Corporate Tax in the UAE 
‍A Guide for Businesses

WHAT IS CORPORATION TAX? 

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Corporation tax (also referred to as corporate tax), is a form of direct tax levied on the net income of corporations and other businesses. Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions. It serves as a means for governments to generate revenue and ensure that companies contribute their fair share to public finances.The specific regulations and tax rates associated with corporation tax can vary from country to country and even within different regions or states. Typically, corporations are required to calculate their tax liability by applying the applicable tax rate to their taxable profits, which is determined by deducting allowable expenses from their gross income.

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Companies are usually obligated to file annual tax returns, providing financial information and reporting their corporation tax liability. The tax liability must be paid to the relevant tax authority within specified timeframes.

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Various tax incentives and provisions may be available to companies, enabling them to reduce their taxable profits. These can include deductions for research and development expenses, tax credits for specific activities, or incentives for investment in certain industries.

It is crucial for businesses to stay informed about the ever-evolving tax laws and regulations related to corporation tax. Seeking guidance from tax professionals or consultants can help ensure compliance with applicable tax legislation and optimise a company's tax position.

Remember that taxation laws and practices can vary across jurisdictions, so consulting with local tax experts is essential for accurate and up-to-date information regarding corporation tax in a specific country or region.

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ABOUT THE UAE 

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The United Arab Emirates (UAE) has achieved remarkable success in diversifying its economy, transitioning from an oil-dependent nation to a diversified and thriving economy. Through strategic investments, innovative initiatives, and hosting major international events like Expo 2020 Dubai, the UAE has established itself as a global business and tourism destination. Key factors driving this transformation include the development of free zones, the rise of tourism, the emergence of financial hubs, a focus on renewable energy, and the adoption of emerging technologies. 

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Diversified Economy: The UAE has successfully diversified its economy from a heavy reliance on oil to a dynamic and diversified economy. While oil and gas still play a significant role, the UAE has made substantial investments in sectors such as finance, tourism, real estate, manufacturing, logistics, and renewable energy. This diversification strategy has helped reduce dependence on oil revenue and foster sustainable economic growth.

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Free Zones: The UAE is renowned for its extensive network of free zones, which are designated areas with special regulations and incentives to attract foreign investment and drive economic growth. These free zones offer companies tax exemptions, 100% foreign ownership, streamlined business setup processes, and flexible regulations. They have played an instrumental role in attracting multinational corporations, fostering entrepreneurship, and boosting trade and investment in the UAE.

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Tourism Hub: The UAE has emerged as a leading global tourism destination, welcoming millions of visitors each year. The country boasts iconic attractions such as the Burj Khalifa, Palm Jumeirah, Sheikh Zayed Grand Mosque, and hosts cultural events like the Dubai Shopping Festival and Abu Dhabi Grand Prix. The tourism sector has experienced significant growth, contributing to job creation, infrastructure development, and economic diversification.

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Global Trade Center: With its strategic location at the crossroads of Asia, Europe, and Africa, the UAE has established itself as a thriving global trade hub. Key ports like Jebel Ali in Dubai and Khalifa Port in Abu Dhabi are among the busiest and most advanced in the region, facilitating international trade and re-export. The UAE's robust logistics infrastructure, connectivity, and business-friendly environment have made it an attractive destination for global trade and investment.

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Financial Center: Dubai has emerged as a leading financial centre in the Middle East, hosting numerous international banks, financial institutions, and the Dubai Financial Market (DFM), a vibrant stock exchange. The Dubai International Financial Centre (DIFC) is a prominent financial free zone that attracts global firms and serves as a regional hub for finance and investment. The UAE's financial sector has witnessed remarkable growth, offering a wide range of financial services and contributing to the country's economic development.

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Renewable Energy Initiatives: The UAE has demonstrated a strong commitment to promoting renewable energy and sustainability. It is home to the world's largest single-site solar power project, the Mohammed bin Rashid Al Maktoum Solar Park. The UAE has set ambitious goals to increase the share of clean energy in its total energy mix, investing in solar and wind energy projects, energy-efficient infrastructure, and sustainable development initiatives. These efforts contribute to environmental preservation and the transition to a more sustainable future.

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Artificial Intelligence and Innovation: The UAE is at the forefront of embracing emerging technologies such as artificial intelligence (AI) and blockchain. Initiatives like the Dubai Blockchain Strategy and the UAE Artificial Intelligence Strategy aim to position the country as a global leader in AI and blockchain adoption. The UAE encourages innovation and entrepreneurship, fostering a vibrant startup ecosystem and attracting tech-savvy professionals and businesses to contribute to its technological advancements and economic growth.

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Expo 2020 Dubai: The UAE successfully hosted Expo 2020 Dubai, a landmark international exhibition that showcased innovation, culture, and economic opportunities. The event attracted millions of visitors from around the world, providing a significant boost to various sectors of the economy, including tourism, hospitality, construction, and retail. Expo 2020 Dubai left a lasting legacy in terms of infrastructure development, knowledge exchange, and business collaborations, further enhancing the UAE's global reputation and economic prospects.

These facts highlight the UAE's impressive economic achievements, diversified economy, and its emergence as a prominent global business and tourism destination. The country's strategic vision, robust infrastructure investments, focus on innovation, and commitment to sustainability have played a pivotal role in driving economic growth and positioning the UAE as a thriving economy in the region.

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Strategies for future economy in the UAE: 

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The Fifty Economic Plan: launched by the UAE Ministry of Economy, is a strategic roadmap for building a future-focused economy. It focuses on five pillars: integrated economy, entrepreneurship and SMEs, tourism, foreign direct investment and exports, and attracting and retaining talent. The plan aims to achieve significant economic growth by 2030 by fostering a thriving business environment, supporting local companies, and exploring emerging sectors like space technologies and digital entertainment. It also emphasises ease of doing business, supporting family businesses, and incentivizing investment.

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The UAE's Green Growth Strategy: This aims to achieve sustainability across economic, social, and environmental sectors, reducing reliance on oil resources. It seeks to position the UAE as a global leader in the green economy, facilitating the export and re-export of green products and technologies while fostering long-term economic growth. The strategy encompasses six key streams: green energy, investment promotion in a green economy, sustainable cities, climate change adaptation, promoting sustainable lifestyles, and advancing green technologies. Through comprehensive programs and policies, the UAE strives to enhance quality of life and create a sustainable future.

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National program for Artificial intelligence 2031: The UAE stands as a leading nation well-prepared to embrace technological advancements, evident in its robust infrastructure dedicated to enhancing the lives of individuals and communities. Aligned with the UAE Centennial 2071 vision, this groundbreaking strategy encompasses eight strategic objectives, five themes, and a range of initiatives, with a particular focus on harnessing artificial intelligence (AI) to drive progress in vital sectors such as education and the economy. By optimising government performance, fostering social happiness, creating a high-value regional market, supporting private sector initiatives, and boosting productivity, the strategy targets key sectors including transportation, healthcare, space, renewable energy, water, technology, education, environment, and traffic.

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UAE circular economy policy: The Circular Economy Policy sets a clear path for sustainable economic management, promoting the efficient use of natural resources and adopting sustainable consumption and production methods. Its objective is to ensure a high-quality lifestyle for present and future generations, optimize resource consumption, and minimize waste. The policy also aims to enhance environmental well-being and encourage the private sector to adopt cleaner industrial practices and technologies, aligning with the UAE's vision of leadership in green development. Key outcomes of this policy include significant economic gains, reduced environmental pressures, resource security, enhanced competitiveness, fostered innovation, strengthened economic growth, and job creation opportunities.

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In conclusion, the UAE's strategic initiatives demonstrate a strong commitment to building a sustainable and future-oriented economy. The Fifty Economic Plan outlines key pillars for economic growth, including fostering an integrated economy, supporting entrepreneurship and SMEs, promoting tourism, attracting foreign direct investment, and nurturing talent. Additionally, the Green Growth Strategy positions the UAE as a global leader in technological change and circular economy, with a focus on green energy, sustainable cities, climate change adaptation, and the utilization of artificial intelligence. These efforts not only drive economic prosperity but also prioritize environmental health and the well-being of citizens, paving the way for a promising future for the UAE and its generations to come.

Corporate Tax (CT), also known as “Corporate Income Tax” or “Business Profits Tax”, is a form of direct tax gathered based on the net income of corporations, and small and medium businesses. 
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Corporate Tax Rates

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The UAE offers one of the lowest tax rates, especially compared to European countries.

The Ministry of Finance set the official Corporate Tax rates at:

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• 0% for taxable income up to AED 375,000
• 9% for taxable income over AED 375,000
• A yet undisclosed CT rate for multinational businesses that meet criteria within the OECD Base Erosion and Profit Shifting Project
• 0% withholding tax can apply to some UAE-sourced income paid to non-residents (transactions between UAE resident individuals are excluded)

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The UAE introduced the modest 9% CT rate with small and medium businesses in mind.
They also care for the UAE to become the go-to for international trade and investments. 

The UAE corporate tax will become effective as of June 1, 2023. 

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Corporate Tax Period

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Based on the business’s financial year, the following provisions will apply: 

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1. For businesses with a financial year between 1st July 2023 and 30th June 2024, CT will be in effect as of 1st July 2023.
2. For businesses with a financial year between 1st January 2023 and 31st December 2023, the financial year will be in effect as of 1st January 2024.
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The Good
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✔️ Corporate tax helps the UAE government create a fruitful environment for SMEs 

✔️ Taxpayers can help finance SMEs’ further infrastructure development 

✔️ The UAE government can provide grants and subsidies to boost SMEs’ development 

✔️ The Small Business Relief (SBR) can help small businesses reduce their overall costs

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The Bad

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❌ Small businesses may experience higher compliance and other administrative costs 

❌ CT and VAT remain two different types of taxes small businesses need to register for

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Before registering for CT, small businesses operating in the UAE will have to do a thorough review of their business operations and provide the necessary revenue paperwork. 

The 3 main business jurisdictions in the UAE are Mainland, Free Zone, and Offshore, each differently affected by the CT regime: 

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• Mainland companies that meet the threshold are obligated to pay a 9% CT on above-the-threshold profits earned from UAE
• Free Zone companies that earn Qualifying Income and satisfy certain criteria are not subject to Corporate Tax in the UAE
• Offshore companies mainly operate internationally, and are not subject to the UAE Corporate Tax or VAT
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Free Zones
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Free Zones play a huge role in fueling UAE's growth. In terms of Free Zones and Corporate Tax, the income Free Zone companies make can be Qualifying or Non-Qualifying.
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• Qualifying Income is taxed at a 0% rate 
• Non-Qualifying Income is taxed at a 9% rate. 
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Depending on income, Free Zone companies need to maintain their account books accordingly. Business owners also need to have an understanding of their business activities, revenue generation and cash flow resources.

Free Zone companies that want to belong to the 'Qualifying Free Zone Person' need to:
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• Have a permanent office space, staff, and majority of business operations in the UAE
• Earn Qualifying Income
• Be compliant with the Free Zone Tax regime
• Transfer pricing rules & business paperwork
• Trade with businesses that are also located in a Free Zone

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Special provisions
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• Free zone entities with a Mainland branch will be taxed 9% on their Mainland income. 
• Mainland-sourced income that is considered ‘passive income’ will be taxed at 0%. Such are Intellectual Property rights, royalties, capital invested in mainland businesses, etc.
• The 9% CT on UAE Free Zone only applies to non-qualifying income businesses.
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Offshore Companies
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The main three offshore company zones in the UAE include Jebel Ali Offshore (JAFZA), Ras Al Khaimah International Corporate Centre (RAK ICC), and Ajman offshore company formation. The three jurisdictions are tax-free, both from income and corporate tax and enable 100% ownership for foreign investors and businesses. Ras Al Khaimah and JAFZA are the most popular options for offshore companies in the UAE, with Ras Al Khaimah being the go-to. 

Offshore companies can do international business and are allowed to create a bank account in the UAE across multiple currencies. This bank account will require offshore businesses to obtain a certificate of incorporation of the offshore company. 
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Offshore companies do not need a UAE-residency investor or UAE-based office. An offshore business can be created solely by a qualified agent from a UAE company. This agent will run all financial and registration affairs of the offshore company. 
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To set up an Offshore Company in the UAE, you’ll need the following documents:
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• Certified passport copies
• 2x Proof of address documents
• Bank Reference Letter
• A brief resume of shareholders and directors
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Holding Companies
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All UAE holding companies are subject to the UAE Corporate Tax, at a 9% CT rate or a 0% Free Zone CT rate. This depends on whether the holding company is established in a Free Zone or the UAE Mainlands.

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At the same time, all capital gains as well as dividends that a business earned from domestic and foreign shareholdings will be exempt from CT.
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Entirely-owned UAE investment holding companies can apply to the Federal Tax Authority to benefit from the UAE CT exemption granted to the investment fund.
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Branches
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Free Zone CT does not forbid a Qualifying Free Zone Person to operate beyond a Free Zone, whether in the Mainland UAE or in a foreign jurisdiction. But, all income from domestic and foreign branches, as well as any permanent establishment of the Qualifying Free Zone Person will be subject to a 9% UAE Corporate Tax rate.

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For foreign Permanent Establishments, a Qualifying Free Zone Person can claim double taxation relief in accordance with the Corporate Tax Law or the relevant double tax treaty.
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Tax Group
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The UAE Decree on Corporate Tax allows for a resident group of companies to create a ‘tax group’ by meeting certain conditions. For any created tax group, there will be a single tax return per group. Typically, the net income/loss status of a tax group is estimated and considered in order to calculate the UAE Corporate Tax Liability. 

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If the tax group option is not available or preferred by a group of businesses, the UAE set another provision for the transfer of tax losses between group companies that meet some ancillary conditions. This way, tax losses from one UAE group company will be used to balance the taxable income of another group company.

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The conditions UAE businesses must meet to transfer tax losses from one company to another during the same tax period include:

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• Both companies have to be UAE resident juridical persons
• Either company will own 75% or more of the other. Or, a third entity will own 75% or more of both entities, with the ownership existing at the start and end of the Tax Period during which the loss was sustained
• None of the companies is an Exempt Person
• None of the companies is labelled a Qualifying Free Zone business
• The financial statements are prepared using the same accounting standards and the same financial year.

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As soon as a tax group is created, it will be treated as a single taxable entity. In this case, the parent company will be in charge of the administration and CT payment, on behalf of the group.

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For as long as the group members exist, the parent company and its subsidiaries will have joined and several liabilities for the UAE CT obligations the tax group has. This liability can be limited to one or more tax group members approved by the Federal Tax Authority. 

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Transactions that take place between members of a Tax Group will not be included in the group’s financial results statements. Hence, they don’t have to comply with the transfer pricing rules, unless a tax group member requires stand-alone Taxable Income for utilising Tax Losses incurred before the grouping, or leaves the Tax Group.
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Government
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The Ministry of Finance noted that all government and government-controlled bodies are exempt from the upcoming UAE tax. Together with this, the UAE governmental Cabinet has the power to exempt people from the CT, at the suggestion of the finance minister. 

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Non-UAE residents who only earn a UAE-sourced income and don’t have a permanent business in the UAE will not be required to register for tax. 

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The UAE Federal Tax Authority (FTA) will be in charge of the administration and collection of the new Corporate Tax. In terms of service fee deductibles, all business setups, licence renewals and other Government fees and charges completed within the regular course of the business will be deductible for CT purposes.

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MoF’s objective is to optimise the management and development of the federal government's financial resources through proactive fiscal policies, exceptional capabilities, and robust local and international relationships. By adhering to best practices, we strive to achieve sustainable development and maintain the integrity of the fiscal system. Our focus is on efficient resource allocation, effective financial strategies, and fostering strong partnerships to drive progress and ensure long-term stability

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Ministry of Finance (MoF): The Ministry of Finance is a crucial government entity entrusted with managing the UAE's financial affairs. It plays a pivotal role in developing and implementing economic and financial policies aligned with the country's strategic goals. The MoF is responsible for budget planning, fiscal management, public finance, and ensuring transparency and accountability in government expenditures. Through its diligent efforts, the MoF promotes responsible financial governance and sustains the UAE's strong economic foundation.

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Federal Tax Authority (FTA): The Federal Tax Authority is the primary governmental body responsible for implementing and administering taxes in the UAE. Established in 2017, the FTA focuses on overseeing the introduction and effective implementation of various taxes, notably the Value Added Tax (VAT), across the country. Its responsibilities encompass tax registration, issuing tax regulations and guidelines, monitoring compliance, conducting audits, and resolving tax-related disputes. The FTA's efforts are instrumental in ensuring the fair and efficient administration of the UAE's tax laws.

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Value Added Tax (VAT) Implementation: The UAE introduced the Value Added Tax (VAT) system on January 1, 2018. VAT is a consumption-based tax levied on goods and services at each stage of the supply chain. The standard VAT rate in the UAE is set at 5%, with certain goods and services classified as exempt or zero-rated. The FTA oversees the registration of businesses for VAT, provides guidance on compliance, and conducts audits to ensure adherence to VAT regulations. The implementation of VAT has significantly contributed to the UAE's revenue diversification and fiscal sustainability.

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Tax Compliance and Reporting: The FTA has established a comprehensive framework for tax compliance and reporting in the UAE. Businesses meeting specific criteria are required to register for VAT and regularly file tax returns. The FTA provides user-friendly online portals for businesses to register, submit returns, and make tax payments. Additionally, the FTA conducts awareness campaigns, workshops, and offers guidance to assist businesses in understanding and fulfilling their tax obligations. By fostering a culture of tax compliance, the FTA supports the UAE's sustainable economic growth.

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International Cooperation: The FTA actively engages in international cooperation and collaboration to enhance tax administration practices. It works closely with esteemed organisations such as the Organisation for Economic Co-operation and Development (OECD) and actively participates in international forums on tax matters. The UAE's commitment to adhering to international tax standards and fostering cooperation helps promote transparency, combat tax evasion, and strengthen the global tax ecosystem.

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Ministry of Finance Strategic Goals
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1. Promote the fiscal planning of the Federal Government and the general fiscal sustainability.
2. Improve efficiency and effectiveness of the budget and manage the financial position and cash flows of the Federal Government.
3. Maintain the financial and economic interests of the UAE at an international level.
4. Strengthen the UAE’s competitiveness in the fiscal and economic fields.
5. Render all administrative services as per the highest standards of quality, efficiency and transparency.
6. Enhance the culture of innovation in the organisational work environment. ​​​​​​

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In conclusion, the Ministry of Finance plays a crucial role in managing the UAE's financial affairs, while the Federal Tax Authority ensures the effective implementation and administration of tax regulations. Their collective efforts contribute to the UAE's robust financial system, sustainable economic growth, and reputation as a responsible global player in taxation.

Corporate Tax is imposed on Taxable Income earned by a Taxable Person in a Tax Period. 

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Corporate Tax would generally be imposed annually, with the Corporate Tax liability calculated by the Taxable Person on a self-assessment basis. 

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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.
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Exempt Income
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The Corporate Tax Law 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.

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The main purpose of certain income being exempt from Corporate Tax is to prevent double taxation on certain types of income. 
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• 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.
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Deductible Expenses
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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 amortisation deductions over the economic life of the asset or benefit.  

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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. 
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Limitation to Deductibility
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Client Entertainment Expenditure

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

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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).
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Non-Deductible Expenses
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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. 
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• 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

Transfers Within a Qualifying Group
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No gain or loss needs to be taken into account in determining the Taxable Income in relation to the transfer of one or more assets or liabilities between two Taxable Persons that are members of the same Qualifying Group

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Conditions:
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1. The Taxable Persons are juridical persons that are Resident Persons, or NonResident Persons that have a Permanent Establishment in the State.
2. Either Taxable Person has a direct or indirect ownership interest of at least 75% (seventy-five percent) in the other Taxable Person, or a third Person has a direct or indirect ownership interest of at least 75% (seventy-five percent) in each of the Taxable Persons
3. None of the Persons are an Exempt Person.
4. None of the Persons are a Qualifying Free Zone Person.
5. The Financial Year of each of the Taxable Persons ends on the same date.
6. Both Taxable Persons prepare their financial statements using the same accounting standards.
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Business Restructuring Relief
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No gain or loss needs to be taken into account in determining Taxable Income in any of the following circumstances:
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1. A Taxable Person transfers its entire Business or an independent part of its Business to another Person who is a Taxable Person or will become a Taxable Person as a result of the transfer in exchange for shares or other ownership interests of the Taxable Person that is the transferee.
2. One or more Taxable Persons transfer their entire Business to another Person who is a Taxable Person or will become a Taxable Person as a result of the transfer in exchange for shares or other ownership interests of the Taxable Person that is the transferee, and the Taxable Person or Taxable Persons that are the transferor cease to exist as a result of the transfer.

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Conditions:
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1. The transfer is undertaken in accordance with, and meets all the conditions imposed by, the applicable legislation of the State.
2. The Taxable Persons are Resident Persons, or Non-Resident Persons that have a Permanent Establishment in the State.
3. None of the Persons are an Exempt Person.
4. None of the Persons are a Qualifying Free Zone Person.
5. The Financial Year of each of the Taxable Persons ends on the same date.
6. The Taxable Persons prepare their financial statements using the same accounting standards.
7. The transfer is undertaken for valid commercial or other non-fiscal reasons which reflect economic reality.

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Taxable entities in the UAE will have the opportunity to offset the foreign corporate tax paid on their taxable income in the UAE — by claiming it as a credit against their annual tax liability. 

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Foreign Tax Credit

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Many UAE business entities operate across different jurisdictions, typically via foreign branches.
Foreign branches with a permanent establishment in a foreign country will pay Corporate Tax (or an equivalent) based on the income they made in that country. 

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In that case, the UAE will allow entities a Foreign Tax Credit to compensate them for the tax the business paid in a foreign jurisdiction and prevent double taxation. 

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The maximum Foreign Tax Credit will be determined by the lowest of: 

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• The amount of tax the entity paid in a foreign jurisdiction
• The UAE CT payable on the foreign-sourced income

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The FTA will not repay any unused foreign tax credits, nor will they be allowed to be carried forward or return to previous tax years.
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Double Taxation Relief Methods in UAE

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• Exemption Method — A certain income is taxed in one of the two countries only
• Tax Credit Method — Under the laws and Double Taxation Agreement (DTA), income can be taxed in both countries. But, the taxpayer's country of residence, will allow them to offset the source country taxation. 
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Withholding Tax

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Withholding tax is a type of Corporate Tax that is paid by a paying source, on behalf of the income recipient.  Withholding taxes are common across many systems and apply to cross-border payments of royalties, dividends, interest, and other income types.

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For certain UAE-sourced income paid to non-residents, a 0% withholding tax will apply. 

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There will be no withholding tax or tax registration and obligations due for UAE businesses or foreign UAE-sourced income recipients. 
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Withholding tax also does not apply to transactions between UAE resident persons.

Small Business Relief is an option provided to taxable persons where they may be treated as not having derived any taxable income in a given tax period.

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It is intended to support start-ups and other small or micro businesses by reducing their Corporate Tax burden and compliance costs.

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The option shall be available to Resident Persons
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Except:

• Qualifying Free Zone Persons
• A Constituent Company of a Multinational Enterprises Group. MNE Groups are groups of companies with operations in more than one country that have consolidated group revenues of more than AED3.15 billion.

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Revenue Threshold

• Revenue shall not exceed AED 3,000,000 for each tax period.
• The Revenue shall be determined in accordance with the applicable accounting standards accepted in the UAE.

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Applicable Tax Period

• Tax period commencing on or after 01 June 2023, and
• It shall only continue to apply to subsequent Tax Periods that end before or on 31 December 2026.

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Adjustments
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The following provisions shall not apply to businesses that opt to apply for Small Business Relief:
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Tax Loss Relief
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• Any Tax Losses incurred cannot be carried forward to any subsequent Tax Periods.
• Any unutilised Tax Losses incurred in previous Tax Periods where an election to apply the Small Business Relief was not made, may be carried forward to subsequent Tax Periods in which an election to apply the Small Business Relief is not made, subject to the conditions of Article 37 of the Corporate Tax Law.
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General Interest Deduction Limitation Rule
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• Any Net Interest Expenditure incurred cannot be carried forward to any subsequent Tax Periods.
• Any Net Interest Expenditure incurred in previous Tax Periods where an election to apply the Small Business Relief was not made may be carried forward to subsequent Tax Periods in which an election to apply the Small Business Relief is not made, subject to the conditions of Article 30 of the Corporate Tax Law. 

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UAE companies that have transactions with Related Parties and Connected Persons — based in a Free Zone, the UAE Mainland, or a foreign jurisdiction — are subject to transfer pricing rules. 

To prevent tax manipulation, the Corporate Tax Law requires that all transactions with Related Parties and Connected Persons are assessed depending on their market value.

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• Related Parties of an individual include their relatives and businesses in which the person holds a controlling ownership stake, alone or with their relatives. The stake is usually 50%+ of the company's shares. 
• Related Parties can also be other companies in which the company, holds a controlling ownership stake alone or together with its Related Parties. The stake is usually  50%+ of the company’s shares or a common ownership of 50%+.

• Connected Persons are only ‘connected’ to a UAE CT company if they are:

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• The business owner
• A company director or officer
• A Related Party of either of the above

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Best Transfer Pricing Methods for Small Businesses in UAE

To establish fair market values for transfer pricing purposes, taxpaying businesses in the UAE can apply any of these methods: 

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• Comparable Uncontrolled Price method — Compare the prices of Related Party transactions vs. similar transactions between unrelated parties.
• Resale Price method — Determine the markup resellers would add to the product price during reselling the product to Unrelated parties.
• Cost-plus method — Add markup to the production cost of a product or service so as to calculate the fair market price for transfer pricing.
• Transactional Net Margin method — Compare net profit margins of Related Party transactions with the net profit margins of similar transactions from Unrelated parties.
• Transactional Profit Split method —  Allocate the profit from a transaction between Related parties depending on their participation and effect in the transaction.

Financial Statements

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UAE business taxpayers should have prepared all financial statements to calculate their taxable income. They should also maintain all records and paperwork related to relevant information from the CT return or another authority filing.

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Exempt entities should also provide and maintain all records that indicate their status. 

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For groups, all UAE entities that are subject to CT will need to maintain and prepare stand-alone financial statements, unless the group includes UAE resident entities only. Each UAE entity that is subject to CT will need to prepare and maintain stand-alone financial statements for UAE CT purposes.

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All maintained statements and records should be kept for at least 7 years after the Tax Period expires. In some cases, the FTA asks that financial statements are submitted alongside the CT tax return, or upon request.

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All taxpayer income, credits and deductions are measured in the natural UAE currency, AED. Also, all income and expenses incurred in a foreign country need to be exchanged into AED.
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Currency Provisions
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To translate foreign currencies into AED, taxpayers need a transaction-by-transaction basis: 

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• Translating the foreign currency-denominated income into AED when the income is derived. 
• Deductible expenditure should be translated into AED at the time of expenditure. 

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All exchange rate amounts need to be converted to AED based on the exchange rate determined by the Central UAE Bank at the time. In some cases, the FTA enables taxpayers to use an exchange rate that is more reflective of their income. 
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Registration
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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.

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1. Create an account on the Emaratax app or Emaratax portal. Register with your email and phone number, or log in using your existing ID and password.
2. Create your taxable person or select the relevant taxable person from the list.
3. Select the option to register for Corporate Tax and complete all registration steps.
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UAE Corporate Tax paperwork and forms
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Legal person applicants will need to provide the following documents:

• Trade license
• Emirates ID and Passport of each owners
• Emirates ID and Passport of authorised signatory
• Proof of Authorization for the authorised Signatory

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Natural person applicants will need to provide the following documents:

• Trade license, where applicable
• Emirates ID or Applicant Passport

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The application should be sent in PDF or Word file, not larger than 5MB. 
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FTA review & Completion period
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The FTA typically takes around 20 business days from the date the application was received to review and complete it. 

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In case additional information is required by the FTA, the applicant has to provide it as soon as possible. The re-submitted application might require 20 additional business days to review and process.

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The deadline for submitting the application is within 60 calendar days from the date the applicant was notified by the FTA. If the application is not resubmitted in time, it will be rejected.
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Filing
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In the UAE, taxpayers are in charge of calculating, reporting and paying their taxes, also known as the self-assessment regime.

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You will also need to file a CT return, regardless of the income or status of your business. This helps use the losses to reduce taxable income down the line.  All CT returns will need to be filed electronically.

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Advanced CT payments are not required for UAE businesses. The CT will be due for payment 9 months after the relevant Tax Period ends. Businesses that do not comply with the CT regime rules and regulations will be subject to penalties. 

The penalties for non-compliance with tax regulations in the UAE can be severe and can include the following:

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• Late Payment Penalties: A penalty of 2% per month, or part thereof, of the unpaid tax amount will be charged for late payment of taxes.
• Late Filing Penalties: A penalty of AED 1,000 will be imposed for the first time a taxpayer fails to file their tax return on time. The penalty increases to AED 2,000 for subsequent failures.
• Inaccurate Tax Returns: A penalty of 50% of the unpaid tax or AED 1,500, whichever is greater, will be imposed for filing an inaccurate tax return.
• Non-Registration Penalties: Failure to register for VAT can result in a penalty of AED 20,000.
• Non-Compliance Penalties: A penalty of AED 20,000 will be imposed for non-compliance with tax regulations.
• Tax Evasion Penalties: Tax evasion is a criminal offence in the UAE and can result in fines, imprisonment, or both.

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It's important for businesses and individuals to comply with tax regulations in the UAE to avoid these penalties and maintain their reputation for conducting business ethically and legally. By ensuring compliance with tax regulations, businesses and individuals can avoid costly penalties and maintain their financial and legal standing in the UAE.

The anticipated changes to the tax laws in the UAE, and the implications that these changes may have for businesses operating in the region. It's suggested that businesses should begin the process of assessing the potential impacts of these changes, and developing a roadmap to ensure that they are prepared for the new tax regime.

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Businesses need to keep records of their transactions with Related Parties and Connected Persons. Some businesses will need to include this information when filing their tax returns, and others may be instructed to manage a master file and a local file. 

Businesses that are eligible for small business relief are exempt from the transfer pricing documentation rules.

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All loan obtained from (or granted to) a Related Party or Connected Person needs to be at arm’s length (e.g. interest rate, duration, etc.). The loans that a Related Party or Connected Person acquire or are granted need to be at arm’s length.

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Tax group transactions between members are eliminated from the group’s financial statements, therefore, they don’t have to comply with the transfer pricing rules.

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Overall, it's suggested that businesses should work closely with their tax and finance teams to ensure that they are prepared for the changes, and that they are able to mitigate any potential risks that may arise. By following a structured approach, businesses can help to ensure that they are ready to comply with the new tax laws in the UAE

The UAE Corporate Tax might be more demanding for small businesses, especially in handling administrative and compliance tasks. Still, tax-generated revenue can drastically improve infrastructure and provide financial support to SMEs through grants and subsidies. 

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Plus, the introduction of Small Business Relief (SBR), will specifically help startups and small entrepreneurs reduce compliance costs and tax burdens. 

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The UAE's corporate tax regulations are new and might see further developments, especially in the types of income that qualify for certain benefits. SMEs should actively participate in the UAE's economic development, stay updated on exemptions and relief programs, and take advantage of government initiatives to support them. 

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While corporate tax may impact SMEs, the UAE's low taxes and thriving business environment make it far more attractive than other markets.