Corporate tax law in the UAE

As tax professionals immersed in the United Arab Emirates (UAE) corporate tax regime, we’ve been delving into the recently published Federal Tax Authority (FTA) Tax Return Guide – a detailed 176-page document outlining corporate tax return requirements, including who must complete which boxes and when. Also confirmed is an extended list of supporting schedules that each need to be completed in certain circumstances, and which by our count take the number of potential reporting points to over 500! 

The guide is essential reading for those continuing to work towards first filings of UAE corporate tax returns of their client or their own organisation. With the complexity of those early tax return submissions to come, it is worth returning to recap the basics of corporate tax in the UAE. 

What is the Corporate Tax Law in the UAE? 

The Corporate Tax Law (formally titled Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses), issued on 9 December 2022, forms the legislative foundation for the UAE’s federal corporate tax system. This initiative aligns the UAE with global standards, reflecting the country’s commitment to implementing best practices while maintaining simplicity and competitiveness. 

The Decree-Law itself is concise and readable, adopting best practices of international corporate tax and side-stepping complexities found in some older regimes. Detail is sometimes unavoidable though, and the Decree-Law is supplemented by a series of Ministerial or Cabinet decisions which apply more specific rules. The FTA have also been publishing a series of supporting guide, reference or clarification documents. 

Corporate tax rates stand levied at 0% for taxable income up to AED 375,000, and 9% thereafter; one of the most competitive tax rates globally. 

Entities operating in a free zone and who qualify can benefit from a 0% rate on their income from the free zone and will only pay 9% tax on taxable income that is not qualifying income. These rules are intended to shelter free zone entities from corporate tax, maintaining global competitiveness, with these free zones regarded as a key driver of the UAE’s economic success and diversification. 

When is corporate tax coming into effect? 

Corporate tax rules apply for tax periods beginning on or after 1 June 2023. The term tax period is defined as either the Gregorian calendar year, or the twelve-month period for which the entity prepares financial statements. The wording is somewhat vague and so a public clarification in respect of a person’s first tax period was published by the FTA earlier this year. 

Transitional rules apply to adjustment for gains in the accounts on certain assets that were held before the introduction of the regime. 

All taxable entities must register with the FTA and obtain a Tax Registration Number (TRN). Deadlines follow a phased approach as outlined in Federal Tax Authority Decision No. 3 of 2024. 

Who does the corporate tax apply to in the UAE? 

Corporate tax is applicable to businesses and commercial activities operating within the seven emirates. The law identifies resident persons, who are taxable on income arising either inside or outside of the UAE to the extent that it relates to business activities carried on in the UAE, and non-resident persons who are taxable on income from a permanent establishment in, or otherwise attributable to, the UAE. 

Certain types of entity are classed as exempt from corporate tax, such as government entities or qualifying public benefit entities. Extractive and non-extractive natural resource businesses are also exempt because of already being subject to emirate taxes. 

Additionally, to ease the burden of adoption, small businesses may claim an exemption from corporate tax for periods ending on or before 31 December 2026. Small for these purposes means that revenue does not exceed AED 3 million for the current and all previous tax periods, and the person must be resident in the UAE. The election must be made in the tax return of the person, so the business still needs to register, but where an election is in place the person is treated as not having derived any taxable income. Transfer pricing documentation rules also do not apply. 

How do you calculate taxable income? 

Taxable income is based on accounting income, drawn from standalone financial statements prepared under accepted accounting standards, with adjustments applied per tax regulations. These include: 

• Unrealised gains or losses – A person preparing financial statements on an accrual basis may elect to take account of gains and losses on a realisation basis. 

• Exempt income – Certain income streams are exempt from corporate tax such as dividend or participation income, or income from foreign permanent establishments where an election is made. 

• Reliefs – No gain no loss rules apply for transfers of assets withing a group or business restructuring. 

• Deductions – Certain expenditure is defined as disallowable such as expenditure not incurred wholly and exclusively for the purpose of the business, capital expenditure, and 50% of client entertaining costs. Interest is deductible subject to two forms of deduction limitation rules; general and specific. 

• Related parties and connected periods – Arm’s length rules apply to transactions between related parties or connected persons and tax adjustments are required where this requirement is not met. 

• Tax loss relief – Tax losses incurred by a person may be transferred to another person under common ownership or carried forward to be used against future taxable income subject to a 75% restriction calculation. 

The rules provide a possible simplification for a group of companies under common ownership, allowing them to register as a tax group. Under this registration, the tax group is subject to corporate tax as if it were a single taxable person, with taxable income prepared based on consolidated financial statements for the group. 

What is the filing process for corporate tax returns in the UAE? 

A person who is within scope of corporate tax in the UAE is required to file a tax return and this is due within nine months from the end of the tax period. The tax return must be completed online using the EmaraTax platform, which for the time being is a manual re-keying exercise. 

Payment of corporate tax is also due within nine months of the end of the tax period. 

Maintaining accurate records for seven years is crucial to ensure compliance and readiness for potential audits. As the UAE ushers in this new corporate tax era, staying informed and prepared is essential for seamless transitions and long-term success.