Corporate Tax in the UAE
The Emirates now have a genuine federal tax on corporate profits, governed mainly by Federal Decree-Law No. 47/2022 on the taxation of corporations and businesses, as amended, as well as by several Cabinet Decisions, Ministerial Decisions, and guides issued by the FTA, the Federal Tax Authority.
- Scope of application – Who is taxable?
Resident legal persons
The following are considered resident legal persons under the Corporate Tax Law:
- Any company or legal person incorporated or established in the UAE, such as LLCs, PJSCs, free zone companies, etc.;
• Any foreign legal person effectively managed and controlled in the UAE, according to the “place of effective management” test clarified by the FTA.
These entities are taxable on their worldwide profits, subject to exempt income.
Non-resident legal persons
A non-resident company is taxable if:
- It has a Permanent Establishment, or PE, in the UAE, such as an office, branch, construction site, dependent agent, etc.; or
• It derives UAE-sourced income and/or has a specific “nexus” in the State, for example real estate, in accordance with Cabinet Decisions.
Free zone companies
Companies incorporated in a Free Zone are also Taxable Persons for Corporate Tax purposes. They must therefore register and comply with their obligations, including tax returns, transfer pricing documentation, etc., even where they benefit from a 0% rate.
- Main tax rates
The rates are set by law and by Cabinet Resolution No. 116/2022:
- 0% on the portion of Taxable Income up to AED 375,000;
• 9% on the portion of Taxable Income exceeding AED 375,000.
Corporate Tax applies to tax periods beginning on or after 1 June 2023.
For certain large multinational groups with revenue of at least EUR 750 million, a minimum effective tax rate of 15% may apply under Pillar Two of the OECD framework, in accordance with communications from the Ministry of Finance.
- Free Zone regime — Qualifying Free Zone Person, or QFZP
The Free Zone rules are detailed in the Corporate Tax Law, Cabinet and Ministerial Decisions, and especially the FTA’s Corporate Tax Guide on Free Zone Persons, CTGFZP1.
Principle
A Free Zone entity may, if it meets the relevant conditions, qualify as a Qualifying Free Zone Person, or QFZP, and benefit from:
- 0% Corporate Tax on its “Qualifying Income”;
• 9% Corporate Tax on its “Non-Qualifying Income”.
Essential conditions to qualify as a QFZP, in very summary form
According to the FTA guide and implementing decisions:
- Be a Free Zone Person, meaning a legal person incorporated or registered in a Free Zone.
- Maintain adequate substance in the Free Zone, including personnel, premises, and real functions.
- Mainly carry out:
• transactions with other Free Zone Persons, provided they are not excluded transactions; or
• certain qualifying activities listed in the regulations, such as manufacturing, logistics activities, services to businesses outside the Free Zone, etc.;
and comply with a de minimis test for non-qualifying income. - Comply with transfer pricing rules and documentation requirements.
- Not have elected to be subject to the standard 9% regime.
- Maintain audited financial statements in accordance with FTA requirements.
If any condition is not met, including the de minimis test, the company loses its QFZP status from the beginning of the relevant period and for the following four periods.
- Exemptions and exempt income
Exempt Persons
Certain entities may qualify as Exempt Persons, including:
- Government entities and government-controlled entities;
• Natural resource exploration and exploitation activities, often taxed at Emirate level;
• Certain qualifying public benefit entities;
• Certain qualifying investment funds;
• Eligible pension and social security funds.
These entities may be fully exempt from Corporate Tax, but they often need to be notified to, or approved by, the authorities.
Exempt Income
The legislation and FTA guides notably provide for the exemption, subject to conditions, of:
- Dividends received from qualifying shareholdings;
• Capital gains on the disposal of qualifying shareholdings;
• Certain income from foreign permanent establishments, where the exemption conditions are met.
- Determination of the tax base, or Taxable Income
The general rules are set out in the law, Ministerial Decision No. 134/2023 on the general rules for determining taxable income, and the FTA’s Corporate Tax General Guide, CTGGCT1.
Starting point
- Basis: accounting profit, meaning net profit, prepared in accordance with accepted accounting standards, in practice IFRS.
• Tax adjustments are then made to determine Taxable Income, including:
• adding back non-deductible expenses;
• excluding exempt income;
• offsetting tax losses, etc.
Deductibility of expenses
As a general rule, expenses incurred wholly and exclusively for business purposes are deductible. However, certain categories are capped or limited:
- Interest: general limitation, typically a 30% tax EBITDA ratio, with a de minimis threshold;
• Certain entertainment expenses;
• Payments to related parties that do not comply with the arm’s length principle, etc.
Tax losses
- Tax Losses may be carried forward and offset up to 75% of the Taxable Income of a given period.
• This is subject to continuity of ownership and business activity conditions, with the possibility of transferring losses within a resident group where there is at least 75% ownership.
- Tax groups and consolidation
The law allows the formation of a Tax Group where certain ownership and control conditions are met.
Main effects:
- A single Taxable Person for the group;
• Automatic offsetting of profits and losses;
• Specific rules for joining or leaving the group, intra-group transfers, etc.
The practical rules are set out in Ministerial Decision No. 125/2023 on tax groups and in the FTA guides.
- Small Business Relief
Small Business Relief allows small businesses, including companies, below a certain revenue threshold to:
- Be treated as having no Taxable Income for the relevant period;
• Therefore pay no Corporate Tax;
• While remaining subject to certain obligations, including registration and simplified filings.
The thresholds and validity periods are set by Ministerial Decision No. 73/2023, together with any subsequent updates.
- Filing and payment obligations
According to the Ministry of Finance and the FTA guides:
Registration
- All Taxable Persons, including Free Zone Persons, must register with the FTA and obtain a Corporate Tax Registration Number, or TRN, via the EmaraTax platform.
Filing and payment
- A Corporate Tax Return must be filed for each Tax Period within nine months following the end of that period.
• Payment of the tax due is generally subject to the same deadline.
These obligations continue to apply even where the calculated tax is nil, for example in the case of losses or Small Business Relief.
- Withholding Tax
The Corporate Tax Law provides for a Withholding Tax regime on certain UAE-sourced income under Article 45, but the rate currently in force is 0% on most relevant payments, including interest, dividends, royalties, etc.
- Anti-abuse rules and tax treaties
- The law contains a General Anti-Abuse Rule, or GAAR, allowing the FTA to recharacterise arrangements whose main purpose is to obtain a tax advantage contrary to the purpose of the law.
• The UAE has an extensive network of tax treaties; residence criteria and tie-breaker rules are addressed in the FTA’s Tax Resident and Tax Residency Certificate Guide.
- Coexistence with other taxes
Alongside federal Corporate Tax:
- Foreign banks may remain subject to Emirate-level taxation, at 20% in certain Emirates.
• Oil and gas activities are often taxed under specific Emirate decrees or concession agreements.
• Corporate Tax applies in addition to VAT, at 5%, and other more targeted taxes, such as excise tax