In the UAE the corporate tax law is regulated through the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. This law provides clear guidelines about the imposition, rates, and identification criteria for tax obligations. Businesses in the UAE, whether Resident Persons, Non-Resident Persons with Permanent Establishments, Joint Ventures, Family Foundations, or engaged in specified business activities, must understand corporate taxation. This article discusses UAE corporate tax law, identifying taxable persons, determining the corporate tax base, and exemptions.
In accordance with Article 3, different rates shall be applied for different categories, such as Qualifying Free Zone Persons or Small Businesses enjoying relief mechanisms. The provisions of the new clause were added by Federal Decree-Law No. 60/2023, which was issued on October 10, 2023.
Articles 11 to 14 state that, taxable person categories include resident persons and non-resident persons. The corporate tax base includes income generated within or outside the UAE for resident persons and certain criteria for non-resident persons. State-sourced income means an income derived in the UAE by a resident and non-resident, which shall include but not be limited to income from the sale of goods, services, contracts, property, and intellectual property rights. The existence of permanent establishments is explained along with exclusions on the place used only for preliminary or supplementary purposes.
Under certain circumstances, investment managers acting on behalf of non-resident individuals are exempt from some tax obligations, provided certain conditions are met. Joint ventures will be regarded as a single taxable person unless an application for joint venture status is filed, as outlined in Articles 15 and 16.
As per articles 17 to 18, family foundations that satisfy the requirements under the law can apply for joint venture status but have to adhere to tax laws. A qualifying free zone person is a free zone person who satisfies specific criteria. Tax incentives may be granted for a period of up to 50 years.
Articles 19 to 21 stipulate that qualifying free zone residents can choose into corporate tax at specified rates, providing flexibility for transferring into corporate tax obligations. Further, the law states that taxable income is determined separately for each business based on financial statements prepared according to UAE-accepted accounting standards. A resident person with specified limits of income may not be required to realize taxable income in any period, and exemptions for certain income, reliefs, deductions, and tax loss reliefs are also provided.
Various income sources are exempt from the calculation of taxable income, such as dividends, profit distributions, and some kinds of income that result from participating interests, foreign Permanent establishments, and international transport activities. Some conditions are given for income proceeding from participating interests regarding exemption from corporate tax; various exemptions and conditions concerning the cases of Participating Interests are given.
The resident persons may choose to exclude the income and related expenses of foreign permanent establishments from taxable income. The resident persons and their foreign permanent establishments shall be treated separately. The income derived from international transportation is exempt from corporate tax if the business and tax treatment in the non-resident person's jurisdiction meets certain criteria with respect to the nature of the business and tax treatment in the non-resident person's jurisdiction.
Companies operating in the UAE may obtain a clear understanding of the tax considerations based on residence, activities, and thresholds according to the UAE corporate tax structure. Therefore, these regulations need to be followed to enable companies to adhere to UAE laws related to taxes and make them work for the best tax position.
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