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 | 01/06/2023 |
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 UAE registered entities, as well as dividends from foreign subsidiaries qualified as a “participation”. A participation is a legal entity in which the UAE shareholder company holds a 5% interest or which is held for at least 12 months, and which is subject to a minimum 9% corporate tax in the relevant country.
Calculation of corporate tax liability and deductions
- The starting point for the calculation of the value added tax liability is the accounting net profit (or loss) (the amount shown in the financial statements prepared in accordance with the accounting standards in force in the UAE).
- Les entreprises utilisent leur période de comptabilité financière comme période d’imposition.
The value added tax is charged against the company’s annual taxable income 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.
