Know all about Corporate Tax on UAE Companies

For decades, the UAE has been celebrated as a tax haven, attracting businesses and investors worldwide with its minimal tax obligations. However, in a significant shift to align with global standards for tax transparency and to address the OECD’s Base Erosion and Profit Shifting (BEPS) standards, the UAE introduced corporate tax following the implementation of VAT. This move marks a pivotal change in the UAE’s fiscal landscape, aiming to diversify the economy while maintaining its competitive edge as a leading business hub.

What are Corporate Tax Rates on UAE Companies?

From when UAE Corporate Tax Applicable?

The Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses notified the applicability of Corporate Tax from June 1, 2023. Download Original Notification

Who is liable for UAE Corporate Tax?

UAE Corporate Tax applies to all types of business entities including companies registered in the UAE, as well as foreign companies managed and controlled within the UAE.

In addition, foreign companies operating through a Permanent Establishment or having a taxable presence in the UAE are subject to Corporate Tax.

Qualified Free Zone Person also liable to pay corporate tax on non-qualified income.

Who are Qualified Free Zone Persons?

QFZP are the legal entity i.e. company registered in a UAE free zone that meets specific criteria and hence, eligible for a 0% corporate tax rate on its Qualifying Income

Understanding Qualifying Income under UAE Corporate Tax Regulations

Cabinet Decision No. 55 of 2023 gives the concise definition of Qualifying Income for a Qualifying Free Zone Person
It encompasses the following below income as Qualifying Income

A	Income generated from business with other other companies registered in the Free Zone, excluding income derived from Excluded Activities.
B	Income generated from Qualifying Activities with companies outside the Free Zone (including other countries).
C	Any other income, provided that the Qualifying Free Zone Person meets the de minimis requirements specified in Article (4) of this Decision.

Furthermore, income will be deemed to have originated from transactions with a Free Zone Person when said Free Zone Person is the Beneficial Recipient of the relevant services or Goods.

Important Exclusions:

Income from Permanent Establishments: Income generated by the QFZP through offices or branches outside the free zone (called “Permanent Establishments”) does not qualify for the 0% tax rate.
Income from Real Estate: Income from renting or selling commercial or residential property located within the free zone is also taxable at the standard 9% rate.

Qualifying Business Activities in UAE Corporate Taxation

Ministerial Decision No. 139 of 2023 give the exhaustive list of Qualifying Activities and Excluded Activities:-

(a) Manufacturing of goods or materials.

(b) Processing of goods or materials.

(d) Ownership, management and operation of Ships.

(e) Reinsurance services that are subject to the regulatory oversight of the competent authority in the State.

(f) Fund management services that are subject to the regulatory oversight of the competent authority in the State.

(g) Wealth and investment management services that are subject to the regulatory oversight of the competent authority in the State.

(h) Headquarter services to Related Parties.

(i) Treasury and financing services to Related Parties.

(j) Financing and leasing of Aircraft, including engines and rotable components.

(k) Distribution of goods or materials in or from a Designated Zone to a customer that resells such goods or materials, or parts thereof or processes or alters such goods or materials or parts thereof for the purposes of sale or resale.

(l) Logistics services.

(m) Any activities that are ancillary to the activities listed in paragraphs (a) to (l) of this Clause.

Excluding Activities

(a)Any transactions with natural persons, except transactions in relation to the Qualifying Activities specified under paragraphs (d), (f), (g) and (j) of Qualifying Activities.

(b) Banking activities that are subject to the regulatory oversight of the competent authority in the State.

(c) Insurance activities that are subject to the regulatory oversight of the competent authority in the State, other than the activity specified under paragraph (e) of Qualifying Activities.

(d) Finance and leasing activities that are subject to the regulatory oversight of the competent authority in the State, other than those specified under paragraphs (i) and (j) of Qualifying Activities.

(e) Ownership or exploitation of immovable property, other than Commercial Property located in a Free Zone where the transaction in respect of such Commercial Property is conducted with other Free Zone Persons.

(f) Ownership or exploitation of intellectual property assets.

(g) Any activities that are ancillary to the activities listed in paragraphs (a) to (f) of Qualifying Activities.

Download Original Notification Read in detail at: Qualifying Income & Qualifying Activity. Or, you can also consult our experienced team of professionals.

What are De Minimis Requirements?

The de minimis requirements are an allowance for Qualifying Free Zone Persons (QFZPs) in the UAE. It allows Free Zones Company to earn a bit of non-qualifying income without losing their special 0% tax rate on qualifying income.

Here’s how it works:

Non-qualifying income: This is income that wouldn’t normally get the 0% tax rate,like income from outside the free zone or from excluded activities.
De minimis threshold: This is the maximum amount of non-qualifying income a QFZP can have and still keep the 0% tax rate. It’s either 5% of their total income or AED 5 million (whichever is lower).

So, let’s say a QFZP makes AED 100 million in a year. Their de minimis threshold would be AED 5 million (since 5% of 100 million is only AED 5 million). That means they can have up to AED 5 million of non-qualifying income and still benefit from the 0% tax rate on the rest of their income.

Key points:

It’s a small allowance, not a free pass.
Stay below the threshold to keep the 0% tax rate.
If you exceed it, you’ll pay the regular 9% tax on all your income.

Does the 0% Corporate Tax rate on Taxable Income not exceeding AED 375,000 apply to individuals or businesses?

Each Taxable Person is eligible for the 0% Corporate Tax rate on their Taxable Income up to AED 375,000, regardless of the number of businesses they operate. However, Qualifying Free Zone Persons are subject to a 9% Corporate Tax rate on non-Qualifying Income.
Each entity or individual subject to UAE Corporate Tax is considered a single Taxable Person. In addition, if multiple entities form a Tax Group to be treated as one Taxable Person, they collectively benefit from a single AED 375,000 threshold.

Important Note: Artificial separation of businesses to exploit the AED 375,000 threshold more than once is considered as an abusive arrangement. Thus, leading to penalties and adjustments in Taxable Income.

Are UAE or GCC national-owned entities exempt from Corporate Taxes in UAE?

No, all entities, regardless of ownership nationality, are subject to UAE Corporate Tax if they have incorporation or have a taxable presence in the UAE.

Does UAE Corporate Tax apply to businesses in all Emirates?

Yes, UAE Corporate Tax is a federal tax and is therefore applicable to businesses across all Emirates.

Will I need to pay UAE Corporate Tax in addition to Emirate-level taxes?

Certain businesses involved in extracting natural resources and some non-extractive activities subject to Emirate-level taxes may be exempt from UAE Corporate Tax, provided they meet specific criteria. However, other businesses may be liable for both Corporate Tax and Emirate-level taxes. Emirate-level taxes paid cannot be offset against or deducted from Corporate Tax.

Do I have to pay UAE Corporate Tax along with VAT in the UAE?

If your business is registered for VAT, you are required to pay VAT and Corporate Tax separately. However, if your business is not having VAT Registration, you may still be liable for Corporate Tax.

Responsibility of Federal Tax Authority in maintaining Corporate Tax on UAE Companies

Responsibility for the oversight, collection, and enforcement of UAE Corporate Tax and other federal taxes rests with the Federal Tax Authority.

In addition, to facilitate efficient administration, collection, and enforcement of Corporate Tax, the Federal Tax Authority will issue guidelines, address inquiries, and conduct awareness sessions as needed.

Which entities have Corporate Tax Exemption in UAE?

Under Corporate Tax Exemption Laws, individuals who meet specific criteria are eligible for exemption from certain taxes (additional conditions and requirements may be stipulated later). Exemption for particular categories of individuals listed is not automatic; it requires approval from the tax authority.

Included in the list of exemptions are:

Businesses engaged in activities such as exploring, extracting, removing, or producing and exploiting the natural resources of the UAE (Extractive Business).
Businesses involved in activities like separating, treating, refining, processing, storing, transporting, marketing, and distributing the natural resources of the UAE (Non-Extractive Natural Resource Business).
Public and private pension and social security funds.
Qualifying investment funds.
Subsidiaries directly owned by certain exempt individuals.

How to do Corporate Tax Registration and pay your Corporate Taxes in UAE?

Every individual or entity subject to taxation will need to electronically register for UAE Corporate Tax with the Authority within a specified timeframe and acquire a Tax Registration Number, irrespective of whether they are already registered for Value Added Tax (VAT).

Therefore, to streamline the administrative process for taxpayers, the Corporate Tax Law mandates that each taxable entity file only one tax return per tax period.

Below is a table illustrating examples of timelines for filing, payment, and Transfer Pricing (TP) disclosure:

Fiscal Year End	First Reporting Period	Due Date for First Corporate Tax Return Filing and Payment	Due Date for First TP Disclosure Form
December 2022	January 2024 to December 2024	30 September 2025	30 September 2025
June 2023	July 2023 to June 2024	31 March 2025	31 March 2025

Electronic filing must be completed no later than nine months after the end of the relevant tax period. Any UAE Corporate Tax owed must also be settled within these specified timelines.