Corporate Tax (CT) is a direct tax levied on profits earned by corporations and entities from their business activities. In the UAE, the Federal Corporate Tax Law was enacted in December 2022, coming into effect on June 1st, 2023, and applies universally to all commercial activities except for exempt entities such as government bodies, qualifying investment funds, and public pension funds.
Importance of Corporate Tax Compliance
Adherence to corporate tax regulations is crucial to avoid penalties and legal repercussions, including audits and potential prosecution.
Corporate Tax Rates
The UAE Ministry of Finance sets the following corporate tax rates:
0% for taxable income up to AED 375,000.
9% on taxable income exceeding AED 375,000.
Small Business Relief
Small businesses with revenues up to AED 3 million enjoy a 0% corporate tax rate, providing relief and support to smaller enterprises.
Exempt Entities
Certain entities are exempt from corporate tax, including government entities and those specified under Cabinet decisions. Mainland entities are subject to a standard 9% tax rate on taxable income exceeding AED 375,000.
Free Zone Entities
From June 2023, Free Zone entities may benefit from either a 0% or 9% corporate tax rate based on their qualifying income. Free Zone businesses must register and file corporate tax returns to avail themselves of these benefits.
Qualifying Free Zone Persons (QFZP)
QFZPs enjoy a 0% corporate tax rate on qualifying income, provided they meet specific criteria including:
To qualify as a Qualifying Free Zone Person (QFZP) under this Decree-Law, the entity must meet the following criteria:
Derives Qualifying Income: The entity must derive income from specified categories of activities recognized under this Decree-Law as Qualifying Income.
Maintains Adequate Substance: The entity must maintain sufficient operational presence and conduct core income-generating activities within the UAE.
Satisfies De Minimis Requirement: The entity must ensure that non-qualifying revenue does not exceed a specified threshold relative to total revenue, as outlined in the Decree-Law.
Elects Not to be Subject to Corporate Tax: The entity must not have opted to be subject to Corporate Tax under this Decree-Law.
Complies with Arm’s Length Principle: The entity must adhere to the Arm’s Length Principle in its transactions with related parties and maintain Transfer Pricing Documentation as per the requirements of this Decree-Law.
Compliance & Taxation Services
Prepares and Maintains Audited Financial Statements: The entity is required to prepare and retain audited financial statements for the purposes of compliance with Corporate Tax regulations.
Qualifying Activities
Business activities qualifying a person as a QFZP include:
Fund management services.
Treasury and financing services to Related Parties.
Manufacturing of goods or materials.
Ownership, management, and operation of Ships.
Holding of shares and other securities.
Logistics services.
Financing and leasing of Aircraft, including engines and rotable components.
Reinsurance services.
Processing of goods or materials.
Headquarters services to Related Parties.
Wealth and investment management services.
Any activities that are ancillary to the Manufacturing, treasury, and financing services of related parties.
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.
Non-Qualifying / Excluded Activities:
For the businesses having the following activities, a rate of 9% will apply to them.
Any transactions involving natural persons, except for:
Ownership, management, and operation of ships.
Fund management services.
Wealth and investment management services.
Financing and leasing of aircraft.
Banking activities refer to the regulated financial activities as defined in Article (65) of Federal Decree-Law No. 14 of 2018.
Insurance activities encompass operations regulated under Federal Law No. 6 of 2007 on the Organization of Insurance Operations and its amendments.
Finance and leasing activities involve providing credit or financing in exchange for any form of consideration, and leasing or granting the right to use an asset through finance leases, operating leases, or similar arrangements, all subject to regulatory oversight by the Competent Authority in the State.
Ownership or exploitation of immovable property, except for commercial property located in a Free Zone and transacted with a Free Zone Person.
De Minimis Requirements
The de minimis requirements are considered satisfied if the non-qualifying revenue derived by the QFZP in a Tax Period does not exceed:
5% (five percent) of the total revenue of the QFZP, or
AED 5,000,000 (five million dirhams), whichever is lower.
Non-qualifying revenue includes revenue derived in a Tax Period from any of the following sources:
Excluded Activities.
Transactions with NFZP, where the activities are not Qualifying Activities.
Transactions with FZP, where the FZP is not the ‘Beneficial Recipient’ of the relevant services or goods.
The following revenues shall be excluded from both the calculation of non-qualifying revenue and total revenue:
Revenue attributable to a Domestic Permanent Establishment or a Foreign Permanent Establishment.
Revenue derived from the ownership or exploitation of immovable property located in the Free Zone, through:
Transactions with NFZP, related to commercial property.
Transactions with any person, related to non-commercial property.
Income derived from the ownership or exploitation of intellectual property that is not Qualifying Intellectual Property.
Corporate Tax Return Filing
Businesses must file corporate tax returns within nine months from the end of each tax period. The process involves tax registration, meticulous record-keeping, preparation of the tax return, submission through the FTA’s e-Services platform, payment of tax liabilities, and compliance with potential audits.
Choose My Business Consulting DMCC for Corporate Tax Compliance in the UAE
Navigating the corporate tax landscape in the UAE demands expert knowledge and compliance with evolving regulations. Whether you are a start-up or a well-established enterprise, our team offers specialized corporate tax services to manage financial risks, ensure compliance, and optimize tax obligations. Contact us today for expert guidance tailored to your business needs.
