As you are aware that UAE government has implemented corporate tax for all businesses in UAE. Some silent features of corporate tax in UAE are as under:-

What is Corporate Tax?
Corporate Tax is a form of direct tax levied on the net income of corporations and other businesses.

What is the Corporate Tax rate?
Corporate Tax will be levied at a headline rate of 9% on Taxable Income exceeding AED 3,75,000. The rate of corporate tax is as under:-

Resident Taxable Person Tax Rate
Taxable Income <= AED 3,75,000   0%
 Taxable Income > AED 3,75,000                      9%
Qualifying Free Zones Person     Tax Rate
Qualifying Income                                                                                   0%
 Taxable Income that does not meet the  qualifying income definition                        9%

Who is subject to Corporate Tax?

Corporate Tax applies to the following “Taxable Persons”:
  •  UAE companies and other legal persons that are incorporated or effectively managed and controlled in the UAE;
  • Natural persons (individuals) who conduct a Business or Business Activity in the UAE and
  • Non-resident legal persons (foreign legal entities) that have a Permanent Establishment in the UAE.
  • Juridical persons established in a UAE Free Zone are also Taxable Persons and will need to comply with the requirements of Corporate Tax Law. However, a Free Zone Person that meets the conditions to be considered a Qualifying Free Zone Person can benefit from a Corporate Tax rate of 0% on their Qualifying Income.

Who is exempt from Corporate Tax?

Automatically exempt

  • Government Entities

  • Government controlled entities that are specified in a Cabinet Decision

Exempt if notified to the Ministry of Finance

  • Extractive Businesses

  • Non-Extractive Natural Resource Businesses

Exempt if listed in a Cabinet Decision

  • Qualifying Public Benefit Entities

Exempt if applied to and approved by the Federal Tax Authority

  • Public or private pension and social security funds

  • Qualifying investment funds

  • Wholly-owned and controlled UAE subsidiaries of a Government Entity, a Government controlled entity, a Qualifying Investment, or a public or private pension or social security fund.

How is a Taxable Person subject to Corporate Tax?
The UAE Corporate Tax Law taxes income on both a residence and source basis. The applicable basis of taxation depends on the classification of the Taxable Person.

  • A “Resident Person” is taxed on income derived from both domestic and foreign sources (i.e. a residence basis). 

  • A “Non-Resident Person” will be taxed only on income derived from sources within the UAE (i.e. a source basis).

Who is a Resident Person?

  • Companies and other juridical persons that are incorporated or otherwise formed or recognised under the laws of the UAE will automatically be considered a Resident Person for Corporate Tax purposes.

  • Foreign companies and other juridical persons may also be treated as Resident Persons for Corporate Tax purposes where they are effectively managed and controlled in the UAE.

  • Natural persons will be subject to Corporate Tax as a “Resident Person” on income from both domestic and foreign sources, but only insofar as such income is derived from a Business or Business Activity conducted by the natural person in the UAE. (Any other income earned by a natural person would not be within the scope of Corporate Tax).

Who is a Non-Resident Person?

Non-Resident Persons are juridical persons who are not Resident Persons and:

  • have a Permanent Establishment in the UAE; or

  • derive State Sourced Income.

Non-Resident Persons will be subject to Corporate Tax on Taxable Income that is attributable to their Permanent Establishment.
Certain UAE sourced income of a Non-Resident Person that is not attributable to a Permanent Establishment in the UAE will be subject to Withholding Tax at the rate of 0%.

What is a Permanent Establishment? 

The concept of Permanent Establishment is an important principle of international tax law used in corporate tax regimes across the world. The main purpose of the Permanent Establishment concept in the UAE Corporate Tax Law is to determine if and when a foreign person has established sufficient presence in the UAE to warrant the business profits of that foreign person to be subject to Corporate Tax. 
The definition of Permanent Establishment in the Corporate Tax Law has been designed on the basis of the definition provided in Article 5 of the OECD Model Tax Convention on Income and Capital and the position adopted by the UAE under the Multilateral Instrument to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.

How Corporate Tax is calculated?

Corporate Tax is imposed on Taxable Income earned by a Taxable Person in a Tax Period.
Corporate Tax would generally be imposed annually, with the Corporate Tax liability calculated by the Taxable Person on a self-assessment basis. This means that the calculation and payment of Corporate Tax is done through the filing of a Corporate Tax Return with the Federal Tax Authority by the Taxable Person.
The starting point for calculating Taxable Income is the Taxable Person’s accounting income (i.e. net profit or loss before tax) as per their financial statements. The Taxable Person will then need to make certain adjustments to determine their Taxable Income for the relevant Tax Period. For example, adjustments to accounting income may need to be made for income that is exempt from Corporate Tax and for expenditure that is wholly or partially non-deductible for Corporate Tax purposes. 

Which income is exempt from corporate tax?

The Corporate Tax Law also exempts certain types of income from Corporate Tax. This means that a Taxable Persons will not be subject to Corporate Tax on such income and cannot claim a deduction for any related expenditure. Taxable Persons who earn exempt income will remain subject to Corporate Tax on their Taxable Income.

The main purpose of certain income being exempt from Corporate Tax is to prevent double taxation on certain types of income. Specifically, dividends and capital gains earned from domestic and foreign shareholdings will generally be exempt from Corporate Tax.

Furthermore, a Resident Person can elect, subject to certain conditions, to not take into account income from a foreign Permanent Establishment for UAE Corporate Tax purposes.

What expenses are deductible?

  • Revenue expenditure:- In principle, all legitimate business expenses incurred wholly and exclusively for the purposes of deriving Taxable Income will be deductible, although the timing of the deduction may vary for different types of expenses and the accounting method applied.

  • For capital assets:- expenditure would generally be recognized by way of depreciation or amortization deductions over the economic life of the asset or benefit.

  • Expenditure that has a dual purpose, such as expenses incurred for both personal and business purposes, will need to be apportioned with the relevant portion of the expenditure treated as deductible if incurred wholly and exclusively for the purpose of the taxable person’s business. 

  • Accounting expenses :- Certain expenses which are deductible under general accounting rules may not be fully deductible for Corporate Tax purposes. These will need to be added back to the Accounting Income for the purposes of determining the Taxable Income. 

Examples of expenditure that is or may not be deductible (partially or in full) include: 

Types of Expenditures

Limitations to Deductibility

  • Bribes

  • Fines and penalties (other than amounts awarded as compensation for damages or breach of contract).

  • Donations, grants or gifts made to an entity that is not a Qualifying public Benefit Entity.

  • Dividends and other profits distributions.

  • Corporate Tax imposed under the Corporate Tax Law

  •  Expenditure not incurred wholly and exclusively for the purposes of the Taxable person's business

  • Expenditure incurred in deriving income that is exempt from Corporate Tax

No Deduction

  • Client entertainment expenditure

Partial deduction of 50% of the amount of the expenditure.

  • Interest expenditure

Deduction of net interest expenditure exceeding a certain de minimis threshold up to 30% of the amount of earnings before the deduction of interest, tax, depreciation and amortisation (except for certain activities).



When can a Free Zone Person be a Qualifying Free Zone Person?

A Free Zone Person that is a Qualifying Free Zone Person can benefit from a preferential Corporate Tax rate of 0% on their “Qualifying Income” only. In order to be considered a Qualifying Free Zone Person, the Free Zone Person must:

  • maintain adequate substance in the UAE;

  • derive ‘Qualifying Income’;

  • not have made an election to be subject to Corporate Tax at the standard rates; and

  • comply with the transfer pricing requirements under the Corporate Tax Law.

If a Qualifying Free Zone Person fails to meet any of the conditions, or makes an election to be subject to the regular Corporate Tax regime, they will be subject to the standard rates of Corporate Tax from the beginning of the Tax Period where they failed to meet the conditions.

Registering, filing and paying Corporate Tax

All Taxable Persons (including Free Zone Persons) will be required to register for Corporate Tax and obtain a Corporate Tax Registration Number. The Federal Tax Authority may also request certain Exempt Persons to register for Corporate Tax.

Taxable Persons are required to file a Corporate Tax return for each Tax Period within 9 months from the end of the relevant period. The same deadline would generally apply for the payment of any Corporate Tax due in respect of the Tax Period for which a return is filed.

Illustrated below are examples of the registration, filing and payment deadlines associated for Taxable Persons with a Tax Period (Financial Year) ending on 31 May or 31 December (respectively). 






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