Ins and Outs of UAE Corporate Tax: The Ultimate Guide

The Taxation Era started already in the UAE. The introduction of Corporate Tax in the UAE brought a significant impact in the business world. Business owners, entrepreneurs, freelancers and other taxable persons must be aware of the UAE Corporate Tax Regime.

This is a SUPER-detailed UAE Corporate Tax Guide

From this guide, we are going to help you understand the ins and outs of UAE Corporate Tax.

Let’s dive right in…

Understanding the UAE first Corporate Tax Regime

The History

9 November 2022

UAE released the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses ( also referred as ‘CT Law’) 

UAE’s first corporate tax regime was applicable for businesses and other taxable persons whose financial years commencing on or after 1 June 2023

24 November 2023

The UAE government took a step further by amending its Corporate Income Tax to facilitate the future introduction of domestic minimum taxes. 

 With modification of some provisions of the original Federal Decree Law No. (47) of 2022 (CIT Law), UAE government published The Federal Decree Law No. (60) of 2023, in the Official Gazette,. 

Why did the UAE introduce Corporate Tax?

 Top Reasons

• To hold its position as a leading global economic hub and attractive destination for businesses & investors
• To advance in the development & transformation in economy, infrastructure & technology to accomplish its strategic objectives.

The why what & how of Corporate Tax UAE

What is Corporate Tax in UAE?

In UAE, the direct tax levied by the government on the net income or profit earned by businesses and other entities is called Corporate Tax. It is applicable to all the entities in the UAE, with certain entities exempted. 

Why do you need to register corporate tax?

The corporate tax regime demands that every taxable person, which includes a Free Zone Person, register for Corporate Tax and get a Registration Number.

 Who needs to register for UAE corporate tax?

Any person who is running a business in the UAE under a trade license must obtain a Tax Registration Number (TRN). All the taxable persons including Free-zone persons should register corporate tax with the FTA under the CT Law Regime.

How to register UAE Corporate Tax?

You can register for Corporate Tax through FTA-registered Portal Emaratax. You can also do VAT registration, Return Filing, and Tax deregistration through this platform.

What is a “Natural Person” under Corporate Tax Law in UAE?

An individual / a human being, despite of age, gender, who may be subject to taxation under corporate tax regime as a taxable person is called natural person.

What is a “Juridical Person” under Corporate Tax Law in UAE?

A business or an entity that is established or recognized under the UAE legislation or under the foreign jurisdiction that has a separate personality from its owners, founders, and directors is called Juridical Persons under UAE Corporate Tax 

Who is considered as “Resident Person” for UAE Corporate Tax purposes?

A business in the UAE and a natural person running a business in the UAE will be called as Resident Person under CT Law.

A company that is incorporated under foreign jurisdiction will be considered as “Resident Person” for corporate tax purposes, if properly managed and controlled in the UAE.

Who is considered a “Non-resident Person” under UAE Corporate Tax?

If a juridical person incorporated, managed and controlled in the foreign country is considered as Non-resident Person. 

If a natural person who are not engaged in business or business activity in the UAE is regarded as Non-resident Person

What is Permanent Establishment?

A Permanent Establishment is the fixed or permanent place in the UAE where a business is conducted wholly or partially by a non-resident person 

Corporate Tax Calculation

What is the qualifying income in UAE corporate tax?

The Corporate tax rate in UAE for businesses with taxable income below AED 375,000 is 0% and above AED 375,000 is 9%.

What are the penalties for failing to comply with the corporate tax regime?

 The UAE Cabinet Decision for penalizing businesses for failure of Corporate Tax application submission & late registration is effective from March 1, 2024. Businesses should pay a penalty of AED 10,000 for late registration and non-compliance.

What is considered as Taxable Income in UAE?

Taxable income is the profit or income reflected in the financial statements of a company, which is liable to adjustments for additions & reductions under CT laws & regulations. Corporate tax rate will be determined based on the threshold 

What is the process for filing corporate tax returns in the UAE?

Each taxable entity in UAE should file a Corporate Tax Return by submitting their record of expenses and income including tax liability and payments, within 9 months from the end of the relevant tax period.

How do you determine the taxable income that will be subject to UAE corporate tax?

The taxable income is the net profit of a business, that is reflected in financial statements that is prepared based on the globally approved accounting standards, after adjustments for certain items specified under the UAE Corporate Tax Law (unrealised gains/losses, entertainment, interest, donations, and other items specified in the Law).

Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from UAE corporate tax 2023, as will qualifying intra-group transactions and reorganizations that meet certain conditions.

Corporate Tax Exemptions

There are certain entities that do not subject to Corporate Tax when they meet certain conditions. Here are some tax exemption categories 

• Businesses with taxable income below AED 375,000 is exempted from Corporate Tax
• Dividend Income & capital gains earned from the qualifying shareholdings is exempted from Corporate Tax.
• Qualifying intra-group transfers & transformations will not be subject to Corporate Tax.
• Government Entities & non-profit organizations will be exempted from Corporate Tax by default.

What are the Exempted Entities under UAE Corporate Tax Law?

Certain entities are exempted by, through cabinet decision or upon CT application, as follows:

List of Entities & Income Exempted by Default via Cabinet Decision:

•  Government Entities
•  Government Controlled Entities
•  Extractive Businesses
•  Non-Extractive Natural Resource Businesses
•  Charities and Public Benefit Organizations
•  Investment Funds
•  Pension and Social Security Funds
•  Wholly Owned UAE Subsidiaries

Corporate Tax for Businesses 

The strategic move of the UAE introducing Corporate Tax, created a paradigm shift in the business world. Since UAE is enticed by its tax-friendly environment, UAE corporate Tax 2023 brought about an alarming effect in the fiscal landscape as well as the global economy.

What are the Key Benefits of Corporate Tax Implementation for Businesses?

Enhanced Financial Best Practices:

The roll out of corporate tax has forced businesses operating in the Dubai or UAE to update their regulatory compliance best practices. This is advantageous for businesses as they can enhance their financial management process & improve transparency like maintaining flawless financial records, creating accurate tax returns, conducting regular auditing & monitoring and analysing financial trends.

Revisit & Diversify Revenue Streams:

In order to counterbalance the impact of the Corporate Tax in Dubai or UAE, businesses have started exploring opportunities to diversify their revenue streams. This, ultimately, brings forth innovation & diversification in many industries as well as contribute to economic resilience

Attract Investors & Intensify International Relations: 

The Corporate Tax in Dubai/UAE is the first step taken by the government towards adhering global tax standards. Consequently, UAE has gained trust among the foreign investors & partners, thereby creating a beneficial influence in the UAE’s reputation.

Encourage Talents 

Businesses in UAE are now enabled to offer tax benefits to all their employees including expatriates as well as the Emiratis. 

How do foreign businesses operating in the UAE impacted by corporate tax?

Foreign companies who have their Permanent Establishment (PE) or Place of Effective Management or source of income in the UAE will be subject to Corporate Tax. If their annual taxable income exceeds the threshold of AED 375,000, they will be subject to Corporate Tax.

 Foreign companies will be treated equivalent with the domestic companies with the same corporate tax of 9% unless they are part of multinational enterprises (MNEs) with amalgamated revenue of EUR 750 million. If so, they may be subject to the Global Minimum Tax regime with a higher tax rate of 15%.

Do freelancers need to register for corporate tax in the UAE?

Freelancers and sole proprietors are considered taxpayers and need to register for corporate tax in Dubai or UAE, if their taxable income exceeds AED 1 million. In UAE, freelancers are also considered as business owners.

Are tax treaty benefits available for businesses in the UAE?

Businesses resident in the UAE have access to the Double Tax Treaty (DTT) Network. Other entities can claim tax treaty benefits if there is a tax treaty between their native country and the UAE. The tax treaty can help to reduce the tax liability of the business.

Will income earned by a foreign investor be subject to UAE CT Law?

Following Income earned by foreign investors will not be levied by the FTA under UAE CT Law:

• Income from Dividends 
• Capital gains
• Interest 
• Royalties & other Investment Returns

Business Restructuring relief under UAE Corporate Tax

Business Restructuring relief is introduced by the FTA under UAE CT Law to avoid the impact of transactions i.e. merger, demergers etc, that happens when a company undergoes restructuring or reorganization. 

What are the transactions covered under the Business Restructuring Relief?

• When a business is transferred as a whole or as independent parts from one Taxable Person to another.
• When a business is transferred from one or more Taxable Persons to another, and the Transferor then ceases to exist.

What are the conditions for election for Business Restructuring Relief?

Here’s the eligibility criteria for business restructuring relief:

• The transfer must have happened according to, and satisfy conditions imposed by the UAE regulations.
• Both the transferor and the transferee are Resident Persons, or Non-Resident Persons with a Permanent Establishment (PE) in the UAE
• The transferor and the transferee must not be an Exempt Person or a Qualifying Free Zone Person (QFZP) when the business restructuring transaction takes place during the relevant tax period.
• The Financial Year (FY) of transferor and transferee must be synchronized i.e. financial year should end on the same date but not necessarily have the same FY/Tax Period.
• The transferor and transferee must prepare their Financial Statements based on the same Accounting Standards.
• The transfer should be undertaken under valid commercial or non-fiscal reasons which demonstrate the economic reality.

What are the eligible transactions under Business Restructuring Relief in Corporate Tax Law?

Transactions that are eligible for Business Restructuring Relief

• A sole proprietorship business is converted into an incorporated entity by a Natural person.
• An Unincorporated Partnership submitting an application to become a taxable person.
• Legal demerger of an independent part of Business.
• Specific hive down transactions / mergers with subsidiaries.
• Legal merger or full demerger for the transfer of the entire business to the transferee.

What are the transactions that are not eligible for Business Restructuring Relief under UAE CT Law?

Transactions that are not eligible for Business Restructuring Relief:

• Assets or liabilities transferred to another Taxable Person during the liquidation process.
• Shares of subsidiaries merged into a parent company are not eligible for relief.
• Where a taxable person transfers a Business or an independent part of a Business to a wholly owned subsidiary or to its parent without the issuance of shares or other ownership interests.

Small Business Relief 

Small Business Owners! You’ve got covered under the Corporate Tax Regime

The UAE government enacted a program named as Small Business Relief just for you.

What is small business relief under UAE corporate tax?

This relief ensures small businesses are exempt from corporate tax when they meet their criteria. 

Small businesses with revenue less than AED 3 million within the applicable tax period and also meet other conditions of the Corporate Tax regime will be eligible for this benefit. But small businesses can file for tax returns and prepare their financial statements through the cash basis of accounting.

What is the eligibility for Small Business Tax Relief?

To be eligible for Small Business Relief, following conditions & criteria should be fulfilled:

Revenue: Business with maximum revenue of AED 3 million for a tax period as well as the past years. Before or on 31 December 2026.

Election: opt for Small Business Relief within the tax return of a particular tax period.

Entity Type: It must not be a Financial Institution or a Holding Company 

Resident Status: Resident persons are eligible for Small Business Relief if:

•  The juridical person is incorporated in the UAE including Free Zone
• The Juridical person incorporated outside the UAE but control and manage their operations from the UAE
• Any natural person who is running a business in UAE
• Any person as identified by the Cabinet under any decision.

Implications of Small Business Relief

If your business falls under the criteria & meets all the conditions of Small Business Relief, you can opt for Small Business Relief. By doing so, you cannot utilize certain benefits that are not applicable for businesses using this relief.

Here’s the impact of SBF:

Before applying for Small Business Relief, you will become ineligible for certain other corporate tax rules and benefits. Here are the other benefits that will not be applied for entities that are opted for small business relief:

•         Tax Loss
•         General Interest Deduction Limitation Rules
•         Exempt Income
•         Other Reliefs
•         Tax Deductions
•         Transfer Pricing Documentation
•         Tax Groups 

UAE Corporate Tax for Free Zones

Owning a business in the UAE Free Zone? You may be eligible for a 0% corporate tax rate as Qualifying Free Zone Persons (QFZPs). 

 Let’s learn:

Who will be considered as the Qualifying Free Zone Persons (QFZPs)?

Any person can operate a business in the Free Zones, but only Juridical persons with qualifying income for tax benefits, and they are known as Qualified Free Zone Persons (QFZPs).

Are UAE Free Zone Companies Still Tax-Free?

Free Zone companies can utilize tax-free benefits only if they fall under Qualified Free Zone Persons (QFZPs) category. 

How do you determine the Qualifying Income in UAE Corporate Tax?

Qualifying Income is determined based on the nature of transactions and entity type. Based on the UAE Corporate Tax laws for Free Zones, we have formed few categories for qualifying income:

Transaction with Free Zone Companies: If a Free Zone company has transactions with any other Free company, such transactions are considered as qualifying income.

Transaction with Non-Free Zone Transaction: If a Free Zone company has transactions with companies outside the Free Zone areas, it will no be called as qualifying income. 

 Other Transactions: Any other transactions made by the Free Zone companies that satisfy the de minimis requirements will be eligible qualified income.

Qualifying Intellectual Property: Income generated from the ownership of Intellectual Property (patents, copyrighted software and any rights that is equivalent to patents) will be considered as qualifying income. 

What are the Qualifying Business Activities?

The Ministerial Decision No 256, divides business activities into three for Corporate Tax Purposes: 

Qualifying Activities 

The following activities will be considered as Qualifying activities conducted by the Qualifying free zone person:

• Manufacturing of goods or materials
• Processing of any goods or materials
• Holding of shares and other securities for investment purposes
• Ownership, management, and operation of Ships
• Any Reinsurance services operating under the oversight of relevant regulatory authorities in UAE.
• Management of Fund services
• Trading of Qualifying Commodities
• Wealth and investment management services under the oversight of relevant regulatory authorities in UAE.
• Headquarters service to Related Parties
• Treasury or financing services to Related Parties 
• Financing and leasing of Aircraft, including engines.
• Distribution of goods or materials in or from a Designated Zone
• Logistics services
• And any secondary activities to the above-listed activities

What are the Excluded Activities in Free Zone under CT Law?

The income generated from the following activities will not be included in the qualifying income. These are excluded activities listed in the new Ministerial Decision No 256:

Excluded activities includes:

• Transactions with natural persons, other than transactions related to qualified activities.
• Banking, insurance, finance, and leasing activities
• Ownership or exploitation of immovable property within the UAE, except transactions with free zones.

What are the criteria Free Zone Qualifying Income Persons (QIPs)?

• Qualifying Income Persons can enjoy a 0% corporate tax rate on their qualifying income.  

• However, income from ‘excluded activities’ will not be considered as Qualifying Income.   

• Moreover, QIPs must satisfy the “de minimis” requirements. i.e., income generated from the non-qualifying activities should not be more than a certain percentage of their total revenue.   

Qualifying income also permits any other exceptional cases if the De Minimis criteria is met

What is De Minimis Requirement and its importance for determining Qualifying Income Person under UAE CT?

A free zone person must satisfy the De minimis requirement to become a qualifying freezone person.

The following criteria should be met by the free zone person to fulfil the De minimis requirements 

The non-qualifying revenue of the person should not exceed the following parameters:

1. AED 5000,000 and
2. 5% of the total revenue

Groups under UAE Corporate Tax

The Corporate Tax regime allows businesses to form an FTA-elected group under two different group structures for tax purposes by satisfying certain conditions and criteria.. This group relief is introduced to facilitate businesses with benefits like tax filing, cost-saving, operational efficiency, and tax-neutral transfer of capital assets and liabilities.

The advantage

The Group Relief in UAE Corporate Tax Law, enables a taxable person to transfer liabilities, assets, and losses to another taxable person of the group without any tax impact. 

There are two types of grouping concepts under UAE CT Law

1. Qualifying Group
2. Tax Group

What is a Qualifying Group in UAE CT Law?

The qualifying group is the strategic group formed for tax purposes, with the tax-neutral transfer of capital assets 

Criteria to form a Qualifying Group:

• Residence: Only Juridical persons are allowed to be a member of the Qualifying Group. This means that sole proprietors, freelancers, civil companies, etc cannot be included as members of the qualifying group.
• Entity Type: Members of the qualifying group should be either a resident person in the UAE or a non-resident person with permanent establishment (P.E.) in the UAE.
• Ownership: 75% of voting rights and ownership of each member must be owned by another member of the group.
• Exemption Status: The members of the group must not be exempted person or qualifying free zone person as per the CT law.
• Financial Year: All the members of the qualifying group must prepare financial statements following the same accounting standards and have the same financial year ending on the same date. They must have synchronized financial reporting and compliance but not necessarily adhere to the same accounting policies.

What is a Tax Group under CT Law?

As per Corporate Tax Law, a parent company and its subsidiaries, by satisfying certain conditions, can be considered as a tax group to be treated as a single taxable person. Tax group is elective, and the companies are required to submit a joint application to the FTA. 

Conditions for Tax Group Formation

Here is the basic condition for forming a Tax Group:

• Both the Parent Company & its Subsidiaries should be juridical persons. It is greatly possible for LLCs companies to form a tax group. Therefore, if you have a sole establishment or civil company, there is no possibility for forming a Tax Group.
• The parent company should hold a considerable ownership of at least 95% in the share capital of the subsidiaries, either directly or through an intermediate subsidiary. It needs to be noted that even though a natural person holds 95% or higher percentage ownership in all the group companies, they will not be eligible to form a tax group since there has been a juridical person that should hold ownership of 95% or more in other group companies.
• 95% of voting rights of all the subsidiaries should be possessed by their parent company.
• With respect to financial entitlement, at least 95% of profits and net assets of the subsidiary companies should be owned by the parent company. 
• Exempt persons or qualifying free zone persons cannot form or be a part of a Tax Group.
• Financial reports of all the companies should be synchronized. Therefore, the parent company and its subsidiaries must have matching financial year ends.
• Moreover, the parent company and its subsidiaries must follow the same accounting standards while preparing their financial statements.

How to form a tax group under UAE Corporate Tax Law?

If above all conditions are checked for forming a tax group, group companies must get their individual corporate tax registration done. Following that, a tax group application has to be filed to the FTA. FTA will verify your application and give approval to form a tax group for corporate tax purposes.

Note: Tax group formed under Corporate Tax regime is different from Tax Group for Value Added Tax purposes. Let’s not interlink both tax groups as they may have different companies based on the eligibility criteria.

Benefits of Forming a Tax Group under UAE Corporate Tax Law

• No tax implications on profits gained from transactions between the Tax Group Companies. Since all the intra-group transactions will be ruled out while calculating the taxable income of a Tax Group, any intra-group profits will not be considered for corporate tax.
• Single Tax Return Filing: Once a Tax Group is formed, all the companies must file for a single tax return.

Special Considerations for forming Tax Group under UAE Corporate Tax

• The parent company oversees consolidating the financial health results, assets, and liabilities of each subsidiary company in the Tax Group for the corresponding tax period, with intra-group transactions being eliminated.
• Unutilized Tax Losses from a subsidiary that is about to join an existing Tax Group will be considered as carried forward losses for the Tax Group and can offset the taxable income of the Tax Group to a certain point this income is attributable to the relevant subsidiary.
• The Unutilized Tax Losses of the existing Tax Group can’t offset the Taxable Income attributable to the new Subsidiary that joins the tax Group. 
• Tax Losses persist within the Tax Group if a subsidiary leaves the tax group, apart from any unutilised pre-grouping tax losses of the existing subsidiary
• Upon termination of a tax group, unutilized tax losses will be retained by the parent company if it is still a taxable person under corporate tax law. If not, these losses will not offset against future taxable income of individual subsidiaries excluding any unutilised pre-grouping tax losses of such subsidiaries.
• The consolidation rule is not applicable for transfer of assets or liabilities between the Tax group members if any one member leaves the Tax Group within 2 years from the date of transfer. Except the respective income is exempt from Corporate Tax Law or excluded under other provisions of Federal Decree-Law.
• Any neglected income from such transfers will be enumerated on the date a member leaves the group, adjusting the basic cost of the relevant asset or liability for Corporate Tax purposes accordingly

Adjustments applicable on UAE Corporate Tax

Since corporate tax is calculated based on the taxable income, there are few adjustments businesses should take into account while preparing their financial statements. It is crucial to incorporate these adjustments while calculating corporate tax liability. 

Key Adjustments under UAE CT Law include:

• Realized or Unrealized Gains/Losses

Any gains or losses occurred on a realized or unrealized basis in the capital account or revenue account must be factored in the taxable income calculation. 

• Depreciation, Amortisation and Value Changes

If there are any depreciation, amortization or changes in the value of assets that exceed the original cost, then it will not be included in the adjustment amount.

• Transaction with Related Parties

The transactions between the related parties i.e. a parent company and its subsidiaries or companies under common control, must adhere to the arm’s length standards. According to the arm’s length standard, the results of transactions between related parties will be considered the same as transactions between unrelated parties in the same situation.

• Transitional Rules

To ensure smooth implementation of the corporate tax for businesses, FTA has introduced transitional rules under CT Law. A taxable person may opt to adjust certain assets or liabilities under the transitional rules: 

• Qualifying Immovable Property
•  Qualifying Intangible Assets
•  Qualifying Financial Assets
•  Qualifying Financial Liabilities

Conditions For Adjustments for above-mentioned assets and liabilities

Condition #1: The assets must be owned before the first fiscal year of the taxable entity. 

Condition #2: The Assets need to be valued in the financial statements on a historical cost basis.

Condition #3: The Assets that are disposed of or deemed to be disposed of after incorporating Corporate Tax, and the value of the assets surpasses the net book value. 

Note: Condition no#3 is not mandatory for qualifying financial assets and qualifying financial liabilities 

Tax Deductions under UAE Corporate Tax Law

What is Tax Deduction under UAE Corporate Law?

An amount that is subtracted from the total taxable income of a taxable person while calculating tax liability is referred as Tax Deduction as per UAE Corporate Tax 2023. Tax deductions are legal incentives provided to the taxpayer and are deductible. This is an advantage for the taxable persons as they can minimizing the tax liability by decreasing the taxable income.

Deductible Expenditure

UAE Corporate Tax Law listed out some of the expenditures that can be claimed for deductions, ultimately reducing the Tax Payable of the taxable persons.

Expenditure incurred fully and exclusively for Business Purposes

Expenditures that are legitimate in nature and incurred wholly for business purposes are allowed for tax deduction by the taxable person. 

But expenditure of capital nature incurred during business are not deductible.

Expenditure incurred for more than one purposes

There will be certain situations where businesses utilize expenditure for dual purposes. This type of expenditure incurred for following purposes is allowed for deductions under UAE CT Law

1. An identified component of the expenditure incurred wholly or exclusively to earn Taxable Income.
2. An unidentified component of the expenditure incurred to earn Taxable Income that is calculated fairly by considering the fact and situations, that matches with Taxable Person’s business activity.

Tax Loss Provision – UAE CT Law

In the dynamic business world, losses can be sometimes unavoidable. Economic turbulence, market fluctuations, and strategic failure could be the reason for the financial distresses for businesses, specifically for small businesses.

The Corporate Tax law facilitated businesses to overcome the loss by introducing a tax loss relief provision. 

What is considered tax loss in UAE CT LAW?

If a business encounters a situation where their taxable expenses or deductions exceed the taxable income during the tax period, then it is considered as tax loss. The corporate tax law in UAE offers a solution to offset these losses against the taxable income to the future taxable period (Article 37). Since they are offset to the future taxable period, it is named as carry forward tax loss. This helps companies to reduce their taxable income, thus minimizing their tax liability.

This provision is offered to encourage businesses to file for taxation regardless of the fluctuations in their revenue, thus promoting economic resilience and advancement in the business landscape.

The carry forward tax loss should be offset to a subsequent taxation period only against that particular period. In case of remaining tax loss, it should be carry-forwarded to the next taxation period. According to article 38 of the tax law, carry-forward tax losses will be set off first, if there are tax losses transferred.

What are the situations that cannot be considered for tax loss relief?

• A taxable person or a business that fall under any of the following criteria cannot claim for tax loss relief 
• Tax losses occurred before the commencement of the corporate tax regime.
• Losses occurred from exempted assets or activities that are listed under the Federal Decree Law.

Is it possible to transfer tax losses to another taxable person?

Yes, it is possible to transfer tax losses to another taxable person under the UAE Corporate Tax regime. But they need to satisfy the below conditions mentioned in the Article 38 of the tax law. 

1. Both taxable persons should be legal entities.
2. They must be residents
3. Either one of the entities must have the ownership stake of at least 75% of the other entity. Or a third party should hold ownership (direct or indirect) of at least 75% in both entities.
4. The shared ownership must be held throughout the taxable year in which the tax loss occurs. It should be continued until the other taxable entity offsets the tax loss against its taxable income at the end of the taxable year. 
5. Both the entities should not be exempt from taxation
6. None of the entities should be qualified as a Qualifying Free Zone Person
7. Both the entities must have the same fiscal year
8. Both entities must follow the same accounting standards

Limitations on carry forward tax losses

Based on Article 39, tax losses can be carried forward under the following conditions:

• The same person should own at least 50% ownership interest in the taxable person in the entire tax period in which a tax loss is incurred.
• The taxable person should conduct the same or similar business if there is a change in ownership of more than 50%.
• Tax loss incurred from one group can be set off from the income of another group only if they hold 75% or more common ownership between them and with other conditions satisfied.
• This is not applicable for taxable person who has shares listed on a recognized stock exchange

Tax Credits under UAE Corporate Tax

Tax credits play an important role in incentivizing investment and growth, verifying that the corporate tax for businesses are harmonized between the nations while excluding/ reducing double taxation.

Let see how tax credits reduce the double taxation for businesses in the UAE and how they are benefitted

What is Double Taxation?

Double taxation is a situation where similar taxation from two different countries is applied to the same taxable person. For Example: A business may be taxed by the UAE based on its residency as well as taxed by the domestic laws of the taxpayer’s home country. This will negative impact the business process during the exchange of goods, and services or capital or technology transfer.

What are the Types of Double Taxation?

Juridical Double Taxation

Juridical Double Taxation refers to inclusion of the same income for taxation under the same tax base by one or more countries. 

For example: 

A subsidiary company whose parent company is located in mainland UAE. Such a subsidiary is considered as Foreign Permanent Establishment under UAE Corporate Tax. In normal circumstances, such a subsidiary company will be subject to tax in the UAE by considering them as an extension of a juridical resident parent. At the same time, the same subsidiary company may be subject to tax in the country in which it is incorporated. 

Economic Double Taxation

Economic Double Taxation refers to the taxation of two different taxpayers on the same taxable income (or capital).

For example, 

A multinational company may be subject to taxation on its income both at the corporate level and at the shareholder level.

What is Foreign Tax Credits under UAE Corporate Tax?

Many businesses have branches across different countries i.e, operating under different jurisdictions. These foreign branches will be considered as a permanent establishment in the foreign country, resulting in double taxation I.e their income will be subject to taxation in both the UAE and the foreign country. 

In order to avoid such incidents, businesses can claim a “Foreign Tax Credit” under CT Law, for the taxes that have been paid in another country. 

But the maximum amount of Foreign Tax Credit a business can claim will depend either on the tax owed on the foreign income by the UAE corporate tax regime or the tax paid in the foreign country (Whichever is comparatively low).

Having said that, businesses will not be able to carry any unused foreign tax credit forward or back to previous tax periods. FTA will not refund such unused foreign tax credit.
Transfer Pricing under UAE Corporate Tax

Businesses engaging in cross-border transactions must be compliant with UAE Corporate tax Law and OECD principles, by adhering to Transfer Pricing Rules.

What is Transfer Pricing?

Transfer pricing is a method used in businesses for setting prices for the exchange of goods and services between the related parties (e.g.) Transfer of goods or services between the companies that are part of the same MNE. 

The main aim of transfer pricing is to ensure transactions between related parties or group companies are processed fairly and profits among the group companies are distributed impartially.

Transfer pricing rule is processed based on arm’s length principle.

What is Arm’s Length Price?

The arm’s length price is the price of a transaction of goods or services between the two related parties which is equivalent to the price for the same transaction that happens between two independent and unrelated parties. 

The UAE Corporate Tax Law has adopted the Arm’s Length Principle in OECD Guidelines.

Who are the Related Parties under UAE Corporate Tax Law?

A related party is an individual or a company in the UAE that are related, based on its ownership, control or kinship (natural persons), to a business that is under the Corporate Tax Law.

Who are Connected Persons under UAE Corporate Tax Law?

A connected person is:

1. An individual who has an ownership interest in, or controls the taxable person (directly/indirectly)
2. A director or officer of the taxable person
3. An individual related by birth or marriage or adoption or guardianship (i.e, the fourth degree of kinship or connection) to the taxable person’s owner, director or officer. 

4. Related in Unincorporated partnership of the taxable person, any other partner in the same partnership

Conditions for Transfer Pricing Documentation under UAE Corporate Tax Law

Based on the Ministerial Decision No. 97 of 2023, the taxable persons are requested to maintain Transfer Pricing Documentation 

Here are some of the key things to know about transfer pricing in the UAE:

• Businesses should implement a transfer pricing policy to determine how they will price transactions with related parties. 
• Businesses must maintain documents that describes their transfer pricing policies. 
• Businesses may be required to perform an audit for transfer pricing by the tax authorities.

Regardless of the size or industry, the businesses must maintain the following documentation under the OECD Guidelines for Transfer Pricing

• A Master File 

Master file document should contain an overall information of the business’s transfer pricing policies and practices such as business structure, its related party transactions, and the methods they follow to decide arm’s length prices.

• A Local File

Local file document should have a detailed information of the business’s transfer pricing policies and practices of the taxable year. It contains details of related party transactions happened during the taxable year including the methods they use to determine arm’s length prices and its support documents. 

• Country-by-Country Report (If Required)

The Federal Tax Authority (FTA) requires businesses to file a CbC report if they meet specified criteria. A country-by-country (CbC) report is needed to document activities of the global operations of a multinational enterprise. 

For example: A multinational company have a consolidated group revenue of AED 3.15 billion or above in the previous fiscal year must file a CbC report.

The country-by-country (CbC) report should include:

• Their consolidated revenue information
• Profit or loss before income tax
• Income tax paid
• Stated capital
• Accumulated earnings
• Number of employees
• Tangible assets other than cash 
• business activities of each entity that are part of the MNE.

Criteria for Maintaining a Master File and Local File

• A multinational enterprise group (MNE Group) with a total consolidated group revenue of AED 3.15 billion or above in the relevant tax period; or
• Taxable persons with a revenue of AED 200 million or above in the relevant tax period

What are the Transfer Pricing Methods to determine Arm’s Length Prices?

Any one or combination of transfer pricing methods can be followed by the businesses to determine the arm’s length prices of their transactions with related and connected parties. 

• Resale price method (RPM)
• Cost Plus method (CPM)
• Comparable uncontrolled Price method (CUPM)
• Transactional Net Margin method (TNMM)
• Transactional Profit split method (TPSM)

Closing Provisions under UAE Corporate Tax

The closing provisions explains the additional part of a legislation and deals with the miscellaneous aspects of a regulations such as Act Publications, administrative policies, delegation of powers, revenue sharing and so on. 

How Delegation of Powers will be handled under UAE Corporate Tax Law?

Delegation of powers shifting powers (partly or wholly) to a subordinate authority. As per UAE Corporate Tax Law, The Minister of Finance holds the power for overseeing the corporate tax regime.

At the same time, the legislation allows for delegation of power by the Minister of Finance to the Federal Tax Authority, in situations where the Minister deems appropriate. The delegation of power is possible in two ways: Partial or Full/Complete Delegation of Power.

Administrative Policies and Procedures by Minister of Finance and the Federal Tax Authority

The Authority shall outline the administrative policies, procedures, and processes regarding the compliances to be observed and followed by a Person under the Corporate Tax Law. 

Based on Article 63, these administrative policies, procedures, and processes can be controlled by the Authority after consultation with the Ministry. This confirms that intent of the policy is aligned with the policy execution.

Cooperation between the Government Authorities and the FTA 

To ensure effective administration of the UAE Corporate Tax 2023, it is expected that the government authorities and the FTA work in conjunction.

In order to achieve that, the Corporate Tax Law demands the government authorities to: 

• Facilitate the authority with administration and enforcement of UAE Corporate Tax law
• Provide any information that the authority needs while administering and enforcing Corporate Tax Law, data, documentation or any other information 

Revenue Sharing between the Local Governments and the Federal Government 

The Corporation Tax Law established clear instructions on revenue sharing between the Local Government and Federal Government.

It states that:

Revenue Sharing: Revenue will be shared collectively between the Local Governments and the Federal Government.

Issue of a Federal Law: 

The revenue sharing provision helps in avoiding any possibilities of future conflicts between the Local and Federal Governments and enables distribution of funds both at the local and Central level.

Conflicts between provisions of International Agreements and the UAE Corporate Tax Law

The provisions of the international agreement will be applicable In case of any discrepancy between the provisions of any international agreement and the UAE Corporate Tax Law.

Implementing the provisions of the UAE Corporate Tax Law

Implementing decisions may be issued by:

The Ministry and the Federal Tax Authority

The Cabinet, on the suggestion of the Minister

The decisions will be issued periodically, for smooth and effective implementation of the provisions of the Law.

Cancellation of Conflicting Provisions 

In case of any conflict or inconsistency between the provisions of other laws to any of the provisions of the UAE Corporate Tax Law, the Corporate Tax Law supersede other laws (except International Agreements).

This aims at avoiding any confusion and ensuring that frivolous disputes do not precede the Federal Tax Authority.

Application to Tax-Periods of the UAE Corporate Tax Law

The provisions of the Corporate Tax Law began from the Tax Period commenced on 1 June 2023. 

As the Corporate Tax law regime was released in the UAE Official Gazette on October 10, 2022, the law provisions came into effect on October 25, 2022.

Violation & Penalties – UAE Corporate Tax 

If a business failed to operate as per the Corporation Tax Regime, it will be penalized depending on the nature of the violation. Penalties may be applied as percentage of the unpaid tax or as a lump-sum payment. Cabinet Decision No. 75 of 2023 underlines the penalties that businesses may face in violation of tax laws.

Violation	Administrative Fine/Penalty in AED
Failed to maintain the records and information as per the Corporate Tax and Tax Procedures Law	A penalty of AED 10,000 for each violation & Above 20,000 AED for multiple violations within 24 months
Failed to submit records, data, and tax documents in Arabic when requested by the Authority	AED 5,000
Failure or Late submission of deregistration application by the deadline	AED 1,000 each month, up to AED 10,000
Failed to inform Authorities about any amendments/changes that need to be done in tax records	For each infraction – Penalty of AED 1,000; For multiple infractions over 24 months – Penalty of More than AED 5,000
If the Legal Representative failed to notify about their appointment to the authority	AED 1,000 (Penalty may be deducted from Legal Representative’s personal funds)
The Legal Representative Failed to file a tax return within the deadline	500 AED per month for the first year and AED 1,000 per month after the 1st year (from the funds of the Legal Representative)
Failed to file an income tax return on time	AED 500 for the first 12 months and AED 1,000 for each month after the 13th months
Failed to submit tax liability within the deadline	A 14% annual monthly penalty on the amount of payable taxes, that begins the day after the payment deadline
Submitting an inaccurate Tax Return	AED 500 (if it isn’t amended within the deadline)
Submitting voluntary disclosures on errors in a tax return, tax assessment, or refund application	1% monthly penalty on the tax difference, that begins from the day after the applicable tax return, tax refund application, or tax assessment deadline
Failed to submit a voluntary disclosure knowingly about an audit	1% monthly penalty in case of Tax Difference, applicable from the filing of refund application, Tax Return, or from the date of Tax Assessment, An additional penalty of 15% may be imposed on the Tax Difference
Failed to facilitate the Tax Auditor	AED 20,000 (Penalty will be applied to the taxable Person, Legal Representative, or Tax Agent, as appropriate)
Failed to submit a declaration to authority	AED 500 after the deadline for each of the first 12 months AED 1,000 for every month starting in the thirteenth month
Failed to submit the corporate tax registration application within the deadline	AED 10,000

Timeline to File UAE Corporate Tax

The Decision No. 3 of 2024, issued by The Federal Tax Authority (the FTA) came into effect on 1 March 2024

All the taxable persons are required to register for corporate tax before filing their first corporate tax return. FTA released a structured set of timelines to register for corporate tax for the residents, non-residents, corporate and natural taxable persons under  Federal Decree-Law No. 47 of 2022 

Registration Timeline for Taxable Persons

Here is the Corporate Tax Registration Deadline in UAE 

 For Juridical persons that are resident persons before 1 March 2024

Date/Month of the License Issuance	Deadline for Registration under the CT Law
1 January – 28/29 February	31 May 2024
1 March – 30 April	30 June 2024
1 May – 31 May	31 July 2024
1 June – 30 June	31 August 2024
1 July – 31 July	30 September 2024
1 August – 30 September	31 October 2024
1 October – 30 November 2024	30 November 2024
1 December – 31 December	31 December 2024

 

For Juridical persons that are resident persons on or after 1 March 2024

A person established under UAE Laws & Regulations (including the Free Zone), should register before the date after 3 months of their establishment.

A person established under Foreign Jurisdictions but managed and controlled in the UAE, should register before the date after 3 months after the end of the financial year of that person.

For Juridical persons that are Non-Resident Persons before 1 March 2024

A non-resident person having a Permanent Establishment in the UAE, should register for corporate tax within the date falling nine months after the formation of the Permanent Establishment in the UAE.

A non-resident person having a nexus in the UAE, should register within the date falling three months after 1 March 2024.

For Juridical persons that are Non-Resident Persons on or after 1 March 2024

A non-resident person having a Permanent Establishment in the UAE should register on the date falling six months after the launch of the Permanent Establishment.

A non-resident person having a nexus in the UAE should register on the date falling three months after the establishment of the nexus.

For Resident natural persons who conducts businesses / business activities during 2024

The deadline to submit a tax registration application for resident natural persons is 31 March 2025.  

31 March of every subsequent year when the person becomes eligible for corporate tax registration.

For Non-resident natural persons conducts businesses / business activities during 2024 

The corporate tax registration deadline UAE for non-resident natural persons is 3 months after becoming a taxable person under corporate tax regime.

Taxation Timeline by Financial Year 

Financial Year 1 June 2023 to 31 May 2024

For businesses operating in the UAE during the financial year from 1 June 2023 to 31 May 2024, the following timeline must be adhered to:

Financial Year 1 June 2023 to 31 May 2024
Tax Period	Date
Period of Registration (24 Months)	1 January 2023 to 28 February 2025
Application of Corporate Tax Law	1 June 2023
First Tax Period	1 June 2023 to 31 May 2024
Return Filing Period	1 June 2024 to 28 February 2025
Return Filing Due Date for First Tax Period	28 February 2025
Second Tax Period	1 June 2024 to 31 May 2025

 

Financial Year 1 January 2024 to 31 December 2024

For the financial year starting from 1 January 2024 to 31 December 2024, businesses must follow this timeline:

Financial Year 1 January 2024 to 31 December 2024
Tax Period	Date
Period of Registration ( 24 Months)	1 January 2023 to 30 September 2025
Application of Corporate Tax Law	1 June 2023
First Tax Period	1 January 2024 to 31 December 2024
Return Filing Period	1 January 2025 to 30 September 2025
Return Filing Due Date for First Tax Period	30 September 2025
Second Tax Period	1 January 2025 to 31 December 2025

 

Financial Year 1 April 2024 to 31 March 2025

For the fiscal starting from 1 April 2024 to 31 March 2025, the following timeline applies:

Financial Year 1 April 2024 to 31 March 2025
Tax Period	Date
Period of Registration ( 24 Months)	1 January 2023 to 31 December 2025
Application of Corporate Tax Law	1 June 2023
First Tax Period	1 April 2024 to 31 March 2025
Return Filing Period	1 April 2025 to 31 December 2025
Return Filing Due Date for First Tax Period	31 December 2025
Second Tax Period	1 April 2025 to 31 March 2026

Corporate Tax Registration & Filing

What are the steps for Corporate Tax Registration in UAE?

• • Determine the Eligibility
  • Apply for Tax Registration number (TRN)
  • Gather Documents required for CT Registration

• Submit the Tax Registration Application

How to register for Corporate Tax in UAE?

All the taxable person should register for Corporate Tax, either obligatorily, or voluntarily based on the criteria defined by the Federal Law on taxation. 

All the taxable persons in the UAE, except certain exempted entities, should register and file for Corporate Tax. 

For that they must obtain a TRN, file annual tax returns, and submit financial statements under IFRS (International Financial Reporting Standards). 

What is TRN?

A Tax Registration Number (TRN) is a unique number provided for all businesses that operate in UAE. This number will be used by the company and its branches for any tax-related transaction. 

All eligible taxable person can register for UAE Corporation Tax online through the EmaraTax Platform. Type the URL >> https://eservices.tax.gov.ae/#/Logon to access tax services online in UAE.

They can register through the EmaraTax platform to register for Corporate Tax. EmaraTax platform is integrated with government entities and national technology-based programs such as UAE PASS. Businesses can sign up to the EmaraTax using an FTA account or UAE pass.

What is EmaraTax?

EmaraTax is the digital platform launched by the FTA dedicated to the taxable persons in UAE to access tax services online such as tax registration, tax payment, return filing, and claiming tax refund etc.

What are the Steps to Register Corporate Tax in UAE?

Herer are the steps for corporate tax registration:

Step 1: Login to EmaraTax Platform

Log into your EmaraTax account with your credentials or through the UAE Pass. Link taxable persons to your profile and select ‘Register’ on the Corporate Tax. Read the guidelines and click ‘Start’ to proceed.

Step 2: Enter Entity Details

Add your entity information including Entity Type, Entity Sub-type, Registered Country, Incorporation Date and Corporate Tax Period and Click ‘Next Step’.

Step 3: Enter Identification Details

Enter you identification details like Main Trade License Details, Business Activity, Owner Details, Local Branch Details, Contact Details, Authorized Signatory, and Review & Declaration

Step 4: Add Contact Details

Add your registered address, enter other business contact information and click ‘Next Step’.

Step 5: Authorized Signatory

Enter the Authorized Signatory information:

If the Authorized Signatory is not a resident of UAE, select ‘No’ and enter the Passport information.

Add the Memorandum of Association document and Click ‘Next Step’ to proceed.

Step 6: Review & Declaration

Under Review and Declaration section, you will be able to verify all the information you have entered to register corporate tax. Review and submit your corporate tax application. 

After successful application submission, a Reference Number will be provided to you. The reference number can be used for future communication with FTA.

Corporate Tax Filing in UAE

To liberate the administrative burden for the taxable persons, the CT regime requires a taxable person to file only one tax return for each tax period. The tax filing should be done within nine months from the end of the relevant tax period.

Documents Required for Corporate Tax Return Filing

• Financial Records 
• Computation of Taxable Income
• Tax Depreciation Worksheets
• Transfer Pricing Records
• Transactions Involving Relatives
• Provisions Movement
• Audited Financial Statements
• Evidence for Exempt Status

How to apply for a corporate tax refund?

The Taxable Person can request for a refund to the FTA in the following situations:

• When Withholding Tax Credit is above Corporate Tax Payable
• When Corporate Tax paid is more than the Tax Payable

Situations when Refund of Corporate Tax is Not Available

Under following circumstances, a taxable person cannot apply for a corporate tax refund:

• Amount of Tax disputed

If there are other disputed tax amounts in relation to that taxable person

• Taxable Person is subject to Tax Audit

If the taxable person is liable to a tax audit, and meet the conditions outlined in a decision of FTA’s board of directors.

• Order of Competent Court

In compliance with an order of the Competent Court

Corporate Tax Deregistration

Corporate tax deregistration is the process that allows taxable persons to cease their liability from corporate tax.

What are the reasons for Corporate Tax Deregistration?

A taxable person can decide to deregister from corporate tax under following reasons:

• Closure of Business
• Transfer of Ownership
• Merger of Business
• Re-Domiciliation of Business

What is the Timeline for Corporate Tax Deregistration?

A natural person should file for corporate tax deregistration within the 3 months from the cessation date of the business or business activity.

 A juridical person should file for corporate tax deregistration within 3 months from the date when the business ceases to exist, or liquidate, or any other reasons.

What are the processes to be completed before corporate tax deregistration?

A taxable person cannot be approved corporate tax deregistration if:

• If all the CT returns are not filed, including return for the tax period of cessation of the business.
• All the tax dues are not paid
• All the administrative penalties liable under the CT law are not paid

What is the process of Corporate Tax Deregistration in UAE?

The process of UAE corporate tax deregistration involves the following steps:

• Log in to EmaraTax: Login using credentials or UAE Pass
• Enter details in the De-Registration application:  Enter details of cessation of business or activity, and add any supporting documentation. Also include buyer/transferee information if necessary.
• Application Review: Once applied for Deregistration, the FTA will review the application and may request additional information if necessary
• Receive confirmation of De-registration: FTA notify the approval for your application and should file Tax Return for the final tax period.

How KGRN can help?

Taxation is the best opportunity to measure your financial status, ensuring your business is on the right path to financial-wellbeing. 

Our seasoned tax experts are here to help you navigate through the complexities of corporate tax regulations and maximize your returns. By partnering with KGRN, you will experience stress-free corporate tax registration and expert guidance every step of the way