The United Arab Emirates ("UAE") has issued Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“Law”) on 9 December 2022, imposing 9% rate on Taxable Income exceeding AED375,000. Income below this threshold will be subject to a 0% rate of corporate tax.
Corporate Tax (“CT”) is effective as of 1st June 2023and is applicable to the following Taxable Persons[i]:
- UAE companies or other juridical persons that are incorporated in the UAE;
- UAE companies or other juridical persons thatare effectively managed or controlled from the UAE;
- Natural persons (individuals) who conduct a Business or Business Activity in the UAE (to be specified in a coming Cabinet Decision;
- Foreign legal entities that have a Permanent Establishment in the UAE.
Certain entities such as government or government-controlled entities are automatically exempt, whereas others, such as Qualifying Investment Funds, are only exempt if an application is made to the Federal Tax Authority and they have approved such exemption.
For businesses with a financial year from 1 June – 31 May, the first tax return filing date is 28 Feb 2025.
For businesses with a financial year from 1 January – 31December, the first tax return filing date is 30 September 2025.
Free zone entities may claim benefit as Qualifying Free ZonePersons, but are otherwise subject to 9% CT above a certain threshold ontheir Non-Qualifying Income.
In order to be considered a Qualifying Free Zone Persons, the free zone entity must:
- maintain adequate substance in the UAE;
- derive Qualifying Income;
- not elected to be subject to CT at the standard rates; and
- comply with the transfer pricing requirements under the Law.
If the free zone entity fails to meet any of the abovementioned conditions, it will be subject to the standard rate of CT from the beginning of the tax period where it failed to meet any of the above mentioned conditions.
We are still waiting on the Cabinet Decisions to clarify crucial points such as what would count as “Qualifying Income”; the transfer pricing provisions; to add more detail on permitted adjustments and reliefs; to shed more light on the kind of exemptions granted; and other implementing details in relation to the Law.
In the meantime, it is crucial that the businesses conduct an impact assessment that the CT will have on their operations, legal structure and VAT compliance. Businesses should consider beginning the registration process in preparation for the first filing date.
Lecocqassociate maintains the latest information and updates in relation to CT, please feel free to get in touch with us if you have any queries.
[i] All defined terms are as stated in the Law.