UAE Corporate Tax
The United Arab Emirates (UAE) introduced Corporate Tax on 1 June 2023 to align with global tax standards, notably the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, while also offering one of the lowest corporate tax rates globally and preserving the UAE’s reputation as a competitive, low-tax business jurisdiction.
UAE Corporate Tax applies at a standard rate of 9% on taxable profits exceeding AED375,000 (c. USD100,000). Businesses with taxable profits below this threshold are taxed at 0%.
The Taxable Income for a tax period is the accounting net profit (or loss) of the business, after making adjustments for certain items as defined in the Corporate Tax Law.
No distinction is made between gains arising from the sale of capital assets and those arising from the sale of non-capital (revenue) assets. Capital gains derived from the disposal of assets are included in annual taxable income in the same way as other income from the business. Capital gains on the sale of shares may be exempt from UAE corporate income tax, subject to meeting certain conditions.
While most companies in the UAE fall under this regime, there are notable exemptions:
- Businesses engaged in the extraction of natural resources, which remain subject to emirate-level taxation.
- A 0% corporate tax rate applies to the qualifying income of businesses recognised as a Qualifying Free Zone Person (QFZP).
- Certain government and public benefit organisations are exempt entirely.
Corporate Tax Registration UAE and Compliance
The Federal Tax Authority (FTA) oversees the administration, collection and enforcement of federal corporate tax in the UAE. All businesses in the UAE must register with the FTA for Corporate Tax and obtain a UAE Corporate Tax Registration Number, but only those with annual taxable profits exceeding AED375,000 are subject to the 9% tax rate. Registration must be completed through the FTA portal before the applicable deadline for the company’s financial year.
Corporate Tax returns must be filed within nine months of the end of the financial year. It is essential to maintain detailed and accurate records of income, expenses and taxable transactions. Corporate Tax filings require detailed financial statements that are prepared in line with international accounting standards, supported by evidence of all deductible expenses and applicable exemptions.
For a taxable person, ensuring compliance with these reporting requirements minimises the risk of audits and financial penalties. Missing deadlines can result in significant penalties, starting from AED1,000 for initial delays and escalating for repeated offences.
Free Zone tax regime
The UAE’s Free Zones historically offered 0% rates corporate tax but, under the Federal UAE Corporate Tax Law, not all Free Zone businesses now automatically qualify for this benefit. Specific conditions must be met to be classified as a Qualifying Free Zone Person (QFZP).
To be classified as a QFZP and benefit from 0% Corporate Tax on qualifying income, Free Zone businesses are required to:
The 0% Corporate Tax rate applies only to qualifying taxable income. Income of a QFZP that is not qualifying taxable income will be taxed at the 9% CT rate.
If a QFZP fails to meet the required conditions in any tax period, it will lose its qualifying status for that period and the following four tax periods. It can retest its QFZP status in the sixth year.
Domestic Minimum Top-Up Tax (DMTT)
In November 2023, the UAE government issued a new Federal Decree-Law, amending certain provisions of the Corporate Tax Law. The Decree Law introduced a Domestic Minimum Top-Up Tax (DMTT) at 15% for large Multinational Enterprises (MNEs), aligning the UAE with the OECD/G20’s global minimum tax framework under Pillar Two.
Pillar Two, developed by the OECD/G20, establishes a global minimum tax rate of 15% for large MNEs. Companies are subject to Pillar Two if they belong to a multinational group with consolidated annual revenues of at least €750 million (or equivalent) in at least two of the last four financial years immediately preceding the financial year in which the DMTT applies.
The DMTT will be effective in the UAE for in-scope MNEs for financial years starting on or after 1 January 2025 and the UAE’s implementation of the DMTT will closely align with the OECD’s GloBE Model Rules.
Corporate Tax Reliefs
The UAE offers several corporate tax reliefs, including:
- Small Business Relief – applies to businesses with taxable income under AED3 million during each relevant tax year. Currently available until 31 December 2026.
- Group Relief – Companies that are part of a ‘Qualifying Group’ can transfer assets and liabilities between themselves at their net book value. This means that the transfer can be carried out tax neutrally. A Qualifying Group exists where all of the following conditions are met: the members are juridical persons that are UAE residents or non-resident persons that have a permanent establishment in the UAE; one member either owns 75% or more of the other, or a third party owns 75% or more of both entities; neither member is an Exempt Person or a QFZP; and members prepare their financial statements using the same accounting standards, and have the same financial year.
- Business restructuring reliefs for tax-neutral treatment of qualifying mergers, demergers and reorganisations where the whole or an independent part of the business is being transferred in exchange for shares or other ownership interest and the restructuring is undertaken for valid commercial or economic reasons.
Tax Credits
A 0% withholding tax may apply to certain types of UAE-sourced income paid to non-residents but, in practice, no withholding tax would be due and there will be no withholding tax related registration and filing obligations for UAE businesses or foreign recipients of UAE-sourced income. Withholding tax does not apply to transactions between UAE resident persons.
Foreign tax payments on income that is also subject to UAE Corporate Tax can be deducted as a foreign tax credit from the UAE Corporate Tax payable. The maximum foreign tax credit is the lower of the foreign tax paid and the UAE Corporate Tax payable on the relevant income in the relevant period. Any excess foreign tax credit cannot be carried forward or back to a different Tax Period.
Withholding tax and other forms of foreign taxes on income or profits can be offset against the UAE Corporate Tax liability, subject to any conditions under an applicable double tax agreement.
Group taxation
UAE group entities can elect to form a tax group, subject to the following conditions:
- The parent company, which must be UAE tax resident person or a foreign legal entity with a place of effective management (POEM) in the UAE, is required to directly or indirectly hold at least 95% of the share capital, voting rights and entitlement to profits and net assets.
- Neither the parent company nor the subsidiary can be an exempt person or a QFZP.
- The parent company and its subsidiary must have the same financial year and prepare financial statements using the same accounting standards. When a tax group is formed, the parent entity will be responsible for the administration, such as submission of one tax return and settlement of the tax liability for the tax group.
Transfer pricing
The UAE Corporate Tax Law introduced transfer pricing rules and regulations. Both cross-border and domestic transactions and arrangements between related parties – including transactions undertaken by Free Zone entities – are required to adhere to the arm’s-length principle.
As such, intra-group transactions must be undertaken as if carried out between independent parties under similar circumstances, and payments and benefits provided to connected persons should be at market value, which is determined by applying the arm’s-length standard.
The Corporate Tax Law sets out five methods for establishing the arm’s-length standard, which are broadly aligned with the OECD Transfer Pricing Guidelines. If the taxable person can demonstrate that none of the prescribed methods can be reasonably applied, it can apply any other method.
Sovereign PPG Corporate Tax Services in the UAE
Sovereign Dubai currently provides UAE Corporate Tax services to a diverse portfolio of clients across the UAE, including both onshore and free zone corporate entities, ensuring compliance with the latest Federal Tax Authority regulations.
Corporate Tax Qualifying Consultation
Review the entity to determine Qualifying and Non-Qualifying Income, Business Activities and potential Deductible Expenses.
UAE Corporate Tax Registration
All businesses must register with the Federal Tax Authority to obtain a UAE Corporate Tax Registration Number before commencing taxable activities. To register for UAE Corporate Tax, applications are made via the EmaraTax portal and required documents include:
- If applicant is a Natural Person – trade licence, where applicable; and Emirates ID / Passport.
- If applicant is a Legal Person – trade licence; Emirates ID / passport of authorised signatory; proof of authorisation for the authorised signatory.
UAE Corporate Tax De-registration
When a company or business activity in the UAE comes to an end, the taxpayer is required to notify the Federal Tax Authority and de-register for Corporate Tax (CT) within three months of that date.
UAE Corporate Tax Impact Assessment
Entities should assess the financial and operational impacts of existing or proposed tax rules and develop a tax risk management and governance framework to ensure their financial health and compliance with UAE Corporate Tax laws.
UAE Corporate Tax Return Filing
UAE Corporate Tax returns must be filed with required documents within nine months of the end of the financial year if you are to minimise the risk of audits and avoid penalties. Missing deadlines can result in significant penalties, starting from AED1,000 for initial delays and escalating for repeated offences.
UAE Bookkeeping Services for Corporate Tax Compliance
It is essential to maintain detailed and accurate records of income, expenses and taxable transactions. Corporate Tax filings require detailed financial statements that are prepared in line with international accounting standards, supported by evidence of all deductible expenses and applicable exemptions.
Benefits of outsourcing UAE Corporate Tax requirements
The UAE Corporate Tax regime is complex and requires careful analysis to ensure compliance. Businesses must assess several factors, including the distinction between qualifying and non-qualifying income, deductible and non-deductible expenses such as entertainment costs, and understand the specific rules that apply to the taxation of natural persons, where applicable. These elements all play a crucial role in determining the applicable corporate tax rate for each corporate entity.
To secure and maintain your tax benefits in the UAE while maintaining compliance with the law, contact Sovereign PPG’s Client Accounting team today for a personalised UAE Corporate Tax consultation.
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