Corporate Income Tax is a tax levied on the profits of companies. It applies to all companies registered in the UAE, including Mainland companies (at a rate of 9%) and Free-zone companies (at a rate of 0% and 9%).
The law governing this tax is the Federal Decree-Law No. 47 of 2022.
Scope of application
Taxable person subject to corporate income tax
Corporate income tax applies to the following “taxable persons” (Article 11):
Resident person
- UAE companies and other legal entities that are incorporated or effectively managed and controlled in the UAE;
- Natural persons (individuals) who carry on business in the UAE, as specified in the regulations;
Non-resident person
– Non-resident legal entities (foreign legal entities) that have a permanent establishment in the UAE.
- Legal entities established in the UAE free zone are also subject to corporate income tax as “taxable persons”. However, free-zone companies can benefit from a corporate tax rate of 0% on its qualified income;
- Non-resident persons who do not have a permanent establishment in the UAE or who earn income from the UAE that is not related to their permanent establishment may be subject to withholding tax (at a rate of 0%).
Persons exempt from corporate income tax
Certain types of companies or organizations are exempt from corporate income tax in accordance with Article (4) of Federal Legislative Decree No. 47 of 2022:
- Government Entities (Section 5);
- Government-controlled entities (section 6);
- A person engaged in an extractive activity (section 7):
Exempt if notified to the Ministry of Finance (and subject to meeting certain conditions); - Non-extractive natural resource companies (Article 8):
Exempt if notified to the Ministry of Finance (and subject to meeting certain conditions); - Qualified Public Interest Entities (Article 9):
Exempt if listed in a Cabinet decision; - Public or private pension and social security funds:
Exempt if applied for and approved by the federal tax authority (and subject to certain conditions); - Qualified investment funds (Article 10):
Exempt if applied for and approved by the federal tax authority (and subject to certain conditions).
Effective dates
- Pursuant to Article 69, the UAE TC regime will become effective for fiscal years beginning on or after June 1, 2023.
- Pursuant to Article 48, taxpayers will be required to file TC returns and fulfill their TC obligations within 9 months after the end of the relevant tax period, beginning on June 1, 2023.
Example :
|
Fiscal year |
Effective corporate tax for the first time for the year from |
| January – December | 01/01/2024 |
| April – March | 01/04/2024 |
| July – June | 01/06/2024 |
Exempt income (section 22)
The following income and related expenses are not considered in determining taxable income:
- Dividends and other distributions of profits received from legal persons incorporated or resident in the UAE – domestic dividends are therefore exempt without any conditions;
- Dividends and other profit distributions received from an interest in a foreign corporation (see additional information below);
- Certain other income (e.g., capital gains, foreign exchange gains/losses and impairment gains/losses) from an investment (see additional information below);
- Income from a foreign branch or permanent establishment when an election is made to claim the “foreign permanent establishment” exemption;
- Income derived by a non-resident person from the operation of aircraft or ships in the course of international transportation that meets the requirements of section 25 of the Act.
Meaning of participation:
The corporate tax law fully exempts dividends from entities registered in the United Arab Emirates, as well as dividends from foreign subsidiaries qualified as “participations”. A participation is a legal entity in which the UAE shareholder company holds a stake of 5% or has held for at least 12 months, and is subject to a minimum corporate tax rate of 9% in the relevant country.
Calculation of corporate tax liability and deductions
- The starting point for calculating the value-added tax (VAT) payable is the net profit (or loss) as per the financial statements prepared in accordance with the accounting standards applicable in the UAE.
- Businesses use their financial accounting period as the tax period.
The value-added tax is charged on the annual taxable income of the company as follows:
|
Taxable Income |
Applicable tax rate |
| Up to AED 375,000* | 0% |
| Over AED 375,000* | 9% |
*This amount has not yet been confirmed by a Cabinet decision, although it is mentioned in the documents.
Non-deductible expenses
The following are expenses that will not be deductible for tax purposes:
- Donations, grants, or gifts made to an entity that is not an eligible public benefit entity;
- Fines and penalties, other than amounts awarded as compensation for damages or breach of contract;
- Bribes or other illicit payments;
- Dividends, distributions of profits or benefits of a similar nature paid to an owner of the taxpayer;
- Amounts withdrawn from the business by a natural person who is a taxable person;
- Corporate tax imposed on a taxable person under this Decree Law;
- Input value added tax borne by a Taxable Person that is recoverable under Federal Legislative Decree No. (8) of 2017 referred to in the preamble and what replaces it;
- Income tax imposed on the out-of-state taxpayer;
- Any other expenditure specified in a decision issued by Cabinet on the proposal of the Minister.
The following expenses will be allowed as a deduction within the limits prescribed below:
- Entertainment Expenses (Article 32): Expenses incurred to entertain customers, shareholders, suppliers and other business partners will be allowed as a deduction up to 50%;
- Interest Payment (Sections 30 and 31): The deduction of interest expense will be limited to 30% of earnings before interest, taxes, depreciation and amortization (EBITDA) as adjusted for CT purposes. These limitations do not apply to banks and insurance companies;
- Excess interest paid and not allowed due to the limitation may be carried forward and deducted for up to 10 years. This is independent of the loss carryover provision;
- In addition, if a loan is obtained from a related party, no interest deduction is allowed if the loan is used for specific transactions such as the payment of dividends, capital contributions, etc.
The mechanism for calculating the corporate income tax will be as follows:
|
Determination of the CT to be paid |
Amount (in AED) |
| Net accounting income (loss) as reported in the financial statement | XXXX |
| Plus/minus: Adjustments | XXXX |
| Final taxable income | XXXX |
| Final taxable income between AED 0 – AED 375,000 | CT @ 0% (A) |
| When the final taxable income exceeds AED 375,000, the difference between the final taxable income and AED | CT @ 9% (B) |
| Corporate Income Tax (CIT) | A + B |
| Less: Foreign Tax Credit | XXXX |
| Final IS payable | XXXX |
Free-zone companies (Article 18)
Free-zone companies are subject to 2 tax rates:
- 0% on Qualifying Income;
- 9% on taxable income that does not qualify as Qualifying Income.
The law has not defined what qualified income are. Therefore, there will be a later decree to define them.
A free-zone company “qualified” for 0% taxation is an entity that meets the following conditions:
- Maintain adequate substance in the UAE;
- Derive ‘Qualifying Income’;
- Not have made an election to be subject to Corporate Tax at the standard rates.
Qualified revenues are associated with the following activities: manufacturing of goods or materials; processing of goods or materials; holding of shares and other securities; ownership, management, and operation of ships; reinsurance services; fund management services subject to regulatory oversight by the competent authority in the UAE; and wealth and investment management services subject to regulatory oversight by the competent authority in the UAE. They also include headquarter services to related parties; treasury and financing services to related parties; financing and leasing of aircraft, including engines and rotable components; logistics services; distribution in or from a designated zone that meets the relevant conditions; and any activities ancillary to the aforementioned activities.
EXEMPTION OF CORPORATE INCOME TAX FOR SMEs!
The Authorities have announced (Ministerial Decision No. 73 of 2023) that companies with an annual turnover below AED 3,000,000 will benefit from a reduction in the Corporate Income Tax rate until 31/12/26 (the amount/rate of this reduction has not yet been specified).
CIT REGISTRATION DATES
AED 10,000 fine is imposed for late registration for CIT.
NOTE: Registration is required voluntarily; it is not automatic with company incorporation or renewal.
Registration deadlines depend on your situation:
- For corporate entities:
1.1) For resident corporate entities:
1.1.1) Registered before March 1, 2024:
- January or February: May 31
- March or April: June 30
- May: July 31
- June: August 31
- July: September 30
- August or September: October 31
- October or November: November 30
- December: December 31 1.1.2) Registered after March 1, 2024:
- Registered in the UAE: three months from the registration date
- Registered outside the UAE: 3 months from the end of the financial year
1.2) For non-resident corporate entities:
1.2.1) Registered before March 1, 2024:
- Permanent establishment in the UAE: 9 months from its establishment
- Nexus in the UAE: May 31 1.2.2) Registered after March 1, 2024:
- Permanent establishment in the UAE: 6 months from its establishment
- Nexus in the UAE: May 31
- For individuals
2.1) Residents in the UAE with turnover > AED 1 million: March 31 of the following year
2.2) Non-residents in the UAE: 3 months after meeting the tax residency conditions
