Why is the UAE introducing Corporate Tax?

Businesses will become subject to UAE Corporate Tax from the beginning of their first financial year that starts on or after 1 June 2023. By introducing the CT, the UAE aims to: cement its position as a leading global hub for business and investment.

Who is subject to UAE Corporate Tax?

UAE Corporate Tax applies to juridical persons incorporated in the UAE and to foreign juridical persons that are effectively managed and controlled in the UAE. A foreign juridical person that operates in the UAE through a Permanent Establishment or that has a taxable nexus in the UAE would also be subject to Corporate Tax. Natural persons will be subject to Corporate Tax only if they are engaged in a Business or Business Activity in the UAE, either directly or through an Unincorporated Partnership or sole proprietorship. Cabinet Decision No. 49 of 2023 specifies further information on what would bring a natural person within the scope of UAE Corporate Tax.

What is the Corporate Tax treatment of income derived from Excluded Activities?

Where the revenues derived from performing Excluded Activities exceed the de minimis threshold this will result in a disqualification of the Qualifying Free Zone Person from the Free Zone Corporate Tax regime.

Will UAE Corporate Tax be applicable to businesses in all Emirates?

Yes. The UAE Corporate Tax is a federal tax and will therefore apply across all the Emirates.

Will I have to pay UAE Corporate Tax alongside Emirate level taxes?

Yes. The UAE Corporate Tax is a federal tax and will therefore apply across all the Emirates.

Will UAE Corporate Tax replace VAT in the UAE?

No, Corporate Tax and VAT are two different types of taxes. Both will apply in the UAE.

Who is considered a Resident Person for UAE Corporate Tax purposes?

UAE incorporated companies such as Limited Liability Companies, Private Joint Stock Companies, Public Joint Stock Companies and other UAE juridical persons will be subject to Corporate Tax as Resident Persons. An entity that is incorporated in the UAE will automatically be considered a ‘Resident’ Person for the purposes of UAE Corporate Tax. Equally, a natural person who is engaged in a Business or Business Activity in the UAE will also be considered a Resident Person for UAE Corporate Tax. UAE incorporated companies such as Limited Liability Companies, Private Joint Stock Companies, Public Joint Stock Companies and other UAE juridical persons will be subject to Corporate Tax as Resident Persons. An entity that is incorporated in the UAE will automatically be considered a ‘Resident’ Person for the purposes of UAE Corporate Tax. Equally, a natural person who is engaged in a Business or Business Activity in the UAE will also be considered a Resident Person for UAE Corporate Tax.

How do you determine Taxable Income for UAE Corporate Tax?

The Taxable Income for a Tax Period will be the accounting net profit (or loss) of the business, after making adjustments for certain items specified in the Corporate Tax Law and related implementing decisions. The accounting net profit (or loss) of a business is the amount reported in its financial statements prepared in accordance with International Financial Reporting Standards (IFRS). Adjustments to the accounting net profit (or loss) will need to be made for the following items: Unrealised gains and losses (subject to the election made regarding the application of the realisation principle); Exempt Income such as qualifying dividends and capital gains;Gains or losses arising on transfers within a Qualifying Group; Gains or losses arising on transfers arising from qualifying business restructuring transactions as per article (27) of the corporate tax law; Deductions which are not allowable for Corporate Tax purposes; Transactions with Related Parties and Connected Persons; Transfers of Tax Losses within a group where the relevant conditions are met; Incentives or tax reliefs; and any other adjustments as specified by the Minister.

Where can I find the Corporate Tax Law and related implementing decisions?

The Corporate Tax Law and its implementing decisions can be found via this link.

Will I need to consider the UAE’s international agreements for UAE Corporate Tax purposes?

In-force international agreements (including international agreements for the avoidance of double taxation) to which the UAE is a party should be considered under the UAE Corporate Tax regime.

Who is exempt from UAE Corporate Tax?

Public pension and social security funds in the UAE, are exempt from Corporate Tax once an application has been made to and approved by the Federal Tax Authority. Are there any restrictions on contributions or disbursements of a private pension fund or a private social security fund?Will UAE entities owned by UAE or GCC nationals be subject to UAE Corporate Tax? There is no restriction on the contributions a Person may make to a private pension fund or a private social security fund. However, contributions made are only deductible for Corporate Tax purposes up to 15% of each employee's total remuneration.

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