Corp Tax rules

Jun 4, 2023

1. What is Corporate Tax? Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses. Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.
2. Why is the UAE introducing Corporate Tax? A competitive Corporate Tax regime based on international best practices is expected to cement the UAE’s position as a leading global hub for business and investment and accelerate the UAE’s development and transformation to achieve its strategic objectives.Introducing a Corporate Tax regime also reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices.
3. Is the UAE the first country to introduce Corporate Tax? Most countries in the world have a comprehensive Corporate Tax regime, including most of the countries in the Middle East.
4. When will the UAE Corporate Tax regime become effective? The UAE Corporate Tax regime will become effective for financial years starting on or after 1 June 2023.Examples:● A business that has a financial year starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE Corporate Tax from 1 July 2023 (which is the beginning of the first financial year that starts on or after 1 June 2023).● A business that has a financial year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE Corporate Tax from 1 January 2024 (which is the beginning of the first financial year that starts on or after 1 June 2023).
5. Who will be subject to UAE Corporate Tax? UAE Corporate Tax applies to juridical persons incorporated in the UAE and juridical persons effectively managed and controlled in the UAE, as well as to foreign juridical persons that have a permanent establishment (see “Foreign persons”) in the UAE (see question 20 ‘Who is considered resident for UAE Corporate Tax purposes?’).Individuals 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. A Cabinet Decision will be issued in due course specifying further information on what would bring a natural person within the scope of UAE Corporate Tax.
6. Will UAE entities owned by UAE or GCC nationals be subject to UAE Corporate Tax? Yes – the UAE Corporate Tax does not differentiate between nationality or residence. Juridical persons that are incorporated or resident in the UAE, or that have a permanent establishment in the UAE, will be subject to UAE Corporate Tax. This applies irrespective of the residence and nationality of the individual founders or (ultimate) owners of the entity.
7. Will UAE Corporate Tax be applicable to businesses in each Emirate? Yes. The UAE Corporate Tax is a Federal tax and will therefore apply across all the Emirates.
8. Will I have to pay UAE Corporate Tax alongside Emirate level taxes? Businesses engaged in the extraction of the UAE’s natural resources and in certain non-extractive activities that are subject to Emirate level taxation will be outside the scope of UAE Corporate Tax, subject to meeting certain conditions.Other businesses may be subject to both Corporate Tax and Emirate level taxation. Emirate level taxes paid will not be able to be credited against or otherwise reduce the amount of Corporate Tax payable.
9. Will UAE Corporate Tax replace VAT in the UAE? No, Corporate Tax and VAT are two different types of taxes. Both will continue to apply in the UAE.
10. Will I have to pay UAE Corporate Tax alongside VAT in the UAE? If you are a registered business for VAT, you will have to pay VAT and Corporate Tax separately. If your business is not VAT registered you may still have to pay Corporate Tax.
11. Will UAE Corporate Tax replace Excise Tax in the UAE? No, Corporate Tax and Excise Tax are two different types of taxes. Both will continue to apply in the UAE.
12. Will I continue to pay service fees to local and Federal Governments now that the UAE has introduced Corporate Tax? Yes. Applicable service fees will continue to be payable to the relevant Emirate and Federal Governments.Business set up, license renewal and other Government fees and charges incurred wholly and exclusively in the ordinary course of business are deductible expenses for UAE Corporate Tax purposes.
13. 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. In case of a conflict between the Corporate Tax Law and an international agreement with respect to the right to tax a certain item of income, the relevant international agreement may limit the application of UAE Corporate Tax.
14. What will be the role of the Federal Tax Authority? The Federal Tax Authority will be responsible for the administration, collection and enforcement of UAE Corporate Tax and other federal taxes. For the purpose of the administration, collection and enforcement of Corporate Tax, the Federal Tax Authority will issue guides, respond to clarifications and provide awareness as required.
15. What will be the role of the Ministry of Finance? The Ministry of Finance will remain the ‘competent authority’ for purposes of bilateral/multilateral tax agreements and the international exchange of information for tax purposes. The Ministry of Finance also has the authority to issue further guidance and implementing regulations for UAE Corporate Tax and other federal taxes.
16. What should I be doing to prepare for UAE Corporate Tax? To assess what the UAE Corporate Tax regime means for your business, as a starting point, you should:Read the Corporate Tax Law and the supporting information available on the websites of the Ministry of Finance and the Federal Tax Authority.Use the available information to determine whether your business will be subject to UAE Corporate Tax and if so, from what date.Understand the requirements for your business under the Corporate Tax Law, including, for example:Whether your business needs to register for UAE Corporate Tax.What is the accounting / Tax Period for your business.By when your business would need to file a UAE Corporate Tax return.What elections or applications can or should your business make for UAE Corporate Tax purposes.How UAE Corporate Tax may impact your business’ obligations and liabilities under contracts with customers and suppliers.What financial information and records your business will need to keep for UAE Corporate Tax purposes.Regularly check the websites of the Ministry of Finance and the Federal Tax Authority for further information and guidance on the UAE Corporate Tax regime.
17. Where can I find the Corporate Tax Law? The Corporate Tax Law can be found at this link
18. What is a “Business” or “Business Activity”? The terms “Business” and “Business Activity” as defined in the Corporate Tax Law identify when the activities of certain persons give rise to a UAE Corporate Tax liability by considering the person to be a taxable person.“Business” means any economic activity, whether continuous or short term, conducted by any person. It is implied that a business is conducted with a profit motive, and that there is the existence of some system and organisation to the activity conducted. However, a business or business activity for UAE Corporate Tax purposes does not lose its identity simply because it does not make a profit.For the application of the Corporate Tax Law to companies and other juridical persons, all activities conducted and assets used or held will generally be considered activities conducted, and assets used or held, for the purposes of a “Business”.Individuals can earn income from wages and salaries, investments or from practising a commercial, industrial or professional activity, either directly or as sole proprietor of a business. For natural persons, a Cabinet Decision will be issued in due course specifying further information on whatwould bring a natural person within the scope of UAE Corporate Tax.
19. Who is exempt from UAE Corporate Tax? The following persons are exempt from UAE Corporate Tax, either automatically or by way of application: The UAE Federal and Emirate Governments and their departments, authorities and other public institutions; Wholly Government-owned companies that carry out a mandated activity, and that are listed in a Cabinet Decision; Businesses engaged in the extraction of UAE natural resources and related non-extractive activities that are subject to Emirate-level taxation after meeting certain conditions; Public Benefit Entities that are listed in a Cabinet Decision; Investment Funds that meet the prescribed conditions; Public or private pension or social security funds that meet certain conditions; and UAE juridical persons that are wholly-owned and controlled by certain exempted entities after meeting certain conditions.
20. Who is considered resident for UAE Corporate Tax purposes? UAE incorporated companies such as LLCs, PSCs, PJSCs, 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 UAE Corporate Tax purposes. Equally, an individual who is engaged in a business or business activity in the UAE will also be considered a resident person for UAE Corporate Tax purposes.A foreign company may be treated as a resident person for UAE Corporate Tax purposes if it is effectively “managed and controlled” in the UAE. All facts and circumstances must be considered in determining where a company is effectively managed and controlled, but a relevant indicator may include the place where the strategic decisions affecting the business are made.
21. Who is considered non-resident for UAE Corporate Tax purposes? Under the Corporate Tax Law, a juridical person is considered a non-resident if it is incorporated in a foreign country and is effectively managed and controlled outside the UAE. A natural person is considered a non-resident for UAE Corporate Tax purposes if he or she is not engaged in a taxable business or business activity in the UAE.
22. How are UAE tax residents subject to UAE Corporate Tax? UAE resident juridical persons will be subject to UAE Corporate Tax on their income source from both the UAE and from abroad, although certain income earned through foreign subsidiaries and income of foreign branches that is subject to tax in another jurisdiction will generally be exempt from UAE Corporate Tax. Further details of these exemptions are set out under questions 64 ‘Will the income of foreign branches of a UAE business be subject to UAE Corporate Tax?’ and 88 ‘What is the participation exemption regime?’.Where income earned from abroad is not exempt, relief for income taxes paid in the foreign jurisdiction can be taken as a credit against the Corporate Tax payable in the UAE on the relevant income to prevent double taxation. (see below under ‘Tax Credits’).
23. How are non-residents subject to UAE Corporate Tax? Non-resident persons will only be subject to UAE Corporate Tax on:● income from their Permanent Establishment in the UAE; or● income sourced in the UAE (subject to a 0% withholding tax).
24. 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.The accounting net profit (or loss) of a business is the amount reported in its financial statements prepared in accordance with internationally acceptable accounting standards.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;Income arising on intra-group transfers;Deductions which are not allowable for tax purposes;Transactions with Related Parties and Connected Persons;Transfers of tax losses within the group where relevant;Incentives or tax reliefs; andAny other adjustments as specified by the Minister.
25. What is a Tax Period? Given Corporate Tax is imposed on an annual basis, it is necessary to specify the “Tax Period”. The Tax Period will normally be the Gregorian calendar year (i.e. from 1 January to 31 December), unless the business applies a different 12-month period for preparing its financial statements.
26. What are the UAE Corporate Tax rates? TaxpayerApplicable Corporate Tax rateIndividuals and juridical persons0% for taxable income up to and including AED 375,000 (this amount is to be confirmed in a Cabinet Decision)9% for taxable income exceeding AED 375,000Qualifying Free Zone Persons (see further information below)0% on qualifying income9% on taxable income that does not meet the qualifying income definition
27. If a business has earned taxable income of AED 1 million, what will be the UAE Corporate Tax amount payable? The Corporate Tax liability will be calculated as follows:● Taxable income of AED 375,000 (amount to be confirmed in a Cabinet Decision) subject to Corporate Tax at 0%: AED 375,000 x 0% = AED 0● Taxable income exceeding AED 375,000 (amount to be confirmed in a Cabinet Decision) subject to Corporate Tax at 9%: (AED 1,000,000 – AED 375,000) = AED 625,000 x 9% = AED 56,250The UAE Corporate Tax liability for the Tax Period will be AED 0 + AED 56,250 = AED 56,250The final amount of UAE Corporate Tax payable can be reduced by available tax credits (see below under ‘Tax Credits’ section).
28. Will small businesses be given any UAE Corporate Tax relief? In addition to a 0% Corporate Tax rate for taxable income up to and including AED 375,000, small businesses with revenue below a certain threshold can claim ‘small business relief’ and be treated as having no taxable income during the relevant Tax Period and may be subject to simplified compliance obligations. To claim small business relief, an election must be made to the FTA.
29. Who can claim small business relief for UAE Corporate Tax purposes? Any UAE resident juridical person or individual with revenues below the threshold defined by the Minister and that meets any other conditions that may be set, can claim small business relief.
30. What is revenue? Revenue is the gross amount of income derived in a tax period from sales of inventory and properties, services, royalties, interest, premiums, dividends and any other amounts, before deducting any type of costs or expenditure. In the context of income from sales or services, gross income means gross revenues from sales or services without deducting the cost of goods sold or the cost of services.
31. Who is a Natural Person? The term “Natural Person” in the Corporate Tax Law means an individual.
32. Will individuals be subject to UAE Corporate Tax? Only individuals who engage in a business or business activity as per a Cabinet Decision that will be issued in due course will be subject to UAE Corporate Tax. Individuals engaged in other activities will generally be outside the scope of the Corporate Tax regime.
33. What is the UAE Corporate Tax treatment of a sole proprietorship or civil company? For certain types of business activities, natural persons can form a sole proprietorship or civil company. For Corporate Tax purposes, these entities will be treated as the natural person or persons owning them.
34. Will an individual be subject to UAE Corporate Tax on business income earned outside the UAE? The taxable income of a natural person that is engaged in a business in the UAE is all the income that is derived from that business. This would include income earned from outside the UAE insofar as it relates to the business activity conducted in the UAE.
35. What if an individual has multiple business activities that are in the scope of UAE Corporate Tax? The individual will file one Corporate Tax return covering all their business activities that are within the scope of UAE Corporate Tax.
36. Will an individual’s employment income be subject to UAE Corporate Tax? UAE Corporate Tax will not apply to an individual’s salary and other employment income (whether received from the public or private sector). Employment may include a continuing service relationship where all or most of the income of the individual is derived from one customer, and the service income is essentially remuneration for the natural person’s labour.
37. Will self-employed persons (e.g. freelancers) be subject to UAE Corporate Tax? Self-employed persons would only be subject to UAE Corporate Tax if their activity is a taxable business or business activity as per the Cabinet Decision that will be issued in due course. Even if the self-employed person is considered to be undertaking a taxable business or business activity, no Corporate Tax would be payable on the first AED 375,000 of net income / profit earned from the activity, and further relief (small business relief) may be available to the self-employed person and other individual entrepreneurs.
38. Will income earned by an individual from bank deposits be subject to UAE Corporate Tax? Interest and other personal investment and savings income earned by an individual in their personal capacity should not be subject to UAE Corporate Tax.
39. Will an individual be subject to UAE Corporate Tax on investment returns? UAE and foreign individuals will not be subject to UAE Corporate Tax on dividends, capital gains and other income earned from owning shares or other securities in their personal capacity.
40. Will an individual be subject to UAE Corporate Tax on income from real estate? Income earned by an individual from the investment in UAE property in their personal capacity will generally not be subject to UAE Corporate Tax.
41. What is a juridical person? A “juridical person” is an entity established or otherwise recognised under the laws and regulations of the UAE, or under the laws of a foreign jurisdiction, that has a legal personality separate from its founders, owners and directors. Examples of UAE domestic juridical persons include a limited liability company, a foundation, an ‘onshore’ trust, a public or private joint stock company, and other entities that have separate legal personality under the applicable UAE ‘mainland’ legislation or Free Zone regulations. UAE branches of a domestic or a foreign juridical person are regarded as an extension of their “parent” or “head office” and, therefore, are not considered separate juridical persons.
42. What does it mean to have a ‘separate legal personality”? Separate legal personality means that the entity has its own rights, obligations and liabilities. As a consequence, the owners of the juridical person would typically have limited liability when it comes to the debts and obligations of the entity.
43. How do you determine whether a juridical person has a “Business” that is within the scope of UAE Corporate Tax? All activities undertaken by a juridical person will be deemed “business activities” and are within the scope of UAE Corporate Tax, unless specifically exempted.
44. Are foreign juridical persons subject to UAE Corporate Tax in the same way as a UAE resident person? No (see question 68 ‘Will foreign companies and other juridical persons be subject to UAE Corporate Tax?’), unless the foreign juridical person is “effectively managed and controlled” in the UAE and treated as a resident entity for UAE Corporate Tax purposes.
45. When is a foreign juridical person considered “effectively managed and controlled” in the UAE? This will need to be assessed on a case by case basis, and may look at the location where the key decision makers, such as the directors, make the strategic decisions affecting the juridical person.
46. Will UAE holding companies be subject to UAE Corporate Tax? UAE holding companies would be subject to UAE Corporate Tax (at a 9% Corporate Tax rate or the 0% Free Zone Corporate Tax rate), depending on whether the holding company is established in a Free Zone or in the mainland UAE, but dividends and capital gains earned from domestic and foreign shareholdings would generally be exempt from Corporate Tax, subject to certain conditions.
47. Will a sole proprietorship or civil company be treated as a juridical person for Corporate Tax purposes? No, but individuals who conduct business in the UAE through a sole proprietorship or civil company may be subject to Corporate Tax where a relevant business or business activity is undertaken.
48. How will the UAE Corporate Tax regime apply to partnerships? The Corporate Tax Law makes a distinction between unincorporated and incorporated partnerships.“Unincorporated Partnerships” (as defined in the Corporate Tax Law) are essentially a contractual relationship between two or more persons, as opposed to being a distinct juridical person separate from their partners / members. Unincorporated partnerships are treated as ‘transparent’ for UAE Corporate Tax purposes. This means that an unincorporated partnership is not subject to UAE Corporate Tax in its own right. Instead, each partner is subject to UAE Corporate Tax on their share of the income from the business conducted through the partnership.Incorporated partnerships include limited liability partnerships, partnerships limited by shares and other types of partnerships where none of the partners have unlimited liability for the partnership’s obligations or other partners’ actions. Such partnerships are subject to Corporate Tax in the same manner as a corporate entity (see Section D ‘Juridical persons’).
49. Will each partner in an “unincorporated” partnership be required to register and file a UAE Corporate Tax return? Natural persons that are engaged in a business or business activity through an unincorporated partnership are individually subject to UAE Corporate Tax on their share of the income from the unincorporated partnership. Each partner would be required to register for UAE Corporate Tax purposes, and comply with the requirements of the Corporate Tax Law.The partners in an unincorporated partnership can make an application to the Federal Tax Authority for the unincorporated partnership to be treated as a separate and standalone taxable person for the purposes of UAE Corporate Tax. If the application is approved, the unincorporated partnership will file a Corporate Tax return on behalf of the partners in the partnership.
50. How will foreign partnerships be treated under the Corporate Tax Law? For UAE Corporate Tax purposes, a foreign partnership will generally be considered as an Unincorporated Partnership subject to meeting certain conditions, including that the partnership is not subject to tax in the relevant foreign jurisdiction (see question 48 ‘How will the UAE Corporate Tax regime apply to partnerships?’).
51. What is a “Family Foundation”? A Family Foundation (as defined in the UAE Corporate Tax Law) is a foundation, trust or similar entity used to protect and manage the assets and wealth of an individual or family.The principal activity of a Family Foundation would generally be to receive, hold, invest, disburse, or otherwise manage funds and assets associated with savings or investment for the interest of individual beneficiaries or to achieve a charitable purpose. Such activities would typically not constitute a “business” or “business activity” for UAE Corporate Tax purposes if they were undertaken directly by the founder, beneficiary or any other individual.
52. Are Family Foundations subject to UAE Corporate Tax? Foundations and certain types of trusts are independent juridical persons with separate legal personality, and would therefore prima facie be subject to UAE Corporate Tax in their own right. However, these types of Family Foundations can apply to be treated as transparent “Unincorporated Partnerships” for UAE Corporate Tax purposes, resulting in the founder/settlor and the beneficiaries of the trust to remain to be seen as owners of the assets held by the trust. This would generally prevent the income of the foundation or trust from attracting UAE Corporate Tax.Other types of trusts (for example, trusts established in DIFC or ADGM) are a contractual relationship between two or more persons (e.g., the beneficiary, settlor, and trustee) and do not have separate legal personality. These types of trusts will by default be treated as transparent vehicles for UAE Corporate Tax purposes.
53. What is an investment fund? An investment fund is an entity whose principal activity is the issuing of investment interests to raise funds or pool investor funds or establish a joint investor fund with the aim of enabling the holder of such an investment interest to benefit from the profits or gains from the entity’s acquisition, holding, management or disposal of investments, in accordance with the applicable legislation.
54. Will investment funds be subject to UAE Corporate Tax? Investment funds are commonly organised as limited partnerships (as opposed to corporate entities) to ensure tax neutrality for their investors. This tax neutrality follows from the fact that most countries treat limited partnerships as transparent (‘flow through’) for domestic and international tax purposes, which puts investors in the fund in a similar tax position as if they had invested directly in the underlying assets of the fund. Investment funds that are structured as partnerships, unit trusts and other unincorporated vehicles would generally be treated as fiscally transparent “Unincorporated Partnerships” for the purposes of UAE Corporate Tax.Investment funds that are structured as corporate entities, including Real Estate Investment Trusts, or partnership funds that apply to be treated as a “Taxable Person” for UAE Corporate Tax purposes in their own right, can apply to the Federal Tax Authority to be exempt from UAE Corporate Tax subject to meeting certain requirements.
55. What is a recognised stock exchange? A recognised stock exchange includes:● UAE: Any stock exchange established in the UAE that is licensed and regulated by the relevant competent authority (e.g. Nasdaq Dubai, Abu Dhabi Securities Exchange, or Dubai Financial Market);● Foreign: Any stock exchange established outside the UAE of equal standing to the stock exchange in the UAE.
56. Will a UAE based investment fund manager be subject to UAE Corporate Tax? Yes. If the investment fund manager is a UAE resident, or if it operates in the UAE through a permanent establishment, the investment fund manager will be subject to UAE Corporate Tax on the income it earns.
57. For the purpose of benefiting from the Corporate Tax exemption, are both the investment fund and the fund manager required to be subject to regulatory oversight? For the investment fund exemption, either the investment fund or the manager of the fund is required to be subject to regulatory oversight, not both.
58. Could a UAE-based investment manager create a UAE taxable presence for its foreign customers? Under the so-called “Investment Manager Exemption”, regulated UAE investment managers can provide discretionary investment / asset management services to foreign funds and customers without creating a permanent establishment for the foreign investors or the foreign investment fund in the UAE, where certain conditions are met.
59. Could the activities of a UAE-based investment manager result in a foreign investment fund / vehicle to be considered resident in the UAE for UAE Corporate Tax purposes? Where the conditions of the Investment Manager Exemption are met, a UAE-based investment manager should not create possible UAE residency for Corporate Tax purposes for the foreign investment fund / investment vehicle it manages.
60. Can investment holding companies and Special Purpose Vehicles used by an investment fund benefit from an exemption form UAE Corporate Tax? Wholly-owned UAE investment holding companies and other Special Purposes Vehicles used by an investment fund to deploy capital and hold investments can apply to the Federal Tax Authority to benefit from the UAE Corporate Tax exemption granted to the investment fund.
61. Are UAE branches separate juridical persons? No. UAE branches of a domestic or a foreign juridical person are an extension of their “parent” or “head office” and, therefore, are not considered separate juridical persons.
62. Will the income of UAE branches of a UAE business be subject to UAE Corporate Tax? Yes. The income of UAE branches will be included in the taxable income and UAE Corporate Tax return of their UAE “parent” or “head office”.
63. Are UAE branches of a UAE juridical person required to separately register or file for UAE Corporate Tax? UAE branches of a UAE juridical person are not required to separately register or file for UAE Corporate Tax.
64. Will the income of foreign branches of a UAE business be subject to UAE Corporate Tax? The income of foreign branches or foreign permanent establishments of a UAE business will be included in the taxable income and UAE Corporate Tax return of their UAE “head office”, unless the UAE business elects to claim an exemption for its foreign branch profits. This exemption is available for foreign branch profits that have already been subject to tax in the foreign jurisdiction.
65. Will UAE branches of foreign businesses be subject to UAE Corporate Tax? Where no election is made or the income of the foreign branch or permanent establishment is not eligible for an exemption from Corporate Tax, the UAE Corporate Tax payable on the income of the foreign branch or permanent establishment can be reduced by the corporate tax (or similar) paid on the relevant income in the foreign jurisdiction.
66. Will a UAE branch constitute a taxable Permanent Establishment for the foreign business? A UAE branch of a foreign business would generally be subject to UAE Corporate Tax, unless the activities of the branch do not give rise to a permanent establishment in the UAE for Corporate Tax purposes (see Section I ‘Foreign persons’).
67. What are preparatory or auxiliary activities? Preparatory or auxiliary activities are those performed in preparation or in support of more substantive business activities of the foreign entity. Examples of preparatory and auxiliary activities include storage, display or delivery of goods or merchandise belonging to the foreign entity, limited marketing and promotional activities, performing market research and attending seminars or conventions.Where relevant, the application of an international agreement for the avoidance of double taxation should be taken into consideration when determining whether a permanent establishment exists or whether the activities performed are preparatory or auxiliary in nature.
68. Will foreign companies and other juridical persons be subject to UAE Corporate Tax? Foreign entities that operate in the UAE through a permanent establishment or that are considered resident in the UAE for Corporate Tax purposes will be subject to UAE Corporate Tax. Merely earning UAE sourced income would not trigger Corporate Tax payable or require the foreign entity to register and file for UAE Corporate Tax.
69. When will a non-resident person be subject to Corporate Tax? A non-resident person will be subject to UAE Corporate Tax if the non-resident person has a permanent establishment in the UAE or earns income sourced from the UAE (subject to 0% taxation).Income will generally be considered to be sourced from the UAE where it is derived from a UAE resident, a UAE Permanent Establishment, or the income is derived from activities performed or from assets located, capital invested and rights used in the UAE.
70. When will a foreign company be considered a resident person? A foreign juridical person may be treated as a UAE resident for Corporate Tax purposes and subject to UAE Corporate Tax on its income sourced from both the UAE and abroad if it is effectively managed and controlled in the UAE (see above).
71. Can a foreign individual be subject to UAE Corporate Tax as a resident person? A foreign individual will be subject to UAE Corporate Tax as a “Resident Person” insofar as he or she is engaged in a business or business activity in the UAE. Being treated as a Resident Person for UAE Corporate Tax purposes does not automatically mean the foreign individual will be considered resident in the UAE for all other taxes or for the application of a double tax agreement.For individuals, a decision by the Cabinet of Ministers will be issued in due course specifying further information on what would bring a natural person within the charge to Corporate Tax.
72. When will a foreign individual be subject to UAE Corporate Tax as a non-resident person? A foreign individual that does not conduct a taxable business or business activity in the UAE (see question 71 ‘Can a foreign individual be subject to UAE Corporate Tax as a resident person?’) would generally not be subject to UAE Corporate Tax. Merely earning UAE sourced income would not trigger Corporate Tax payable or require the foreign individual to register and file for UAE Corporate Tax.
73. How do I know if I have a Permanent Establishment in the UAE? Generally, a foreign person will have a Permanent Establishment in the UAE if:● It has a fixed or permanent place in the UAE through which the business of the foreign person is carried on; or● There is a person who has and habitually exercises an authority to conduct business in the UAE on behalf of the foreign person.A fixed place of business would not be considered a Permanent Establishment if it is used solely to store, display or deliver goods or merchandise belonging to the foreign person or to conduct any activities that are of a preparatory or auxiliary nature.A Permanent Establishment would not arise if the person who has and habitually exercises an authority to conduct business in the UAE on behalf of the foreign person acts as an independent agent.Where relevant, the application of an international agreement should be taken into consideration when determining whether a permanent establishment exists.
74. Will the investment in UAE real estate constitute a taxable permanent establishment in the UAE? A foreign individual that owns property in the UAE in his or her personal capacity would generally not be subject to UAE Corporate Tax and related compliance obligations.The investment in UAE real estate by a foreign juridical person may give rise to a taxable permanent establishment where the real estate represents a fixed place of business in the UAE through which the business of the foreign person is wholly or partially carried out. For more information on what would trigger a ‘fixed or permanent place of business’ under the permanent establishment rules, see question 73 ’How do I know if I have a Permanent Establishment in the UAE?’.
75. What determines whether income is sourced from the UAE? Income will be considered to be sourced from the UAE, if:● the income is derived from a UAE resident;● the income derived is attributed to a Permanent Establishment in the UAE of a non-UAE resident; or● the income is derived from activities performed, assets located, capital invested, rights used or services performed or benefited from in the UAE.The Corporate Tax Law includes a non-exhaustive list of income that is considered as being sourced in the UAE.A Cabinet Decision may be issued in due course specifying the types of UAE sourced income subject to withholding tax. The UAE withholding tax rate is set at 0%.
76. Will UAE investment income earned by a foreign investor be subject to UAE Corporate Tax? Income from dividends, capital gains, interest, royalties and other investment returns earned by foreign juridical persons or individuals will not be subject to UAE Corporate Tax, unless such income can be attributed to a permanent establishment in the UAE of the foreign person.
77. What is taxable income? 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.
78. What standards must be used to prepare financial statements? For UAE Corporate Tax purposes, the financial statements of UAE entities and other businesses should be prepared in accordance with accounting standards accepted in the UAE. International Financial Reporting Standards (IFRS) is the most frequently used accounting standard in the UAE.
79. Will financial statements need to be prepared on an accruals basis? Taxpayers should prepare their financial statements, and determine their taxable income on an accruals basis, unless they are permitted to use the cash basis of accounting instead. The Minister may prescribe the instances where a taxpayer can prepare financial statements using the cash basis, which is expected to be available for certain categories of individual entrepreneurs and small businesses.
80. What UAE Corporate Tax adjustments to the financial statements will be required to calculate taxable income? The accounting net profit (or loss) would need to be adjusted for the items prescribed in the UAE Corporate Tax Law, including:1. Unrealised gains/losses (subject to the election made regarding the application of the realisation principle);2. Exempt income such as dividends;3. Intra-group transfers;4. Deductions which are not allowable for tax purposes;5. Adjustments for transactions with Related Parties and Connected Persons;6. Any incentives or tax reliefs; and7. Any other adjustment specified by the Minister.
81. What is the UAE Corporate Tax treatment for any unrealised gains and losses arising from accounting fair value or impairment adjustments? Where a business prepares their financial statements on an accruals basis, it has the following options in respect of the UAE Corporate Tax treatment of unrealised accounting gains and losses:● Option 1: The taxpayer can elect to recognise gains and losses on a ‘realisation basis’ for UAE Corporate Tax purposes for all assets and liabilities – that is, any and all unrealised gains would not be taxable (and conversely, any and all unrealised losses would not be deductible) until they are realised;● Option 2: The taxpayer can elect to recognise gains and losses on a ‘realisation basis’ for UAE Corporate Tax purposes for assets and liabilities held on capital account only – that is, only unrealised gains and losses in respect of assets and liabilities held on capital account would not be taxable or deductible, respectively, until they are realised. Unrealised gains and losses arising from assets and liabilities held on revenue account, on the other hand, would continue to be included in taxable income on a current basis.Generally, assets and liabilities are considered to be held on capital account when they are not expected to be sold or traded with during the regular course of the business operation.
82. What is the realisation principle, and when is income realised for UAE Corporate Tax purposes? As under many other Corporate Tax systems, the UAE Corporate Tax regime allows taxpayers to apply the realisation principle for determining their taxable income. This means that income will only be taxable, and a deduction would only be able to be taken, if and when a gain or loss is realised. Realisation would happen, for example, when the relevant asset is sold or terminated.Under the realisation principle, the taxable income for each Tax Period would exclude gains and losses in respect of assets or liabilities that are subject to fair value or impairment accounting.
83. How are capital gains taxed? 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 manner as other income from the business. Capital gains on the sale of shares may be exempt from corporate income tax, subject to meeting certain conditions (see question 87 ‘Are capital gains exempt from UAE Corporate Tax?’).
84. What income is exempt from UAE Corporate Tax? The following income is exempt from UAE Corporate Tax:1. Dividends and other profit distributions received from UAE incorporated or resident legal persons;2. Dividends and other profit distributions received from a Participating Interest in a foreign juridical person (see further information below);3. Certain other income (e.g., capital gains, foreign exchange gains / losses and impairment gains or losses) from a Participating Interest (see further information below);4. Income from a foreign branch or permanent establishment where an election is made to claim the “Foreign Permanent Establishment” exemption; and5. Income earned by non-residents from the operation or leasing of aircrafts or ships in international transportation where certain conditions are met (see further information below).
85. Are all dividends and other profit distributions earned from UAE juridical persons exempt from UAE Corporate Tax? Domestic dividends and other profit distributions earned from UAE juridical persons are exempt from UAE Corporate Tax, irrespective of the level of ownership in the UAE juridical person paying the dividend or profit share. This exemption also applies to dividends received from a UAE juridical person that benefits from a Corporate Tax exemption or whose profits are subject to the 0% Free Zone Corporate Tax rate.
86. Are all dividends and other profit distributions from foreign juridical persons exempt from UAE Corporate Tax? Subject to the participation exemption requirements, dividends and other profit distributions earned from a Participating Interest in a foreign juridical person are exempt from UAE Corporate Tax. A Participating Interest is a 5% or greater ownership interest in the capital or equity of the foreign juridical person that meets the conditions of the participation exemption regime.
87. Are capital gains exempt from UAE Corporate Tax? Under the participation exemption regime, capital gains earned from a Participating Interest are exempt from UAE Corporate Tax. Also, there is relief from Corporate Tax for capital gains that may arise on intra-group transfers and reorganisation and restructuring transactions.Other capital gains would be treated as ordinary income and subject to Corporate Tax.
88. What is the participation exemption regime? The background to the participation exemption regime is to prevent double taxation within a group where an underlying group company (that pays the dividend or whose shares are being sold) has already been taxed on its profits.The Corporate Tax Law fully exempts dividends derived from UAE entities, as well as dividends from foreign subsidiaries that qualify as a “Participation”. A Participation is a juridical person in which the UAE shareholder company owns a 5% or greater ownership interest (a “Participating Interest”) for at least 12 months, and that meets the conditions of the participation exemption regime.Similarly, capital gains on the sale of shares in domestic and foreign entities would also be exempt from Corporate Tax. This exemption is subject to the same minimum ownership threshold, duration and other conditions mentioned above.
89. Can I benefit from a UAE Corporate Tax exemption if I own less than a 5% shareholding in a company? There can be instances where a UAE business makes a strategic investment in another company that does not result in a 5% or greater ownership interest, or where the percentage ownership in the Participation falls below the 5% ownership threshold because of events outside of the control of the UAE shareholder company. To address such instances and reduce the administrative burden associated with monitoring the continued compliance with the minimum ownership requirement under the participation exemption regime, the Minister may prescribe a certain minimum acquisition cost / value above which the ownership interest in another juridical person is deemed to be a qualifying “Participation”, and the income from this investment can benefit from the participation exemption.
90. What expenditure will be deductible for the purposes of calculating taxable income? In principle, all legitimate business expenses incurred to derive taxable income will be deductible, although the timing of the deduction may vary for different types of expenses and the accounting method applied. For capital assets, expenditure would generally be recognised by way of depreciation or amortisation deductions over the economic life of the asset or benefit.Expenditure that has a dual purpose, such as expenses incurred for both personal and business purposes, will need to be apportioned with the relevant portion of the expenditure treated as incurred wholly and exclusively for the purpose of the taxable person’s business.
91. What expenditure will be non-deductible for the purposes of calculating taxable income? Article 33 of the UAE Corporate Tax Law lists certain specific expenses for which no deduction will be allowed, such as bribes, fines and penalties, and no deduction is available for expenditure incurred in deriving income that is exempt from Corporate Tax or losses that are not connected with or arising out of a taxpayer’s business. Additionally, certain restrictions may apply to the deduction of interest expenditure (see question 92, Will my interest expenditure be fully deductible?).
92. Will my interest expenditure be fully deductible? The Corporate Tax Law provides for certain restrictions on the deductibility of interest expenditure to discourage excessive debt financing, and to ensure that debt financing used or arising as a result of certain specific intra-group transactions will only be deductible if there is a valid commercial reason for obtaining the loan.General interest deduction limitation ruleBusinesses with net interest expenditure above a threshold to be set by the Minister will be allowed to deduct net interest expenditure up to 30% of their earnings before interest, tax, depreciation and amortisation (EBITDA), excluding any exempt income. Any net interest expenditure which exceeds this limit may be carried forward and utilised in the subsequent 10 tax periods.Businesses with net interest expenditure below the threshold to be set by the Minister will not be subject to the general interest deduction limitation rule.The general interest deduction limitation rule will not apply to banks and other finance institutions, insurance providers or individuals.Specific interest deduction limitation ruleWhere a loan is obtained from a Related Party and is used to finance income that is exempt from Corporate Tax, the interest on the Related Party loan will not be deductible unless the taxpayer can demonstrate that the main purpose of obtaining the loan and carrying out the transaction is not to gain a Corporate Tax advantage.
93. Will dividends paid by UAE companies be deductible for Corporate Tax purposes? Dividends paid by UAE companies will not be deductible for Corporate Tax purposes.
94. Will service fees paid to local and Federal Governments be deductible for UAE Corporate Tax? Business set up, licence renewal and other Government fees and charges incurred wholly and exclusively in the ordinary course of business are deductible for Corporate Tax purposes.
95. Will Value Added Tax paid be deductible for UAE Corporate Tax? Only irrecoverable input Value Added Tax may be deductible for Corporate Tax purposes. Otherwise, Value Added Tax charged and Value Added Tax incurred would not impact the calculation of taxable income.
96. What are transfer pricing rules? Transfer pricing rules seek to ensure that transactions between Related Parties are carried out on arm’s length terms, as if the transaction was carried out between independent parties. To prevent the manipulation of taxable income, various articles in the Corporate Tax Law require that the consideration of transactions with Related Parties and Connected Persons needs to be determined by reference to their “Market Value”.
97. Will transfer pricing rules apply to both domestic and cross border transactions? Yes. Transfer pricing rules apply to UAE businesses that have transactions with Related Parties and Connected Persons, irrespective of whether the Related Parties or Connected Persons are located in the UAE mainland, a Free Zone or in a foreign jurisdiction.
98. Who are Related Parties? Generally, Related Parties of an individual refer to the individual’s relatives as well as companies in which the individual, alone or together with their Related Parties, has a controlling ownership interest (typically 50% or more of shares of the company).Similarly, Related Parties of a company refers to any other companies in which the company, alone or together with their Related Parties, has a controlling ownership interest (typically 50% or more of shares of the company), or that are under greater than 50% common ownership.Further detail on the definition of Related Parties can be found in Article 35 of the Corporate Tax Law.
99. Who are Connected Persons? Connected Persons are different from Related Parties. A person will be considered “connected” to a business that is within the scope of UAE Corporate Tax if they are:1. The owner of the business;2. A director or officer of the business; or3. A Related Party of either of the above.
100. What transfer pricing methodologies can be used to determine the arm’s length value? Generally, taxpayers are required to apply one or more of the following methodologies to determine the arm’s length values for transfer pricing purposes:1. The comparable uncontrolled price method2. The resale price method3. The cost-plus method4. The transactional net margin method5. The transactional profit split method.
101. What documentation should be maintained in respect of transfer pricing? Businesses will be required to maintain information regarding their transactions with Related Parties and Connected Persons, and certain businesses will be required to submit this information along with their tax return. Businesses that claim small business relief will not have to comply with the transfer pricing documentation rules.Certain businesses may be requested to maintain a master file and a local file.
102. Do taxpayers need to consider whether intra-group loan arrangements are at arm’s length? Yes. Transfer pricing rules will apply to all transactions with Related Parties and Connected Persons. Therefore, any loan obtained from (or granted to) a Related Party or Connected Person needs to be at arm’s length (e.g. interest rate, duration, etc.).
103. Would transactions in a Tax Group need to comply with transfer pricing rules? Transactions between members of a Tax Group are eliminated in the consolidation of the Group’s financial results statements and hence do not need to comply with the transfer pricing rules, unless a member of the Tax Group needs to compute its stand-alone Taxable Income for the purposes of utilising Tax Losses incurred before joining the Tax Group or when leaving a Tax Group.
104. What are “Tax Losses”? A loss for Corporate Tax purposes (“Tax Loss”) would arise when the total deductions a business can claim are greater than the total income that is subject to tax for the relevant Tax Period, resulting in negative taxable income.
105. Will the UAE Corporate Tax regime allow prior year tax losses to reduce taxable income? Tax losses can, subject to certain conditions, be offset against the taxable income of future periods, up to a maximum of 75% of the taxable income in each of those future periods. Any excess (unused) tax losses can be carried forward and used against taxable income of future Tax Periods indefinitely.ExampleA taxpayer has taxable income of AED 100,000 and carried forward losses of AED 125,000. It can offset (75% x AED 100,000) = AED 75,000 of its losses carried forward in the relevant Tax Period, reducing its taxable income to AED 25,000.The amount of tax losses available for carry forward to subsequent Tax periods would reduce to AED 50,000 (AED 125,000 – AED 75,000).
106. Will a change in ownership of the taxable person restrict the ability to use its tax losses? Tax losses can be carried forward without limitation provided the same person or persons continue to own at least 50% of the entity with the losses. Where there is a greater than 50% change in ownership, tax losses may still be carried forward provided there is no major change in the nature or conduct of the entity’s business.
107. Will a group be able to utilise the tax losses of one group company against the taxable income of another group company? Tax losses from one UAE group company may be used to offset taxable income of another UAE group company where there is 75% or more common ownership and certain other conditions are met.No tax loss transfers will be allowed from companies that are exempt or that benefit from the 0% Free Zone Corporate Tax regime.
108. What are the conditions for the transfer of tax losses within a group? The UAE companies must meet the following conditions to transfer an amount of tax losses from one company to another in the same Tax Period:1. Both companies are UAE resident juridical persons;2. Either owns 75% or more of the other, or a third party owns 75% or more of both entities and this ownership existed at the start and end of the Tax Period in which the loss was incurred;3. Neither company is an Exempt Person;4. Neither company is a Qualifying Free Zone business; and5. The financial statements must be prepared using the same accounting standards, and using the same financial year.
109. What is withholding tax? Withholding tax is a form of Corporate Tax collected at source by the payer on behalf of the recipient of the income. Withholding taxes exist in many tax systems and typically apply to the cross-border payment of dividends, interest, royalties and other types of income.
110. Does the UAE Corporate Tax regime have withholding tax? A 0% withholding tax may apply to certain types of UAE sourced income paid to non-residents. Because of the 0% rate, 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.
111. Is a credit available for foreign tax paid on income that is also subject to UAE Corporate Tax? Yes. Foreign tax paid 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. Any excess foreign tax credit cannot be carried forward or back to a different Tax Period.
112. What foreign taxes can be credited against UAE Corporate Tax? 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 as may be set out in an applicable agreement or treaty made between the UAE and the foreign country or territory.
113. What UAE Corporate Tax rates will apply to entities established in a Free Zone? Entities established in a Free Zone that meet the conditions to benefit from the Free Zone Corporate Tax regime (“Qualifying Free Zone Persons”) will be subject to UAE Corporate Tax at the following rates:● 0% on Qualifying Income● 9% on Taxable Income that does not meet the Qualifying Income definition
114. Is the 0% Free Zone Corporate Tax regime applicable automatically? A Qualifying Free Zone Person that meets the relevant conditions will be able to benefit from the 0% Free Zone Corporate Tax regime automatically. However, a Qualifying Free Zone Person can elect not to apply the Free Zone Corporate Tax regime, but instead be subject to the regular Corporate Tax regime and rates.
115. What is a Qualifying Free Zone Person? To be treated as a “Qualifying Free Zone Person”, the Free Zone entity must:1. Maintain adequate substance in the UAE;2. Derive “Qualifying Income” as specified in a Cabinet Decision;3. Comply with transfer pricing rules and maintain the relevant transfer pricing documentation; and4. Not have made an election to be subject to Corporate Tax in full.
116. Will a Free Zone entity be required to register and file a UAE Corporate Tax return? Yes. All Free Zone entities will be required to register and file a Corporate Tax return, irrespective of whether they are a Qualifying Free Zone Person or not.
117. Will a different UAE Corporate Tax treatment apply to entities established in a financial Free Zone? No. The UAE Corporate Tax treatment will be the same for all Free Zone entities.
118. Will Free Zone entities be subject to the global minimum tax (OECD, BEPS Pillar 2) rules? Qualifying Free Zone entities that are part of a large multinational group are anticipated to be subject to a different Corporate Tax rate once the Pillar Two rules are embedded into the UAE Corporate Tax regime.
119. Will the oil and gas sector and other extractive industries be subject to UAE Corporate Tax? Businesses engaged in the extraction of the UAE’s natural resources and in the non-extractive aspects of the natural resources value chain that are subject to Emirate-level taxation will be outside the scope of the UAE Corporate Tax regime, subject to certain conditions and safeguards as specified in Article 7 and Article 8 of the Corporate Tax Law, respectively.
120. Will the banking sector be subject to UAE Corporate Tax? Yes. UAE headquartered banks and UAE branches of foreign banks will be subject to UAE Corporate Tax.
121. Will the real estate sector be subject to UAE Corporate Tax? Yes. Businesses engaged in real estate management, construction, development, agency and brokerage activities will be subject to UAE Corporate Tax.
122. Will the asset management sector be subject to UAE Corporate Tax? The asset management and broader financial services sectors will be subject to UAE Corporate Tax, although investment funds that meet certain conditions can apply to be exempt from UAE Corporate Tax. Further, under the so-called Investment Manager Exemption, UAE based and regulated fund managers and other investment managers can perform discretionary asset / investment management services without creating a taxable presence in the UAE for their foreign clients.
123. Will charities and other public benefit organisations be subject to UAE Corporate Tax? Charities and other public benefit organisations will be exempt from UAE Corporate Tax, subject to meeting certain conditions and being listed in a Cabinet Decision.
124. How will international airlines and shipping companies be taxed? Income earned by foreign operators of aircrafts and ships will be exempt from UAE Corporate Tax in respect of:1. providing international transportation of passengers, livestock, mail, parcels, merchandise or goods by air or by sea;2. leasing or chartering aircrafts or ships used in international transportation; or3. leasing or chartering equipment which are integral to the seaworthiness of ships or the airworthiness of aircrafts used in international transportation.This exemption would only apply where the country of the foreign airline or shipping company would grant a similar exemption to UAE operators of aircrafts and ships.
125. Will a group of UAE companies be able to form a Tax Group for UAE Corporate Tax purposes? UAE companies can apply to form a Tax Group and be treated as a single taxable person if the UAE parent company (directly or indirectly) holds at least 95% of the share capital and voting rights of each of the companies.Example: Company A owns, 20% of company B, and 100% of Company C. Company C owns 80% of the shares of Company B. Because Company A indirectly owns 100% of the shares of Company B (80% via Company C), it can form a Tax Group with both Company B and Company C.To form a Tax Group, neither the parent company nor any of the subsidiaries can be an exempt person or a Free Zone entity benefitting from the 0% Corporate Tax rate, and all companies must use the same financial year and prepare their financial statements using the same accounting standards.
126. Can UAE subsidiaries of a foreign parent company form a Tax Group for UAE Corporate Tax purposes? Being (ultimately) owned by a foreign parent company does not preclude UAE subsidiaries from forming a Tax Group, but the UAE subsidiaries must be held by an intermediary UAE parent company that will be the “parent” of the Tax Group for UAE Corporate Tax purposes.
127. Can foreign entities be included in a Tax Group? No, unless the foreign entity is managed and controlled in the UAE and considered a UAE resident entity for UAE Corporate Tax purposes. This is because only UAE resident juridical persons can form or be part of a Tax Group.
128. Will the 0% Corporate Tax rate threshold apply to the Tax Group as a whole? Yes. The 0% threshold of AED 375,000 (amount to be confirmed in a Cabinet Decision) will apply to the Tax Group as a single taxpayer, irrespective of the number of entities that form part of the Tax Group.
129. Who will be responsible for the filing of the UAE Corporate Tax and for payment of the UAE Corporate Tax due once a Tax Group is formed? Once formed, the Tax Group is treated as a single taxable person, with the parent company responsible for the administration and payment of Corporate Tax on behalf of the group.For the period they are group members, the parent company and each subsidiary will be jointly and severally liable for the UAE Corporate Tax obligations of the Tax Group. This joint and several liability can be limited to one or more named members of the Tax Group, with approval from the Federal Tax Authority.
130. Will the Tax Group need to prepare consolidated financial statements? Yes. To determine the taxable income of the Tax Group, the parent company will have to consolidate the financial accounts of each subsidiary for the relevant Tax Period, and eliminate transactions between the parent company and each subsidiary group member.
131. Will there be any relief available for transfers between group companies? Yes. 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 (i.e. not give rise to a gain or loss for Corporate Tax purposes).
132. What is a Qualifying Group? A Qualifying Group exists where all of the following conditions are met:● The members are juridical persons which are UAE residents or non-resident persons that have a permanent establishment in the UAE;● 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;● Neither member is a Qualifying Free Zone Person; and● Members prepare their financial statements using the same accounting standards, and have the same financial year.
133. Will there be any relief to facilitate mergers, spin-offs and other restructuring transactions? Yes. The UAE Corporate Tax regime allows for legal mergers, business mergers, spin-offs and other transfers and restructuring transactions that meet the conditions specified to be carried out without triggering a gain or loss for Corporate Tax purposes.
134. What records should I keep for UAE Corporate Tax purposes? Taxpayers are expected to prepare and maintain financial statements for the purposes of calculating their taxable income, and should maintain all documents and records that support the information in the Corporate Tax return or in any other filing made with the Authority.Exempt persons are required to maintain all records to support their exempt status.
135. How long must I keep my records for UAE Corporate Tax purposes? Records and documents should be kept for at least seven years following the end of the relevant Tax Period.
136. Can I use the consolidated financial statements of the group to prepare the UAE Corporate Tax return for my UAE business? No, unless the group only comprises UAE resident entities that have applied to form a Tax Group. Otherwise, each UAE entity that is subject to Corporate Tax will need to prepare and maintain stand-alone financial statements for UAE Corporate Tax purposes.
137. Will all entities that are subject to UAE Corporate Tax be required to have audited financial statements? No. Only the categories of taxable persons that are listed in a decision issued by the Minister will be required to prepare and maintain audited or certified financial statements.
138. Will the consolidated financial statements of a Tax Group need to be audited for Corporate Tax purposes? No. Only the categories of taxable persons that are listed in a decision issued by the Minister will be required to prepare and maintain audited or certified financial statements.
139. Will I need to submit my financial statements to the Federal Tax Authority? The Federal Tax Authority may request for the financial statements to be submitted alongside the Corporate Tax tax return, or for the financial statements to be provided upon request.
140. What currency do I use for UAE Corporate Tax purposes? A taxpayer’s income, deductions and credits must be measured in the national currency of the UAE (AED), and income derived and expenses incurred in a foreign currency need to be translated into AED.In principle, taxpayers are expected to translate amounts denominated in a foreign currency on a transaction-by-transaction basis. This means that the receipt of income denominated in foreign currency should be translated into AED at the time the income is derived. Similarly, each deductible expenditure denominated in a foreign currency should be translated into AED at the time the expenditure is incurred.
141. What exchange rate do I use for UAE Corporate Tax purposes? For UAE Corporate Tax purposes, all amounts must be converted to AED based on the applicable exchange rate set by the Central Bank of the UAE at the time the foreign currency transaction is to be translated into the national currency, unless the Federal Tax Authority allows the taxpayer to use an exchange rate that more accurately reflects the taxpayer’s income.
142. What is a self-assessment regime? A self-assessment regime is one where taxpayers are responsible for calculating, reporting and paying their taxes.
143. Who will be required to register for UAE Corporate Tax purposes? All taxpayers, as prescribed by the Minister, will be required to register for UAE Corporate Tax and obtain a Corporate Tax Registration Number. The Federal Tax Authority may also request certain Exempt Persons to register for UAE Corporate Tax.
144. When do I register for UAE Corporate Tax? Taxpayers are required to register before they file their first Corporate Tax return.
145. Is there a registration threshold for UAE Corporate Tax? There is no registration threshold for UAE Corporate Tax.
146. How do I register for UAE Corporate Tax? Taxpayers will be able to electronically register for UAE Corporate Tax through the website of the Federal Tax Authority. Further guidance on this will be provided in due course.
147. I am already registered for VAT purposes. Do I have to register for UAE Corporate Tax? Yes. Taxpayers will be required to register for UAE Corporate Tax (and update their details, if required), even if they are already registered for VAT.
148. How often will UAE businesses need to file a UAE Corporate Tax return? Only one UAE Corporate Tax return will need to be filed per Tax Period. The Corporate Tax return will generally be due within 9 months following the end of the Tax Period. No provisional or advance UAE Corporate Tax filings will be required.
149. I do not have any income / or my company is dormant, do I have to complete a UAE Corporate Tax return? Taxpayers are required to file a Corporate Tax return, irrespective of the level of income or the status of the company.
150. I did not make a profit for the Tax Period, do I have to complete a UAE Corporate Tax return? Taxpayers are required to file a Corporate Tax return, irrespective of whether they have made a profit or not. Taxpayers with tax losses should ensure they file a Corporate Tax return in order to ensure that these losses can be used to reduce taxable income of future years.
151. Can I file one UAE Corporate Tax return for all the companies I own? If the companies meet the requirements to form a Tax Group (see section R ‘Tax Groups’) and their application to form a Tax Group is approved, they can file a single UAE Corporate Tax return covering all the members of the Tax Group.Where companies cannot form a Tax Group, they will each be required to file a UAE Corporate Tax return on a standalone basis.
152. Will the Corporate Tax return need to be filed electronically? UAE Corporate Tax returns will need to be filed electronically. Further guidance on this will be provided in due course.
153. When do I need to pay my UAE Corporate Tax liability? UAE Corporate Tax will generally need to be paid before the end of the 9 months following the end of the relevant Tax Period.
154. How do I pay my UAE Corporate Tax liability? Further guidance on the approved payment methods will be provided in due course.
155. Will there be a requirement to pay UAE Corporate Tax in advance? No. UAE businesses will not be required to make advance UAE Corporate Tax payments. The Corporate Tax liability for a Tax Period will generally be due for payment by the end of the 9th month following the end of the relevant Tax Period.
156. Are there any consequences for non-compliance under the UAE Corporate Tax regime? Similar to other taxes in the UAE (e.g. VAT), businesses will be subject to penalties for non-compliance with the UAE Corporate Tax regime.Further information on the UAE Corporate Tax compliance obligations and applicable penalties will be released in due course.
157. Will the UAE Corporate Tax regime tax large multinationals at the global minimum tax rate? The UAE is a member of the OECD BEPS Inclusive Framework and is committed to addressing the challenges faced by tax jurisdictions internationally. As such, the introduction of a Corporate Tax regime helps to provide the UAE with a framework to adopt the Pillar Two rules.Until such time as the Pillar Two rules are adopted by the UAE, multinationals will be subject to Corporate Tax under the regular UAE Corporate Tax regime.Further information will be released in due course on the implementation of the Pillar Two rules in the UAE.
158. What is meant by “large” multinationals? A multinational corporation is a corporation that operates in its home country, as well as in other countries through a foreign subsidiaries, branches or other entity forms of presence / registration. Merely earning foreign sourced income from outside its home country without a foreign presence or registration in a foreign country would not make a business a multinational corporation.In the context of the global minimum effective tax rate as proposed under ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project, ”large” refers to a multinational corporation that has consolidated global revenues in excess of the UAE Dirham equivalent of EUR 750 million.