Corporate Tax
Corporate tax (CT) is a form of direct tax
Levied on the net income or profits
Corporations and other entities from their business
REASONS FOR IMPLEMENTATION
To help the UAE to achieve its strategic objectives
Accelerate its development and transformation
SUBJECT TO CORPORATE TAX
1. UAE companies or juridical person incorporated in UAE or
managed or controlled in UAE
2. Natural person (conducting business or business activities
specified in cabinet decision)
3. Non- resident( foreign legal entities having permanent
establishment in UAE)
4. Juridical person established in UAE free zone
EXEMPT FROM CORPORATE TAX
1. Govt entities under ownership or control
2. Extractive and non extractive natural resource business,
notified by ministry of finance
3. Exempt listed in cabinet decision
Public benefit entities, Charitable societies
4. Exempt persons upon application to FTA-Pension
How is taxable person subject to corporate tax ?
1. Resident (Resident Basis)
2. Non resident(Source Basis)
RESIDENT, NON RESIDENT
PERMANENT ESTABLISHMENT
RESIDENT
Companies or juridical persons incorporated in UAE
Foreign company (effectively managed and controlled in UAE)
Natural persons (income from both domestic and foreign sources)
NON-RESIDENT
Permanent establishment in UAE
Generate income from UAE
PERMANENT ESTABLISHMENT
Business (earning income from UAE)
Foreign person established business in UAE
TAXABLE INCOME
Corporate tax imposed on taxable income by a taxable person in a
tax period
FS should be prepared in accordance with AS, IFRS
Imposed annually
On a self-assessment basis
Filing of a corporate tax return with the Federal Tax Authority (FTA)
TAXABLE INCOME
Taxable person must calculate taxable income on annual basis using
accounting income( net profit or loss before tax) as per financial
statements
Required to make certain adjustments to determine taxable income
Exempt income
Deductions
Relief for special transaction types
Tax losses
EXEMPT INCOME
Dividend and capital gains earned
From domestic and foreign shareholdings
Main purpose of certain income being exempt to prevent double
taxation
DEDUCTIONS
A deduction is an amount deducted from taxable income
1. General deductibility rules
2. Interest expenditure
3. Entertainment expenditure
DEDUCTIONS
A deduction is an amount deducted from taxable income
1. General deductibility rules
Used for business purpose
Apportionment of non-business expenditure not deductible
Capital expenditure not deductible
Revenue expenditure related to capital expenditure will be
deductible
DEDUCTIONS
2. Interest expenditure
A taxable person can claim maximum of 30% of their earnings
before EBITDA
Excludes the exempt income specified in corporate tax law
It is possible to carry forward to next 10 years
The de minimis threshold of AED 1,20,00,000 for net interest
expenditure
DEDUCTIONS
2. Interest expenditure
It is not applicable for
1. Banking business
2. Insurance providers
3. Natural person undertaking a business
4.Anyone specified by the ministry
DEDUCTIONS
2. Interest expenditure
Related party
No deduction is allowed for Interest expenditure incurred on a loan
obtained, directly or indirectly, from a Related Party.
Example
C LLC has Revenue of AED 15,00,00,000, adjusted EBITDA of AED 13,00,00,000
for its Financial Year ending 31 December 2025.
In 2025, C LLC incurs costs including Interest expenditure of AED 8,00,00,000
Interest income of AED 3,00,00,000, resulting in a Net Interest Expenditure of AED
5,00,00,000.
Here, maximum deduction available- 13,00,00,00*30%
ie, 3,90,00,000
C LLC may deduct its Net Interest Expenditure of AED 50,000,000 up to the greater
of 30% of its adjusted EBITDA or the de minimis of AED 12,000,000. 30% of C
LLC’s adjusted EBITDA of AED 130,000,000 would be AED 39,000,000, which is
above the de minimis and, hence, is the maximum deductible Net Interest
Expenditure in 2025.
DEDUCTIONS
3. Entertainment expenditure
Transportation, meals, accommodation, facilities, equipment or
admission fees or anything specified by ministry
A deduction up to 50% of entertainment expenditure
NON DEDUCTIBLE EXPENSES
Corporate tax levied on a taxable person
Gifts , donation etc provided for not qualifying benefit
Dividend , profit distribution
Any fines and penalties awarded as compensation for damages or
breach of contract
Recoverable input vat
CORPORATE TAX RATES
GENERAL TAX RATES
Taxable Income not exceeding - AED 3,75,000 - 0%
Taxable Income exceeding - AED 3,75,000 - 9%
TAX LOSSES
Where a Taxable Person’s deductible expenditure exceeds its income
that is subject to Corporate Tax, it will have negative Taxable Income.
This is known as a Tax Loss.
A Taxable Person cannot claim Tax Loss relief for:
● Losses incurred before the date of commencement of Corporate
Tax;
● Losses incurred before a Person becomes a Taxable Person; or
● Losses incurred from an asset or activity that generates income
which is exempt from Corporate Tax.
TAX LOSSES
A Taxable Person can carry forward Tax Losses and offset them
against Taxable Income in subsequent Tax Periods, subject to meeting
certain conditions
Tax Losses carried forward can be used to reduce the Taxable
Person’s income in the Tax Period by a maximum of 75% of that
Taxable Income
Losses can be carried forward for indefinite period
EXAMPLE
C LLC is a UAE resident company. In the Tax Period ending 31
December 2026 it makes a Tax Loss of AED 60,00,000.
For the Tax Periods ending 31 December 2027 and 31 December
2028 respectively,
CLLC has Taxable Income of AED 50,00,000 per year
EXAMPLE
TAX LOSSES AND CHANGE OF OWNERSHIP
Change in ownership of more than 50%, Tax Losses can still be
carried forward provided the same or similar Business is carried on
following the change in Ownership.
TRANSFER OF TAX LOSSES IN QUALIFYING GROUP
Tax Losses may be transferred between Taxable Persons
1. 75% of share , interest or ownership
2. Prepare financial statements using same AS
3. Exclude exempt and qualifying free zone
Example
C LLC owns 75% of the shares of F LLC and both meet all the
requirements to qualify for the transfer of loss relief.
C LLC makes a loss of AED 20,00,000 and F LLC makes a profit of
AED 2,000,000 in the same Tax Period. C LLC chooses to transfer
AED 1,500,000 of Tax Losses to F LLC. This is the maximum amount
that F LLC can offset against its Taxable Income. This gives F LLC a
final Taxable Income of AED 500,000. The remaining AED 500,000
of unutilized losses is carried forward by C LLC to the subsequent Tax
Period
EXAMPLE
RELIEF FOR SPECIAL TRANSACTION TYPES
1. Relief for small business with revenue equal to or below AED
30,00,000
2. Qualifying group
3. Restructuring business relief
TAX GROUPS
TAX GROUPS
Two or more taxable person can apply for a tax group
Treated as a single taxable person for corporate tax purpose
To form a tax group:
1. Parent company and subsidiary must be resident
2. Prepare financial statements using the same accounting standard
TAX GROUPS
To form a tax group the parent company must have:
Own at least 95% of the share capital of the subsidiary
Hold at least 95% of the voting right in the subsidiary
Entitled to at least 95% of net profit or net assets
Ownership, rights held directly or in directly in the subsidiary
Excludes exempt person and qualifying free zone person
TAX GROUPS
Parent company prepare consolidated financial statements
covering each subsidiary
Transaction between parent and subsidiary can eliminate from
taxable income
Example
If three individual companies had Taxable Income each of AED 50,00,000 then each
company would pay tax of AED 416,250, a total of AED 1,248,750. Each company’s
Corporate Tax liability calculation would be as follows:
Free zones
Qualifying free zone
1. 0% on qualifying income
2. 9% on taxable income that is not qualifying
Free zones
Qualifying income
Income derived from transactions with other Free Zone Persons
Excluded Income derived from transactions with any Non-Free
Zone Person, domestic and foreign
Any other income where the de minimis requirement is satisfied.
Free zones
De Minimis requirement
De minimis requirements are met where the non-qualifying Revenue
in a Tax Period less than the lower of:
AED 50,00,000; and
5% of total Revenue
EXAMPLE
H LLC is a Free Zone Person that sells vehicles to other Free Zone
Persons. During the Tax Period it has a total Revenue of AED
8,00,00,000. During the Tax Period, it undertakes a small number of
transactions with individuals and earns AED 45,00,000 of Revenue.
The remaining AED 7,55,00,000 meets the requirements to be
considered as Qualifying Income.
As transactions with individuals are generally Excluded Activities, and
Revenue from these sales exceeded the de minimis threshold of AED
40,00,000 (being the lower of 5% of AED 8,00,00,000 and AED
50,00,000), H LLC will not be eligible to be a Qualifying Free Zone
Person.
Partnership
1. Incorporated partnership
2. Unincorporated partnership
Unincorporated Partnership
According to corporate tax law, they are not the partners, is treated as
conducting the Business (unless the partners conduct other business
or business activities separate from the Unincorporated Partnership).
This means that all partnership income will be Taxable Income subject
to Corporate Tax for the unincorporated Partnership.
Foreign partnerships will be treated as unincorporated Partnerships
for the purposes of UAE Corporate Tax
Unincorporated Partnership
An Unincorporated Partnership (X Partnership) has three partners, Miss A and Mr. B
who are individuals, and C LLC, a juridical person. All partners have the same
Financial Year.
Miss A is entitled to 40% of partnership profits while Mr. B and C LLC are entitled to
30% each.
During its most recent Tax Period, X Partnership had a net Accounting Income of
AED 90,00,000. This was made up of income of AED 1,50,00,000 and expenses of
AED 60,00,000. The income and expenditure would be allocated as follows:
Unincorporated Partnership
Miss A (40% share of assets, liabilities, income or expenditure):
Net Income – 90,00,000*40%
Accounting Income 36,00,000
Mr. B (30% share of assets, liabilities, income or expenditure):
Net Income – 90,00,000*30%
Accounting Income 27,00,000
C LLC (30% share of assets, liabilities, income or expenditure):
Net Income – 90,00,000*30%
Accounting Income 27,00,000
Fines & Penalties
1. Failure to submit a deregistration application within 3 months of the
date the entity ceases to exist, cessation of the Business,
dissolution, liquidation or otherwise, will result in a penalty of AED
1,000, and a further AED 1,000 on the same date monthly, up to a
maximum of AED 10,000.
2. Submitting a Tax Return late or a delay in making a payment of
Corporate Tax Payable will result in a penalty of:
AED 500 for each month of delay, or part thereof, for the first
twelve months;
AED 1,000 for each month of delay, or part thereof, from the
thirteenth month onwards.
Fines & Penalties
3. Failure of a Taxable Person to keep the required records and other
information specified in the Tax Procedures Law and Corporate Tax
Law
AED 10,000 for each violation;
AED 20,000 in each case of repeated violation within 24 months
from the date of the last violation
Record keeping
Maintain records and documents for 7 years following the end of the
Tax Period
Tax audit
The following Persons are required to maintain audited Financial
Statements
1. A Taxable Person deriving Revenue exceeding AED 5,00,00,000
during the relevant Tax Period
2. Qualifying Free Zone Person.
