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August 09, 2024

A brief overview of the UAE Corporate Tax

The UAE Corporate Tax (“CT”) is fundamentally a tax on business profits. It brings into its scope businesses conducted by all Juridical Persons as well as Natural Persons. Businesses conducted by Non-Resident Persons in the UAE are also subject to CT. There are of course exceptions dictated by administrative, fairness or other considerations.

UAE-resident Taxable Persons, in general, are taxed on all their profits irrespective of where they are derived from, subject to certain conditional exemptions and credits. Non-resident entities, in general, are taxed on their profits from activities conducted in the UAE. Business activities by Natural Persons (including sole establishments) are taxable, however, such Natural Persons are only required to register for CT provided they have an annual turnover of AED 1 million or more.

The headline tax rate is 9%. Taxable profits up to AED 375,000 is taxed at 0%. A top-up tax will apply for multinationals with a global turnover of AED 3.15 billion or more to align with the BEPS Pillar 2 rules from a date that will be announced in the future. The CT rules provide for withholding tax on certain categories of income derived by non-residents; the rate is however currently set at 0%.

The financial year of the taxpayer will be its tax year, with the first tax year being the first financial year commencing on or after 1 June 2023. The tax return filing and tax payment are due within 9 months from the end of the tax year. There is no advance payment of tax envisaged under the UAE CT rules.

There are exemptions from CT-applicability for certain types of entities such as government, charities etc. Free zone businesses have exemptions provided they meet certain criteria. Reliefs are also provided for small businesses. The CT-rules envisage potential provision of additional reliefs. Certain incomes are tax-exempt. Notably, any real estate income earned by juridical persons are taxable, but those earned by natural persons are not.

The CT follows the transfer pricing rules established by the Organisation of Economic Cooperation and Development (“OECD”) and mandates application of arms’ length pricing for transactions with domestic as well as international related parties. A Master File and a Local File must be maintained if the Taxable Person’s revenue exceeds AED 200 million or the revenue of the multi-national group of which it is a part of exceeds AED 3.15 billion.

The accepted accounting standards are IFRS. IFRS for Small and Medium enterprises (“IFRS for SMEs”) are allowed for entities with a turnover up to AED 50 million.

Certain adjustments may or must be made to the accounting profit to arrive at the taxable profit. The mandatory adjustments include restrictions on deductibility around certain expenses including entertainment expenses, interest etc., while the elective ones include certain adjustments for unrealized profits or losses. There are also certain transitional adjustments – some mandatory, while others optional.

The CT rules conditionally allow Tax Grouping and unlimited carry forward of tax losses.

The CT Law has General Anti-Abuse Rules which are applicable from 10 October 2022. Hence, any changes made by businesses without economic substance and which may be deemed to be with the intention of abusing the CT Law subsequent to this date may be disregarded by the FTA.

This summary is not intended to be a comprehensive list of all the CT rules. It only covers some key areas of common interest and are heavily simplified for the purpose of brevity. Hence, the readers should not use this summary solely as a basis for assessment of the UAE CT applicability for any business.

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