UAE Corporate Tax - Scope and Rate

Frequently Asked Questions

The Corporate Tax Law defines “Business” and “Business Activity” to determine the liability of certain individuals as taxable persons under UAE CT.

A “Business” refers to any economic activity, whether continuous or short term, conducted by any person. It is implied that the business is carried out with a profit motive and involves some level of system and organization. A Business or Business Activity, however, is not automatically declared illegitimate for UAE CT purposes just because it is not profitable. For companies and other juridical persons, all activities conducted and assets used or held are generally considered as business activities and assets for CT purposes.

The following persons are exempt from UAE CT, either automatically or through application:
  • The UAE Federal and Emirate Governments, their departments, authorities, and other public institutions.
  • 100% government-owned businesses that carried out tasks that were specified in a Cabinet Decision.
  • After fulfilling certain requirements, companies engaged in the extraction of natural resources from the UAE and some non-extractive activities are liable to taxes at the Emirate level.
  • Public Benefit Entities listed in a Cabinet Decision.
  • Investment Funds meeting prescribed conditions.
  • Public or private pension or social security funds meeting certain criteria.
  • UAE juridical persons that, after satisfying certain requirements, are fully owned and controlled by particular exempted companies.

Under the Corporate Tax Law, a juridical person incorporated in a foreign country and effectively managed and controlled outside the UAE is considered a non-resident. A natural person is considered a non-resident for UAE CT if they are not engaged in a taxable business or business activity within the UAE

LLCs, PSCs, PJSCs, and other UAE legal persons with UAE incorporation are recognised as residents subject to CT. For UAE CT purposes, entities established in the UAE are immediately regarded as “resident” individuals. Similarly, individuals engaged in a business or business activity within the UAE is also considered resident persons for UAE CT. If a foreign firm is successfully “managed and controlled” within the UAE, it may be considered as a resident person purposes UAE CT.

Non-resident persons are subject to UAE CT only on:
  • Income derived from their Permanent Establishment in the UAE.
  • Income sourced in the UAE, subject to a 0% withholding tax.

Juridical persons who are residents of the UAE are required to pay UAE CT on their income earned both domestically and internationally, with few exceptions. Generally, income earned through foreign subsidiaries and income of foreign branches subject to taxation in another jurisdiction is exempt from UAE CT.

The taxable income for a specific Tax Period is calculated by adjusting the accounting net profit (or loss) of the business according to specific items outlined in the Corporate Tax Law.

The accounting net profit (or loss) is the amount reported in the business’s financial statements prepared in accordance with internationally accepted accounting standards.

Adjustments are made to the accounting net profit (or loss) for the following items:

  • Unrealized gains and losses (based on the chosen application of the realisation principle).
  • Capital gains and qualified dividends are examples of exempt income.
  • Income from intra-group transfers.
  • Deductions not allowable for tax purposes.
  • Operations involving Connected and Related Parties.
  • Transfers of tax losses within the group, if applicable.
  • Incentives or tax reliefs.
  • Any other modifications that the Minister specifies.
Business Corporate Tax Rate:
  • Corporate Tax will be 0% if the business taxable Income is less than AED 375,000.
  • Corporate Tax will be 9% of the excess amount if the business Taxable Income exceeds AED 375,000.
Rate of Corporate Tax on Qualifying Free Zone
  • The Corporate Tax will be 0% if the taxable Income satisfies the requirement to qualify as a Free Zone.
  • The Corporate Tax will be 9% if the taxable Income does not meet the criteria for a Free Zone.

Since CT is imposed annually, the “Tax Period” needs to be defined. The default Tax Period is the Gregorian calendar year (from January 1 to December 31) unless the business adopts a different 12-month period for its financial statement preparation.

Small firms with sales below a certain level are eligible for “small business relief” in addition to the 0% CT rate that is applied to taxable income up to and including AED 375,000. These businesses will be treated as having no taxable income during the relevant Tax Period and may have simplified compliance obligations. To claim small business relief, an election must be made to the Federal Tax Authority (FTA).

Any UAE resident juridical person or individual with revenues below the threshold defined by the Minister, and who satisfies any additional conditions set forth, can claim small business relief.

Revenue refers to the total amount of income generated in a tax period from sales of inventory and properties, services, royalties, interest, premiums, dividends, and any other receipts, before deducting any costs or expenditures. In the context of income from sales or services, gross income signifies the total revenue from sales or services without deducting the cost of goods sold or the cost of services.

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