UAE Corporate Tax (UAE CT)

UAE Corporate Tax (UAE CT) is a form of direct tax levied on the net income or profit of corporations and other businesses. CT is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.

The UAE CT regime will become effective for financial years starting on or after 1 June 2023.

Who is taxable under UAE CT?

CT will apply to both resident and nonresident persons.

A resident person will include:

• A juridical person incorporated otherwise established or recognized in the UAE (including free zones)
• A juridical person incorporated otherwise established or recognized outside of the UAE, that is effectively managed and controlled in the UAE
• A natural person that conducts business activity in the UAE

A non-resident person can be subject to CT if it has a permanent establishment (PE) in the UAE, derives UAE-sourced income or has a nexus in the UAE (nexus rules are still to be specified through a Ministerial Decision).

Who 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.

Who is exempt from UAE CT?

The following persons are exempt from UAE CT, 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.

How much are UAE CT rates?

Who is a Qualifying Free Zone Persons?

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; and
4. Not have made an election to be subject to CT in full.

How to determine the taxable income of UAE CT?

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:

1. Unrealised gains and losses (subject to the election made regarding the application of the realisation principle);

2. Exempt income such as qualifying dividends and capital gains;

3. Income arising on intra-group transfers;

4. Deductions which are not allowable for tax purposes;

5. Transactions with Related Parties and Connected Persons;

6. Transfers of tax losses within the group where relevant;

7. Incentives or tax reliefs; and

8. Any other adjustments as specified by the Minister.

What income is exempt from UAE CT?

The following income is exempt from UAE CT:

• Dividends and other profit distributions received from UAE incorporated or resident legal persons;

• Dividends and other profit distributions received from a Participating Interest in a foreign juridical person

• Certain other income (e.g., capital gains, foreign exchange gains / losses and impairment gains or losses) from a Participating Interest

• Income from a foreign branch or permanent establishment where an election is made to claim the “Foreign Permanent Establishment” exemption; and

• Income earned by non-residents from the operation or leasing of aircrafts or ships in international transportation where certain conditions are met.

If a business has earned taxable income of AED 1 million, what will be the UAE CT amount payable?

The CT liability will be calculated as follows:

• Taxable income of AED 375,000 (amount to be confirmed in a Cabinet Decision) subject to CT 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 CT at 9%: (AED 1,000,000 – AED 375,000) = AED 625,000 x 9% = AED 56,250

• The UAE CT liability for the Tax Period will be AED 0 + AED 56,250 = AED 56,250

The final amount of UAE CT payable can be reduced by available tax credits