Key Concepts to Keep in Mind Under UAE Corporate Tax (CT) Law
When dealing with UAE Corporate Tax (CT), businesses must ensure compliance with Federal Decree-Law No. 47 of 2022 and its latest amendments. Below are the key concepts to keep in mind:
1. Taxable Person & Scope
- Resident Person: UAE-incorporated entities, individuals conducting business in UAE, and foreign entities managed/controlled in UAE.
- Non-Resident Person: Only taxed on UAE-sourced income or permanent establishment (PE) in the UAE.
2. Tax Rate & Threshold
- 0% on taxable income ≤ AED 375,000 (to support SMEs).
- 9% on taxable income > AED 375,000.
- Free Zone Companies: Eligible for 0% tax on Qualifying Income if meeting Qualifying Free Zone Person (QFZP) conditions.
3. Exemptions from Corporate Tax
- Government & Government-controlled entities.
- Qualifying Public Benefit Entities.
- Qualifying Investment Funds.
- Natural Resource Businesses (Subject to Emirate-Level Tax).
4. Free Zone Companies & Qualifying Income
- Free Zone entities must meet substance requirements to enjoy 0% CT on qualifying activities.
- Non-qualifying income is subject to 9% tax.
- Transactions with mainland UAE may impact free zone tax benefits.
5. Related Party & Transfer Pricing Rules
- Related Party Transactions: Must be at arm’s length (fair market value).
- Transfer Pricing (TP) Compliance: Requires documentation aligning with OECD standards.
6. Permanent Establishment (PE) & UAE Tax Residency
- Fixed PE: If a foreign company has a fixed place of business in UAE.
- Agency PE: If an agent in UAE acts on behalf of a foreign entity.
- Tax Residency: Based on management & control.
7. Deductible vs. Non-Deductible Expenses
- Allowed Deductions: Business-related expenses, salaries, rent, and R&D costs.
- Non-Deductible: Fines, penalties, dividend distributions, and certain entertainment expenses.
8. Losses & Carry-Forward Rules
- Tax losses can be carried forward indefinitely (subject to 75% annual taxable income limitation).
- Losses cannot be carried forward if there is >50% ownership change, except when continuing the same business.
9. Tax Filing & Compliance
- Corporate Tax Return Due: 9 months after the end of the financial year.
- Tax Registration: Mandatory for all entities (except exempted ones).
- Penalties Apply for late filing, incorrect reporting, or tax evasion.
10. Withholding Tax (WHT) & International Tax Considerations
- 0% withholding tax applies in UAE (as of now).
- Foreign Tax Credits allowed for taxes paid abroad (if relevant).
- Double Tax Treaties (DTTs): UAE has agreements with multiple countries to prevent double taxation.
Final Considerations
- Ensure proper record-keeping for at least 7 years.
- Understand sector-specific tax implications (e.g., real estate, banking, oil & gas).
- Stay updated with Cabinet Decisions & FTA Public Clarifications.
Would you like assistance in a specific tax area (e.g., Free Zone taxation, Transfer Pricing, or Tax Residency)? Please Contact Us anytime.