules for Determining Taxable Income

Prepare Financial Statement in accordance with IFRS
The Taxable Income for a given Tax Period is calculated based on the
Accounting Income for that period, which may be adjusted for the following
factors:
● Any unrealized gain or loss
● Exempt Income
● Reliefs
● Deductions
● Transactions with Related Parties and Connected Persons
● Tax Loss relief
● Any incentives or special reliefs for a Qualifying Business Activity
● Any income or expenditure that has not been taken into account
● Any other adjustments as specified by the Minister

Computation of income

● Deductible Expenditure
● Expenditure incurred wholly and exclusively for the purposes of the
Taxable Person’s Business that is not capital in nature
Computation of income
Computation of income

General Interest Deduction Limitation Rule

Case study- interest expenses

Suppose Company ABC borrowed AED 1,835,000 to finance its business

operations in the year 2023. The interest rate on the loan was 5%, resulting in
interest expenses of AED 91,750 for the year. During the same period, the
company earned AED 36,700 in interest income from its cash reserves and other
investments. EBITDA is AED 500000
Using the formula for Net Interest Expenditure, we can calculate the taxable
person's NIE for the year 2022 as follows:

NIE = Interest expenses - Taxable interest income

NIE = AED 91,750 - AED 36,700
NIE = AED 55,050
Therefore, Company ABC's NIE for the year 2022 is AED 55,050.
How much is deductible?

General Interest Deduction Limitation Rule

General Interest Deduction Limitation Rule not applicable to the following

persons:

a) A Bank.
b) An Insurance Provider.
c) A natural person undertaking a Business or Business Activity in the State.
d) Any other Person as may be determined by the Minister.

Entertainment Expenditure

Entertainment expenditure
Entertainment expenditure

Non-deductible expenditure

1. Donations, grants or gifts made to an entity that is not a Qualifying Public

Benefit Entity.
2. Fines and penalties, other than amounts awarded as compensation for
damages or breach of contract.
3. Bribes or other illicit payments.
4. Dividends, profit distributions or benefits of a similar nature paid to an
owner of the Taxable Person.
5. Payments to a natural person who is a Taxable Person or a partner in an
unincorporated partnership;
6. Corporate Tax payable..
7. Recoverable Value Added Tax.
8. Tax on income imposed on the Taxable Person outside the State (UAE).
9. Such other expenditure as specified in a decision issued by the Cabinet at
the suggestion of the Minister.
Computation of taxable income

Particulars Amount

Accounting Profit/loss as per Financial Statement XXX

Add: Disallowed Expenses XXX

Less: Exempt Income XXX

Add/Less: Any other adjustments (Interest limitation XXX

rules, TP adjustments, utilization / transfer of
business losses, any incentives / relief, adjustment
under transition rules etc. )

Net taxable income XXX

Tax @ 9% for Income exceeding AED 3,75,000 XXX

Less: Foreign Tax Credit XXX

Less: Withholding Tax Credit XXX

CT Payable / Refund XXX

Illustration - 1
Illustration - 2

Illustration -2 - Solution
Exempt income

Dividends and other profit distributions received from a juridical person that is a
Resident Person:

Dividends and other profit distributions received from a Participating Interest in

a foreign juridical person

Any other income from a Participating Interest as specified in Article 23 of the

Decree-Law

Income of a Foreign Permanent Establishment that meets the condition of

Article 24 of the Decree-Law:

Income derived by a Non-Resident Person from operating aircraft or ships in

international transportation that meets the conditions of Article 25 of the
Decree-Law
Participation exemption

Any participation income derived by a taxable person is exempt subject to

fulfilment of following conditions
• Taxable person holds at least 5% interest in the ownership, profits liquidation
proceeds of investee entity (Minimum 4 Million AED)
• Taxable person holds or intends to hold such interest for an uninterrupted
period of 12 months
• The investee entity (whether foreign or domestic) is subject to tax rate of 9%
• Not more than 50% of direct and indirect assets of the investee entity which
satisfies the participation condition consists of ownership interest that would not
have qualified for participation exemption, if held directly by the investor

Participation exemption
TRANSACTIONS WITH RELATED PARTIES AND
CONNECTED PERSONS- TRANSFER PRICING

Meaning of Transfer Pricing

“Transfer Pricing”, refers to the price at which two related parties transact. In a
tax environment, such a transaction is undertaken between two associated
enterprises and is often referred to as a “Controlled” transaction. Therefore, we
can say that "Transfer Prices” are the prices at which an enterprise transfers-
● Physical goods
● Intangibles or
● Provide services to associated enterprises
Transfer pricing is the term used to refer to all pricing arrangements between
related parties.

Related parties

Related Parties and Control

Two or more natural persons who are related within the fourth degree of kinship
or affiliation, including by way of adoption or guardianship.
Related parties

Natural Person and Juridical Two or More Juridical Persons are

person are related where:- related where:-
● Natural person holding 50% or ● Directly or indirectly owning
more ownership in juridical 50% or more
person ● Along with related parties
● Natural person directly or directly or indirectly controls ;
indirectly controls the juridical or
person ● Any person , alone or together
with related parties directly or
indirectly owns 50% or more
ownership interest or exercises
control
Related parties

● What is Control?
● Ability to influence the other person including:
● 50% or more voting rights
● Appoint more than 50% of Board of directors
● Receive more than 50% of profits
● Determine or exercise significant influence over conduct of business

Other Related parties

Transfer pricing methods

a) The comparable uncontrolled price method.

b) The resale price method.
c) The cost-plus method.
d) The transactional net margin method.
e) The transactional profit split method.
f) Other Methods
Transfer pricing methods

Factors to be considered while selecting transfer pricing method

a) The contractual terms of the transaction or arrangement.

b) The characteristics of the transaction or arrangement.
c) The economic circumstances in which the transaction or arrangement is
conducted.
d) The functions performed, assets employed, and risks assumed by the Related
Parties entering into the transaction or arrangement.
e) The business strategies employed by the Related Parties entering into the
transaction or arrangement.

Transfer pricing documentation

Master File and Local File

Master file and local file need to be maintained by a taxable person only if it
satisfies any of the following conditions
A. They are part of a Multinational Enterprises Group with a total
consolidated group revenue of AED 3,150,000,000 (3.15 billion) or more
during the tax period.
B. Their revenue in the relevant tax period is AED 200,000,000 (200
Million) or more.

Tax Loss Provisions, Carried forward of Loss and Transfer of Loss

Carried forward of Loss

Limitation of tax loss carried forward

1. Persons must have ownership of at least 50% from the beginning of the
tax period in which the loss is incurred till the end of the tax period
2. If the change in ownership of more than 50% then the taxable person
have the same or similar business or business activity
3. If a person is conducting same or similar business or business activity due
to change in ownership, then the conditions include:
a. Uses some or all of the same assets before the change of ownership
b. Has not made the significant changes to the core identity or
operations
c. Any changes result from the development or exploitation of assets,
services, process, products, or methods
d. Limitation of 50% shall not apply if the taxable person is listed on
recognised stock exchange

Transfer of tax losses

Conditions to be met:
Transfer of tax losses

Taxable person transfers its tax loss to another taxable person, offset shall not
exceed 75%:
1. Taxable person which the tax loss shall transfer or reduce the taxable
income
2. Taxable person shall reduce its available tax losses by the amount of tax
loss transferred to another person
3. Total loss offset shall not exceed 75% of the amount allowed in article 37

Example:
Consider two entities A and B which are related to each other by virtue of
common ownership of more than 75%.
Year 1 - Company A incurred loss of 2 Million & Company B earned a profit of
5 million. Company A transferred loss of 1 Million to Company B.
Year 2 - Company A earned profit of 0.5 Million & Company B earned profit of
4 million
Transfer of Tax losses that can be done during above mentioned year-
Small business relief and tax loss

Tax group provisions

UAE Resident Group of Companies may elect to form a tax group and be
treated as a single taxable person where the parent company directly or
indirectly holds at least 95% of its subsidiaries' share capital and voting rights.

Tax group provisions

A. The Resident Persons are juridical persons.

B. The Parent Company owns at least 95% (ninety-five percent) of the share
capital or holds 95% of voting rights or entitled to at least 95% profits
and net assets of the Subsidiary, either directly or indirectly through one
or more Subsidiaries.
C. Neither the Parent Company nor the Subsidiary is an Exempt Person or
Qualifying Free Zone Person
 D. The Parent Company and the Subsidiary have the same Financial Year
and prepare their financial statements using the same accounting
standards.

Process
1. To form a Tax Group, An application shall be made to the authority
2. Notice signed by Parent & Subsidiaries to be submitted to FTA.
3. Additional subsidiaries can join an existing tax group

Compliances by Parent Entity

1. Parent will have to prepare consolidated financial statements (CFS) after
eliminating intra-group transactions
2. Parent & Subsidiary will be jointly and severally liable for CT
3. Taxable income will be determined for Group as a whole on CFS basis
Other Provisions
A Subsidiary shall leave the Tax Group;
A Tax Group shall cease to exist;
Parent Company can make an application to the Authority to be replaced by
another Parent Company, following approval by the Authority of an application
by the Parent Company.

Tax group provisions

Computation of Taxable Income: For the purposes of determining the Taxable
Income of a Tax Group, the Parent Company shall consolidate the financial
results, assets and liabilities of each Subsidiary for the relevant Tax Period,
eliminating transactions between the Parent Company and each Subsidiary
that is a member of the Tax Group.
Unutilised Tax Losses of a Subsidiary that joins a Tax Group(referred to in
this Article as “pre-Grouping Tax Losses”) shall become carried forward Tax
Losses of the Tax Group and can be used to offset the Taxable Income of the
Tax Group in so far this income is attributable to the relevant Subsidiary.
Where a new Subsidiary joins an existing Tax Group, unutilised Tax Losses of
the existing Tax Group cannot be used to offset the Taxable Income of the Tax
Group in so far as this income is attributable to the new Subsidiary.
Calculation of Corporate Tax Payable and Tax Credit

First find out Tax liability

Utilise Withholding Tax Credit
Utilise Foreign Tax Credits
Utilise Other credits as specified in a decision issued by the Cabinet
Pay Corporate Tax

Payment of corporate tax

A Taxable Person must settle the Corporate Tax Payable under this Decree-Law
within (9) nine months from the end of the relevant Tax Period, or by such other
date as determined by the Authority.

Corporate tax refund

The Withholding Tax Credit available to a Taxable Person exceeds the

Taxable Person’s Corporate Tax Payable.
Where the Authority is otherwise satisfied that the Taxable Person has paid
Corporate Tax in excess of the Taxable Person’s Corporate Tax Payable.

Tax registration and deregistration

Who has to Register for Corporate Tax?

All Taxable Person shall register for Corporate Tax
For the purposes of an exemption from Corporate Tax
For the purpose of filing declaration by partners in an unincorporated
partnership
The Authority may require the following Persons to register for corporate tax.
● A Qualifying Public Benefit Entity
● A Qualifying Investment Fund
● A public pension or social security fund, or a private pension or social
security fund
● A juridical person incorporated in the State that is wholly owned and
controlled by an Exempt Person
● Unincorporated Partnership

Tax registration and deregistration

Tax registration and deregistration

Cabinet Decision No. (49) of 2023

Natural person with turnover less than 1 Million AED in a Calendar Year is not
liable for Corporate Tax and they are not required to register for Corporate Tax
Turnover does not include
A. Wage
B. Personal Investment Income
C. Real Estate Investment Income

Tax deregistration

Small business relief

To support start-ups and other small or micro businesses

Applicable if Revenue for the relevant tax period and previous tax period does
not exceed AED 3 Million
Applicable only from June 2023 to 31st December 2026
Not applicable to QFZP and member of MNE group with more than 3.15
Billion revenue.
Carry forward of Tax Loss and Interest Expenditure not allowed

Tax return

When to File Tax returns?

Within (9) nine months from the end of the relevant Tax Period
Financial Year Last Date to File Return

January to December th
30 September of following year

June to May th
28 February of the following year

April to March st
31 December of the following year

Are you liable for Audit under Corporate Tax Regime?

Category 1: Revenue Threshold: if revenue Exceeds AED 50 Million

Category 2: Qualifying Free Zone Persons:

Books of accounts

Financial Statement to be prepared based on IFRS

TP with revenue less than AED 50 Million can opt for IFRS for SMEs
How many years, you need to keep records? 7 Years from the end of the Tax
Period
Do Exempt person need to maintain documents? Yes
Tax period

It can be Gregorian calendar year

OR
any other 12-month period as chosen by the Taxable Person
Is Change of Tax Period Permitted?

THANK YOU