Overview of corporate tax in the UAE

On 9 December 2022, the UAE introduced Federal Decree-Law No. (47) of 2022, governing the Taxation of Corporations and Businesses. Corporate Tax (CT) applies to Taxable Persons for financial years starting on or after 1 June 2023. It is applicable across all Emirates and covers all business and commercial activities.

Free zone businesses fall under the scope of UAE CT and must register and file a CT return.

CT will be applied at the following rates:

• For all taxable persons except Qualifying Free Zone persons:
  • Taxable income not exceeding AED 375,000: 0%
  • Taxable income exceeding AED 375,000: 9%
• For Qualifying Free Zone persons:
  • Qualifying Income: 0%
  • Non-Qualifying Income: 9% without applying basic exemption limit of AED 375,000.

Certain taxable persons, such as government entities, government-controlled entities, extractive businesses, public benefit entities, and investment funds, are exempt from UAE CT under specific conditions.

CT law offers relief for small businesses, allowing them to opt for a treatment where they are not considered to have derived taxable income for up to three tax periods, until 2026.

Under the UAE CT law, tax is based on the accounting net profit reported in a business's financial statements, with some exceptions and adjustments. The law also imposes limitations on the deductibility of interest. Tax losses incurred from the effective date of CT can be carried forward to offset taxable income in future periods.

UAE CT will not apply to the income streams such as employment income, income from real estate, savings, investment returns, and other income earned by natural persons in their personal capacity provided it is not related to a UAE trade or business. A natural person may be subject to UAE CT if income from one or more trade or business exceeds AED 1 million.

Dividends and profit distributions from a UAE resident person are exempt from UAE CT. Additionally, the following income streams are exempt from UAE CT, subject to meeting the conditions of participation exemption:

• Dividends and profit distributions from foreign participations
• Gains or losses from the transfer, sale, or other disposition of a local or foreign participating interest

There will be no withholding tax on domestic and cross-border payments of interest, dividends, royalties, and other payments, and UAE businesses may claim a foreign tax credit for taxes paid on income earned outside the UAE.

UAE group companies are allowed to form a tax group and file a single tax return for the entire group, as well as transfer tax losses to other qualifying group members.

The UAE CT regime also introduces transfer pricing rules and documentation requirements, in line with OECD Transfer Pricing Guidelines. The Federal Tax Authority (FTA) is responsible for the administration, collection, and enforcement of CT.

Additionally, a Domestic Top-up Tax (QDMTT) will be implemented from 1 January 2025. This ensures that Multinational Enterprises (MNEs) with a global turnover exceeding AED 3.15 billion or EUR 750 million are subject to a minimum tax rate of 15%.

Emirate Level Corporate Tax
In addition to CT at the federal level, relevant Emirates levy Corporate Tax on certain types of businesses such as operating branches of foreign banks, extractive businesses. Interplay of federal CT and Emirate level CT is interesting with either, permissible exemptions or off-sets.

At BDO, we specialize in providing expert services to help businesses maintain CT compliance, either at the federal level or the Emirate level.