Strategic finance for growing UAE businesses

Corporate Tax is a direct tax imposed on the net income or earnings of corporations and other business entities. In some jurisdictions it is also known as Corporate Income Tax or Business Profits Tax.

Corporate Tax applies to legal entities incorporated in the UAE and to foreign legal entities effectively managed and controlled in the UAE. A foreign legal entity operating here through a Permanent Establishment, or otherwise having a taxable presence, is also liable. For individuals, Corporate Tax applies where they carry on a business or business activity in the UAE, whether directly or through an unincorporated partnership or sole proprietorship. Cabinet Decision No. 49 of 2023 sets out the criteria that bring natural persons within scope.

Yes. UAE Corporate Tax is a federal tax and is enforced uniformly across all Emirates.

The following are exempt, either automatically or on application: the UAE Federal and Emirate Governments, their departments, authorities and other public institutions; wholly government-owned companies carrying out a mandated activity listed in a Cabinet Decision; businesses extracting UAE natural resources and related non-extractive activities subject to Emirate-level taxation, on meeting certain conditions; Public Benefit Entities listed in a Cabinet Decision; Investment Funds meeting the prescribed conditions; public or private pension and social security funds meeting certain conditions; and UAE juridical persons wholly owned and controlled by certain exempt entities, on meeting certain conditions.

The regime applies to financial years starting on or after 1 June 2023. A business with a financial year running 1 July 2023 to 30 June 2024 became subject to Corporate Tax from 1 July 2023. A business with a financial year running 1 January 2023 to 31 December 2023 became subject from 1 January 2024, that being the start of its first financial year beginning on or after 1 June 2023.

Corporate Tax is imposed annually, so a Tax Period must be specified. It is normally the Gregorian calendar year, 1 January to 31 December, unless the business uses a different 12-month period to prepare its financial statements.

Alongside the 0% rate on taxable income up to and including AED 375,000, businesses with revenue below AED 3 million can claim Small Business Relief. They are then treated as having no taxable income for the relevant Tax Period and may face simplified compliance obligations. An election must be made to the FTA to claim it.

Yes. Juridical persons established in a UAE Free Zone are Taxable Persons and must comply with the Corporate Tax Law. However, a Free Zone Person that meets the conditions to be a Qualifying Free Zone Person can benefit from a 0% rate on its Qualifying Income.

Yes. UAE companies can apply to form a Tax Group and be treated as a single taxable person where the UAE parent holds, directly or indirectly, at least 95% of the share capital and voting rights of each company. For example, if Company A owns 20% of Company B and 100% of Company C, and Company C owns 80% of Company B, then Company A indirectly owns 100% of Company B and can form a Tax Group with both. Neither the parent nor any subsidiary may be an exempt person or a Free Zone entity benefiting from the 0% rate, and all companies must share the same financial year and accounting standards.

Taxpayers must prepare and maintain financial statements for calculating taxable income, and keep all documents and records supporting the information in the Corporate Tax return or any other filing made with the Authority. Exempt persons must keep all records supporting their exempt status.

Records and documents should be kept for at least seven years following the end of the relevant Tax Period.

Financial statements should be prepared in accordance with accounting standards accepted in the UAE. International Financial Reporting Standards (IFRS) are the most widely used in the UAE.

In principle all legitimate business expenses incurred to derive taxable income are deductible, though the timing of the deduction varies with the type of expense and the accounting method used. Capital assets are generally recognised through depreciation or amortisation over the economic life of the asset. Expenditure with a dual purpose, such as costs incurred for both personal and business reasons, must be apportioned, with the relevant portion treated as incurred wholly and exclusively for the business.