STI Taxand (UAE Branch), is a Tier 1 member of Taxand, the world’s largest independent organisation of tax experts with more than 700 tax partners and over 3,000 tax advisors in 48 countries.

The swiftly changing global tax landscape today is leading to unparalleled transformations in the market. The introduction of Corporate Tax and relevant tax laws and regulations in the UAE is creating uncertainties and require the need of expert advice and broad knowledge on tax matters.

Our experienced International Tax professionals provide tax advisory and compliance services to mid-sized and large domestic and multinational companies and help them align their tax strategies in accordance with their business objectives. Our shared strengths include deep local and international knowledge, well-established networks, a collaborative approach and a commitment to surpassing client expectations.

Country Overview

The United Arab Emirates (UAE), located in the southeast of the Arabian Peninsula, is bordered by the Persian Gulf to the north, Oman to the east, and Saudi Arabia to the south and west. It is a constitutional federation of seven Emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al-Quwain, Ras Al-Khaimah, and Fujairah. The federation was formally established on 2 December 1971, and the capital is Abu Dhabi. Arabic is the official language of the United Arab Emirates, with English widely spoken and used in business, and the currency is the United Arab Emirates dirham (AED).

The United Arab Emirates has a well-established infrastructure, stable political system, and one of the most liberal trade regimes in the Gulf region. It continues to be increasingly important, relevant, and attractive to businesses from around the world as a place to do business and as a hub for the region and beyond. The United Arab Emirates is also one of the best examples in the region of an economy that has successfully moved away from reliance on the energy sector. A significant proportion of the gross domestic product (GDP) is being derived from non-oil revenues.

Tax facts

The UAE does not levy income tax on individuals. However, it levies corporate tax on oil companies and foreign banks. Excise tax is levied on specific goods which are typically harmful to human health or the environment. Value Added Tax is levied on a majority of goods and services.

Corporate tax (CT)

In January 2022, Ministry of Finance announced that it will introduce federal Corporate tax (CT) on the net profits of businesses. The tax will become applicable either on 1 June 2023 or on 1 January 2024, depending on the financial year followed by the business. CT will be applied across all the emirates.

Introduction about Corporate tax

According to the UAE Federal Decree-Law No. 47 of 2022 on taxation of corporations and businesses (the “Corporate Tax Law”), businesses will become subject to UAE Corporate Tax from the beginning of their first financial year that starts on or after 1 June 2023.

What is Corporate tax (CT)?

Corporate tax is a form of direct tax levied on the net income or profit of corporations and other entities from their business.

Objectives of CT

By introducing the CT, the UAE aims to:

• cement its position as a leading global hub for business and investment
• accelerate its development and transformation to achieve its strategic objectives
• reaffirm its commitment to meeting international standards for tax transparency and preventing harmful tax practices.

Scope

CT will apply to:

1. all businesses and individuals conducting business activities under a commercial licence in the UAE
2. free zone businesses (The UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business set up in the UAE’s mainland.)
3. Foreign entities and individuals only if they conduct a trade or business in the UAE in an ongoing or regular manner
4. Banking operations
5. Businesses engaged in real estate management, construction, development, agency and brokerage activities.

Exemptions from CT

Below are the rules regarding exemptions from the corporate tax.

• Businesses engaged in the extraction of natural resources are exempt from CT as these businesses will remain subject to the current Emirate level corporate taxation.

• Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from CT.

• Qualifying intra-group transactions and reorganizations will not be subject to CT, provided the necessary conditions are met.

Additionally, CT will not apply to:

• an individual earnings salary and other employment income, whether received from the public or the private sector

• interest and other income earned by an individual from bank deposits or saving schemes

• a foreign investor’s income earned from dividends, capital gains, interest, royalties and other investment returns

• investment in real estate by individuals in their personal capacity

• dividends, capital gains and other income earned by individuals from owning shares or other securities in their personal capacity.

CT Rate

As per Ministry of Finance, CT rates are:

• 0 per cent for taxable income up to AED 375,000

• 9 per cent for taxable income above AED 375,000 and

• a different tax rate (not yet specified) for large multinationals that meet specific criteria set with reference to ‘Pillar two’ of the OECD Base Erosion and Profit Shifting Project.

Federal Tax Authority (FTA) will be responsible for the administration, collection and enforcement of the CT. FTA provides more references and guides about corporate tax and information on how to register and file returns on its website.

Text sourced from the website of Ministry of Finance.

Transfer Pricing Documentation Requirements for Corporate Tax Purposes

The Ministry of Finance has issued the Ministerial Decision No (97) of 2023 on the Requirements for Maintaining Transfer Pricing Documentation which aims to promote transparency and fairness in the UAE’s tax system.

Federal Decree Law No (47) of 2023 on the Taxation of Corporations and Businesses enforces transfer pricing rules and documentation requirements to ensure that the pricing of transactions between related parties and connected persons, such as companies that are part of the same multinational enterprise (MNE) group, are not influenced by their relationships.

His Excellency Younis Haji Al Khouri, Undersecretary of the Ministry of Finance, said: “The transfer pricing documentation requirements aim to ensure taxpayers can prove the arm’s length basis for pricing their transactions with related parties and connected persons using standardized files. Additionally, to reduce the compliance burden on taxpayers, the Decision defines the threshold for preparing master files and local files and the exclusions for disclosing certain transactions.”

His Excellency added that the transfer pricing documentation requirements will promote transparency and fairness in the UAE’s tax system by providing clear guidance and easing compliance burdens for small and medium-sized businesses to their benefit. The decision reinforces the UAE’s commitment to fostering a business-friendly environment that encourages growth, supports economic diversification, and enhances the nation’s competitiveness on the global stage.

The Decision specifies instances where taxpayers must maintain transfer pricing documentation, specifically a master file and a local file, including if they have revenues in a relevant tax period of at least AED200 million, or they are part of a MNE group with a total consolidated group revenue of at least AED 3.15 billion in the relevant tax period. Additionally, the Decision outlines the transactions or arrangements that will be included in the local file.