UAE Corporate Tax; Rates, Exemptions, Tax Period and Return Filings
let us take a look at the rates, exemptions, tax period and return filings details for better planning of UAE Corporate Tax
UAE Corporate Tax is a tax levied on the net income of businesses with effect from June 1st 2023. All business entities are required to register and start preparing their tax records so that tax compliance could be done to avoid possible penal actions. The net profit of businesses will be adjusted to the taxable profit. If the taxable profit exceeds the limit of Dhs. 375,000, the exceeding amount will be taxed @9% on taxable income and if the taxable profit is equal or below the Dhs. 375,000 limits, the tax rate will be 0% on it. The tax will be applied to business incomes only and not to personal incomes. https://mof.gov.ae/corporate-tax/
Computation of taxable income and self-assessment
The accounting profit is subject to adjustments as per the UAE Corporate Tax Law. The adjustments will be made on a fully admissible, partially admissible or not admissible basis. Therefore, the accounting profit as such would not apply to the tax thresholds. It must be adjusted for items as per the tax law provisions. The net profit after making the adjustments will be called, the taxable profit or the tax loss. Each business entity is required to submit the tax returns as per the deadlines on a self-assessment basis.
Financial statements and Audit:
There is as such no requirement for the audited accounts to the registration under CT law with the FTA. Further, there is as such no requirement for the audited financials for submitting the audited financials. The FTA may order certain business categories to submit the audited financials along with the CT returns. For the rest of the business entities, the authority may request the set of financials along with the CT return.
The tax period and financial year of all companies are the same. Companies are required to mention the financial year during the registration process. The companies that have a financial year starting from 01/06/23 shall also have their tax year starting from 01/06/23. Other companies can find out their tax year according to this rule. Following is the table that provides deadlines for the registration and filing of CT returns as per the CT law.
|
Case |
Financial Year |
First Tax Year |
Deadline for |
||||
|
From |
To |
From |
To |
Tax Registration |
Filing Return |
Paying Tax |
|
|
1 |
01-06-23 |
31-05-24 |
01-06-23 |
31-05-24 |
28-02-25 |
28-02-25 |
28-02-25 |
|
2 |
01-07-23 |
30-06-24 |
01-07-23 |
30-06-24 |
31-03-25 |
31-03-25 |
31-03-25 |
|
3 |
01-08-23 |
31-07-24 |
01-08-23 |
31-07-24 |
30-04-25 |
30-04-25 |
30-04-25 |
|
4 |
01-09-23 |
31-08-24 |
01-09-23 |
31-08-24 |
31-05-25 |
31-05-25 |
31-05-25 |
|
5 |
01-10-23 |
30-09-24 |
01-10-23 |
30-09-24 |
30-06-25 |
30-06-25 |
30-06-25 |
|
6 |
01-11-23 |
31-10-24 |
01-11-23 |
31-10-24 |
31-07-25 |
31-07-25 |
31-07-25 |
|
7 |
01-12-23 |
30-11-24 |
01-12-23 |
30-11-24 |
31-08-25 |
31-08-25 |
31-08-25 |
|
8 |
01-01-24 |
31-12-24 |
01-01-24 |
31-12-24 |
30-09-25 |
30-09-25 |
30-09-25 |
|
9 |
01-02-24 |
31-01-25 |
01-02-24 |
31-01-25 |
31-10-25 |
31-10-25 |
31-10-25 |
|
10 |
01-03-24 |
28-02-25 |
01-03-24 |
28-02-25 |
30-11-25 |
30-11-25 |
30-11-25 |
|
11 |
01-04-24 |
31-03-25 |
01-04-24 |
31-03-25 |
31-12-25 |
31-12-25 |
31-12-25 |
|
12 |
01-05-24 |
30-04-25 |
01-05-24 |
30-04-25 |
30-01-26 |
30-01-26 |
30-01-26 |
This table above covers twelve illustrations of the financial year starting and finding the tax registration date and the deadline for the filing of the tax return with the FTA. It is advisable to complete the registration process before the filing of the returns. There is as such no official deadline for the registration date. So practically, all companies have time till the date of filing the first CT return. We recommend not going for the last day for all things: registration, filing of returns and payment of the tax liability.
What record to maintain and time limit:
A Taxable Person shall maintain all records and documents for a period of (7) seven years following the end of the Tax Period to which they relate that:
- Support the information to be provided in a Tax Return or in any other document to be filed with the Authority.
- Enable the Taxable Person’s Taxable Income to be readily ascertained by the Authority.
An Exempt Person shall maintain all records that enable the Exempt Person’s status to be readily ascertained by the Authority for a period of (7) seven years following the end of the Tax Period to which they relate.
Illustrative Application of tax rates:
The following table highlights how the tax rates would apply to the taxable profits of the business entities:
|
Description |
Company 1 |
Company 2 |
Company 3 |
Company 4 |
Company 5 |
|
Dhs. |
Dhs. |
Dhs. |
Dhs. |
Dhs. |
|
|
Taxable Income/(Tax Loss) |
(150,000) |
(220,000) |
375,000 |
376,000 |
500,000 |
|
Rate Applicable: |
|||||
|
0% |
Yes |
Yes |
Yes |
No |
No |
|
9% |
No |
No |
No |
Yes |
Yes |
|
Amount Tax Rate 9% Applicable |
– |
– |
– |
1,000 |
125,000 |
|
Tax Payable (Liability) |
– |
– |
– |
90 |
11,250 |
|
Need to Register & File Returns |
Yes |
Yes |
Yes |
Yes |
Yes |
Carry forward of tax losses:
This law has provided to carry forward all losses (i.e., 100%) for the indefinite period. These tax losses can be adjusted against future taxable profits up to 75%. The following table explains these tax rules vividly:
Alpha Numeric Company
Adjustment of Carry Forward Losses
Tax Period 1 to 12
|
Case |
Tax Year |
Taxable Profit/(Tax Loss) |
Carry Forward Loss (100%) |
Adjustable Profit (75%) |
Balance Profit After Tax Adjustment |
Taxable Threshold |
Taxable Proft @0% |
Taxable Proft @9% |
Tax Liability@9% |
|
Dhs. ‘000 |
Dhs. ‘000 |
Dhs. ‘000 |
Dhs. ‘000 |
Dhs. ‘000 |
Dhs. ‘000 |
Dhs. ‘000 |
Dhs. ‘000 |
||
|
A |
1 |
(500) |
500.00 |
– |
– |
375 |
– |
– |
– |
|
B |
2 |
(1,000) |
1,500.00 |
– |
– |
375 |
– |
– |
– |
|
C |
3 |
(1,500) |
3,000.00 |
– |
– |
375 |
– |
– |
– |
|
D |
4 |
(2,000) |
5,000.00 |
– |
– |
375 |
– |
– |
– |
|
E |
5 |
(2,500) |
7,500.00 |
– |
– |
375 |
– |
– |
– |
|
F |
6 |
– |
7,500.00 |
– |
– |
375 |
– |
– |
– |
|
G |
7 |
500 |
7,125.00 |
375.00 |
125.00 |
375 |
125 |
– |
– |
|
H |
8 |
1,000 |
6,375.00 |
750.00 |
250.00 |
375 |
250 |
– |
– |
|
I |
9 |
1,500 |
5,250.00 |
1,125.00 |
375.00 |
375 |
375 |
– |
– |
|
J |
10 |
2,000 |
3,750.00 |
1,500.00 |
500.00 |
375 |
– |
125 |
11.25 |
|
K |
11 |
2,500 |
1,875.00 |
1,875.00 |
625.00 |
375 |
– |
250 |
22.50 |
|
M |
12 |
5,000 |
– |
1,875.00 |
3,125.00 |
375 |
– |
2,750 |
247.50 |
|
5,000 |
– |
7,500 |
5,000.00 |
750.00 |
3,125.00 |
281.25 |
|||
|
Note |
This example includes 0% and 9% thresholds under the CT Law |
||||||||
Notes: The earnings or income terms used in the CT law mean Net Profit before Tax, as CT law applies to this income only. All other incomes should not be considered during the reading of these notes too.
The profit calculated by a company may be adjusted according to the tax rules for admissible or inadmissible or partially admissible:
|
# |
Type of Expense |
Status |
|
1 |
Fines and penalties (other than amounts awarded as compensation for damages or breach of contract) |
Not Allowed |
|
2 |
Expenditure incurred in deriving income that is exempt from CT |
Not Allowed |
|
3 |
Expenditure not incurred wholly and exclusively for the Taxable person’s Business |
Not Allowed |
|
4 |
Corporate Tax imposed under the Corporate Tax Law |
Not Allowed |
|
5 |
Dividends and other profits distributions |
Not Allowed |
|
6 |
Donations, grants or gifts made to an entity that is not a Qualifying Public Benefit Entity |
Not Allowed |
|
7 |
Client entertainment expenditure |
50% Allowed |
|
8 |
Interest Expense |
30% of EBITDA |
Transfer Prices Implications:
- Article 9 of the OECD Model Tax Convention describes the rules for the Arm’s Length Principle. It states that transfer prices between two commonly controlled entities must be treated as if they are two independent entities, and therefore negotiate at arm’s length.
- The Arm’s Length Principle is based on real markets and provides a single international standard of tax computation, which enables the tax authorities to collect their share of tax and at the same time creates enough provisions for MNCs to avoid double taxation.
- Reducing income and corporate taxes in high-tax countries by overpricing goods that are transferred to countries with lower tax rates helps companies obtain higher profit margins.
Index of UAE Corporate Tax Law
|
Subject |
Description |
Article |
|
Applicable Rates |
CT is levied on the company’s taxable income at the following rates: 0% of the share of taxable income up to 375,000 AED. 9% of taxable income above AED 375,000. CT is charged to qualified free zone persons (as defined in Chapter 5) at the following rates: 0% of qualifying income (as defined in Chapter 5). 9% of taxable income from not qualifying income. |
3 |
|
Exempt Person |
The following persons shall be exempt from CT: A Government entity. A Government controlled entity. A person engaged in extractive business. A person engaged in a non-extractive natural resource business. A qualifying public benefit entity. A qualifying investment fund. A public/private pension or social security fund. A juridical person incorporated in the UAE that is wholly owned and controlled by an exempt person as specified in (a), (b), (f) and (g) under certain conditions. |
4-10 |
|
Taxable Person |
Resident Person: Resident means any of the following: Legal entities registered in the UAE, including persons in the Free Zone. A legal entity incorporated in a foreign jurisdiction that is effectively managed and controlled in the UAE; Natural persons (individuals) who conduct a Business or Business Activity in the UAE as specified in a Cabinet Decision to be issued in due course. Non-resident Person: A non-resident is a person who is not considered a resident and that either: Has a PE in the UAE. Derives state-sourced income. Non-Resident Persons will be subject to CT on Taxable Income that is attributable to their PE (which is explained under Section 8). Certain UAE-sourced income of a Non-Resident Person that is not attributable to a PE in the UAE will be subject to Withholding Tax at the rate of 0%. |
11 & 12 |
|
Corporate Tax Base |
Resident: Resident legal entities are subject to CT on: A Resident person will be taxed on their worldwide income. A Resident, who is a natural person pays CT on income from UAE and outside the UAE as it relates to a business or business activity carried out by the natural person. Non-resident: Non-residents are subject to CT on: Taxable income attributable to a non-resident permanent establishment in the UAE. State-sourced income that is not attributable to the PE of a non-resident person in the UAE. Taxable income attributable to the nexus of a non-resident person in the UAE.
Permanent Establishment: A non-resident in the UAE has a PE in any of the following circumstances: If the non-resident person’s business, or any portion thereof, is conducted through a fixed or permanent place within the UAE. Whenever a person has the authority to conduct business or engage in another activity within the UAE on a non-resident’s behalf. |
11 & 12 |
|
Free Zone Person |
Qualifying Free Zone Person: A Qualifying Free Zone Person (QFZP) has to meet the following conditions to benefit from a 0% tax rate: Maintain the Adequate Substance in the UAE. Receives a Qualifying Income (to be defined in due course). Should not elect to be subject to CT as per Article 19. Comply with Transfer Pricing (TP) and Arm’s Length Principle (ALP). A QFZP shall be subject to the 0% CT for the balance of the tax incentive period specified in the applicable Free Zone legislation in which the QFZP is registered. This time frame can be extended, but it can’t go beyond 50 years. Choosing to be subject to CT: Any person who qualifies for a free zone may choose to be charged with CT at the standard rate. |
18 |
|
Calculating Taxable Income |
General rules for determining taxable income: Based on standalone financial statements prepared following the recognized accounting standards in the UAE, taxable income will be assessed. An accounting income will become taxable income after that is adjusted for the following: unrealized gain or loss; exempt income; reliefs; deductions; related party transactions; relief from tax loss; and incentives or special reliefs designated by the MoF When preparing financial statements on an accrual basis, a taxable person may choose to account for gains and losses on a realization basis for the following assets and liabilities: those subject to fair value or impairment accounting; those held on capital accounts at the end of the tax period. Small Business Relief: The resident taxpayer may choose to be treated as not having derived any taxable income for that tax period if revenue for the current tax period and any prior tax periods does not exceed a threshold that the MoF will determine (anticipated AED 375,000). Additional requirements could also be imposed by the MoF. |
20 |
|
Exempt Income |
Dividend and other profit distribution from a resident juridical person: Distributions of dividends and other profits from a resident juridical person are exempt from CT. Participation exemption: If the requisite conditions are satisfied, dividends, other profit distributions, capital gains, and any other income (including foreign exchange gains and impairment gains with the participating interest) from a participating interest should be exempt from CT;
If the following conditions are met: A minimum of 5% ownership stake in the participation’s shares or capital. Ownership for at least 12 months straight (or the intention to do so). Participation is subject to CT in its jurisdiction at a rate of at least 9%. Ownership interests that would not be eligible for the participation exemption if held indirectly by the taxable person make up no more than 50% of the direct and indirect assets of the participation. Foreign PE exemption: An option for a resident person is to choose not to consider the income and related expenses of his foreign PE. All foreign PEs that are taxed at a rate of at least 9% are included in the exemption. |
22- 25 |
|
Reliefs |
Transfers within a Qualifying Group: There will be no gain or loss from the transfer of any assets or liabilities between two taxable individuals who are members of the same qualifying group. A holding period of at least two years following the transfer is required. If not, market value will be used to determine the event of a transfer. Business Restructuring Relief: In a qualifying business restructuring exercise involving two taxable persons, neither gain nor loss may result. A holding period of at least two years following the restructuring date is required. Otherwise, rather than using the net book value as previously stated, market value shall be used to calculate the event of restructuring. |
26 & 27 |
|
Deductions |
Deductible Expenditure: Except as otherwise provided in the CT Law as being admissible or partially admissible for the tax deduction (e.g., donations, fines or penalties, bribes or related payments, dividends or profit distribution, taxes including VAT, etc.), expenses incurred wholly and exclusively for the taxable person’s business that are not capital in nature are deductible in the tax period in which they are incurred. Interest Expense: Subject to exemptions and exclusions (including potential exclusions of a certain quantum (to be) announced by the MoF or already expressly prohibited elsewhere in the CT Law), the net interest expenditure shall be deductible up to 30% of the taxable person’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITA) (excluding exempt income) for the relevant tax period. The balance interest may be carried forward and deducted in the subsequent (10) ten tax periods. Any entertainment, amusement, or recreation expense incurred during a tax period may be written off up to 50% of the cost, subject to certain exclusions. |
28- 33 |
|
Tax Group Provisions (Continued) |
A subsidiary may join or leave an existing tax group under certain circumstances, and the CT Law specifies when the tax group shall cease to exist. Taxable income of a tax group: To avoid transactions between the parent company and each subsidiary that is a part of the tax group, the parent company shall consolidate the financial results, assets, and liabilities of each subsidiary. When a new subsidiary joins the tax group, when a subsidiary leaves the tax group, or when the tax group is terminated, specific rules will apply to the use of any unutilized tax losses of the new subsidiary. |
|
|
Reporting Currency for CT Returns |
Currency: All amounts in the CT return must be converted into Emirati Dirhams. Any Non-AED amount must be converted to AED using exchange rates given by the UAE Central Bank. |
43 |
|
Payment & Refund of CT |
Payment and refund of CT: CT payable must be paid within nine (9) months of the conclusion of the applicable tax period or by the deadline specified by the FTA. In certain situations, a CT refund may be requested. |
48 & 49 |
|
Anti-Abuse Rules |
GAAR – The General Anti-abuse Rules issued in December 2022 however are applicable from October 2022, later elaborated on by the cabinet Intention – Disregard a transaction or an arrangement designed mainly to obtain CT advantage. When is it applicable? Upon fulfilment of the following two conditions: Entering into the transaction or an arrangement, without valid commercial rationale or economic reality, and, The main purpose or one of the main purposes is to obtain a CT advantage. CT’s advantage includes: Incorrect or excess refund claim. Non-payment or short payment of CT. Deferral of CT payment or advancement of refund. Non-withholding of tax. What are the Implications? The FTA can counteract or adjust CT advantages obtained, which may include: Allowing or disallowing any exemption/deduction/relief. Allocation of exemption/deduction or relief to another person; Re-characterization of the nature of any payment. Disregarding the effect of other CT provisions. Adjustments to CT liability of any other person. Activities requiring evaluation from a GAAR perspective, before implementation: The decision for changing the financial year. Any planning or restructuring activities. Any changes in the transaction with related parties on account of CT Law. In cases where tax advantages are obtained because of any transaction or arrangement where its main purpose or one of its main purposes is to obtain a tax advantage, the CT introduces a general anti-abuse rule where the FTA may counteract or adjust the taxable basis. |
50 |
|
Tax Returns & Related Clarifications |
Tax Returns: It is recommended that tax returns be filed no later than nine months after the conclusion of the applicable tax period. A tax return for the tax group must be submitted to the FTA by the parent company. Financial Statements: The FTA may ask taxpayers for the financial statements that were used to calculate their taxable income. The MoF has the authority to make a decision mandating the maintenance of audited or certified financial statements by specific categories of taxable persons. Transfer Pricing Documentation: The FTA may require a taxable person to submit a disclosure form with their tax return that details their dealings and contracts with their Related Parties and Connected Persons. If a taxable person’s transactions with its related parties and connected persons for a tax period meet certain criteria established by the MoF, the Master File (MF) and Local File (LF) must be maintained. The MF and LF must be submitted within 30 days of the FTA’s request or at a later time that the FTA specifies. Tax Period: The tax period is the financial year or part thereof for which a tax return is required to be filed. Subject to certain conditions, taxable persons can request to change their tax period. Clarifications: To conclude an advance pricing agreement and/or to clarify how the CT Law will be applied, taxable individuals may apply. |
53-59 |
|
Transitional Regulation |
The closing balance sheet prepared for financial reporting purposes following UAE accounting standards on the final business day of the financial year that ends just before the start of the first tax period shall be the opening balance. The arm’s length principle should be applied when preparing it. The general anti-abuse rule shall apply to all agreements and transactions made on or after the date the CT Law is published in the Official Gazette. |
61 |
|
International Agreements |
International Agreements: The provisions of any International Agreements in force in the UAE shall not be superseded by the CT Law. |
66 |
Abbreviations Used
|
# |
Abbreviation |
Full Form |
|
1 |
AED. or Dhs. |
Emirati Dirham |
|
2 |
CT |
Corporate Tax |
|
3 |
FTA |
Federal Tax Authority |
|
4 |
UAE |
United Arab Emirates |
|
5 |
MoF |
Ministry of Finance |
|
6 |
MF |
Master File |
|
7 |
LF |
Local File |
|
8 |
TP |
Transfer Pricing |
|
9 |
RP |
Related Party |
|
10 |
PE |
Permanent Establishment |
|
11 |
CB |
The Central Bank, UAE |
|
12 |
GAAR |
The General Anti-Abuse Rules |
|
13 |
EBITDA |
Earnings Before Interest Depreciation and Amortization |
|
14 |
FZ |
Free Zone |
|
15 |
QFZP |
Qualifying Free Zone Person |
|
16 |
QI |
Qualifying Income |
|
17 |
QFZ |
Qualifying Free Zone |
|
18 |
ALP |
Arm’s Length Principle |
|
19 |
WT |
Withholding Tax |
|
20 |
RP |
Resident Person |
|
21 |
NRP |
Non-Resident Person |
|
22 |
NPBT |
Net Profit Before Tax |
|
23 |
QG |
Qualifying Group |
|
24 |
AT |
Advance Tax |