TAX CONSULTANCY L.L.C
Frequently asked questions
Generally, Related Parties of an individual include the individual's relatives as well as companies in which the individual, alone or in conjunction with their Related Parties, holds a controlling ownership interest (typically 50% or more of the company's shares).
Similarly, Related Parties of a company encompass any other companies in which the company, either independently or with its Related Parties, has a controlling ownership interest (typically 50% or more of the shares) or that are under more than 50% common ownership.
For more information on the definition of Related Parties, please refer to Article 35 of the Corporate Tax Law.
Typically, taxpayers must utilize one or more of the following methodologies to establish arm's length values for transfer pricing purposes:
The comparable uncontrolled price method.
The resale price method.
The cost-plus method.
The transactional net margin method.
The transactional profit split method.
Yes, foreign tax paid on income that is also subject to UAE corporate tax can be deducted as a foreign tax credit from the UAE corporate tax owed. The maximum foreign tax credit is limited to the lesser of the foreign tax paid or the UAE corporate tax due on the relevant income. Any excess foreign tax credit cannot be carried forward or back to another tax period.
Businesses involved in the extraction of the UAE’s natural resources, as well as those engaged in the non-extractive aspects of the natural resources value chain that are subject to Emirate-level taxation, will be exempt from the UAE corporate tax regime, provided they meet certain conditions and safeguards outlined in Article 7 and Article 8 of the Corporate Tax Law.
A Family Foundation (as defined in the UAE Corporate Tax Law) is a foundation, trust, or similar entity established to protect and manage the assets and wealth of an individual or family.
The primary function of a Family Foundation is generally to receive, hold, invest, disburse, or otherwise manage funds and assets related to savings or investments for the benefit of individual beneficiaries or to fulfill a charitable purpose. These activities typically do not qualify as a "business" or "business activity" for UAE corporate tax purposes if performed directly by the founder, beneficiary, or any other individual.
Foundations and certain types of trusts are independent legal entities with their own legal personality and are therefore prima facie subject to UAE corporate tax in their own right. However, these Family Foundations can apply to be recognized as transparent "Unincorporated Partnerships" for UAE corporate tax purposes, allowing the founder/settlor and beneficiaries to be regarded as the owners of the assets held by the trust. This typically prevents the income of the foundation or trust from being subject to UAE corporate tax.
In contrast, other types of trusts (such as those established in the DIFC or ADGM) represent a contractual relationship among two or more parties (e.g., the beneficiary, settlor, and trustee) and do not possess separate legal personality. These trusts will, by default, be treated as transparent vehicles for UAE corporate tax purposes.
The following types of income are exempt from UAE corporate tax:
Dividends and other profit distributions received from UAE-incorporated or resident legal entities.
Dividends and other profit distributions received from a Participating Interest in a foreign legal entity (more details below).
Certain other income (e.g., capital gains, foreign exchange gains/losses, and impairment gains or losses) derived from a Participating Interest (more details below).
Income from a foreign branch or permanent establishment when an election is made to claim the "Foreign Permanent Establishment" exemption.
Income earned by non-residents from the operation or leasing of aircraft or ships in international transportation, provided specific conditions are met (more details below).
Dividends and other profit distributions received from a Participating Interest in a foreign legal entity are exempt from UAE corporate tax, provided the participation exemption requirements are met. A Participating Interest is defined as a 5% or greater ownership stake in the capital or equity of the foreign legal entity that fulfills the criteria of the participation exemption regime.
Under the participation exemption regime, capital gains derived from a Participating Interest are exempt from UAE corporate tax. Additionally, there is relief from corporate tax for capital gains that may occur during intra-group transfers and in reorganization or restructuring transactions.
All other capital gains will be treated as ordinary income and subject to corporate tax.
There may be situations where a UAE business makes a strategic investment in another company that does not achieve a 5% or greater ownership interest, or where the ownership percentage in the Participation falls below the 5% threshold due to circumstances beyond the control of the UAE shareholder company. To address these situations and lessen the administrative burden of monitoring ongoing compliance with the minimum ownership requirement under the participation exemption regime, the Minister may establish a specific minimum acquisition cost or value. This would allow ownership interests in other legal entities above that threshold to be considered qualifying "Participations," enabling the income from such investments to benefit from the participation exemption.
Frequently asked questions
Generally, Related Parties of an individual include the individual's relatives as well as companies in which the individual, alone or in conjunction with their Related Parties, holds a controlling ownership interest (typically 50% or more of the company's shares).
Similarly, Related Parties of a company encompass any other companies in which the company, either independently or with its Related Parties, has a controlling ownership interest (typically 50% or more of the shares) or that are under more than 50% common ownership.
For more information on the definition of Related Parties, please refer to Article 35 of the Corporate Tax Law.
Typically, taxpayers must utilize one or more of the following methodologies to establish arm's length values for transfer pricing purposes:
The comparable uncontrolled price method.
The resale price method.
The cost-plus method.
The transactional net margin method.
The transactional profit split method.
Yes, foreign tax paid on income that is also subject to UAE corporate tax can be deducted as a foreign tax credit from the UAE corporate tax owed. The maximum foreign tax credit is limited to the lesser of the foreign tax paid or the UAE corporate tax due on the relevant income. Any excess foreign tax credit cannot be carried forward or back to another tax period.
Businesses involved in the extraction of the UAE’s natural resources, as well as those engaged in the non-extractive aspects of the natural resources value chain that are subject to Emirate-level taxation, will be exempt from the UAE corporate tax regime, provided they meet certain conditions and safeguards outlined in Article 7 and Article 8 of the Corporate Tax Law.
A Family Foundation (as defined in the UAE Corporate Tax Law) is a foundation, trust, or similar entity established to protect and manage the assets and wealth of an individual or family.
The primary function of a Family Foundation is generally to receive, hold, invest, disburse, or otherwise manage funds and assets related to savings or investments for the benefit of individual beneficiaries or to fulfill a charitable purpose. These activities typically do not qualify as a "business" or "business activity" for UAE corporate tax purposes if performed directly by the founder, beneficiary, or any other individual.
Foundations and certain types of trusts are independent legal entities with their own legal personality and are therefore prima facie subject to UAE corporate tax in their own right. However, these Family Foundations can apply to be recognized as transparent "Unincorporated Partnerships" for UAE corporate tax purposes, allowing the founder/settlor and beneficiaries to be regarded as the owners of the assets held by the trust. This typically prevents the income of the foundation or trust from being subject to UAE corporate tax.
In contrast, other types of trusts (such as those established in the DIFC or ADGM) represent a contractual relationship among two or more parties (e.g., the beneficiary, settlor, and trustee) and do not possess separate legal personality. These trusts will, by default, be treated as transparent vehicles for UAE corporate tax purposes.
The following types of income are exempt from UAE corporate tax:
Dividends and other profit distributions received from UAE-incorporated or resident legal entities.
Dividends and other profit distributions received from a Participating Interest in a foreign legal entity (more details below).
Certain other income (e.g., capital gains, foreign exchange gains/losses, and impairment gains or losses) derived from a Participating Interest (more details below).
Income from a foreign branch or permanent establishment when an election is made to claim the "Foreign Permanent Establishment" exemption.
Income earned by non-residents from the operation or leasing of aircraft or ships in international transportation, provided specific conditions are met (more details below).
Dividends and other profit distributions received from a Participating Interest in a foreign legal entity are exempt from UAE corporate tax, provided the participation exemption requirements are met. A Participating Interest is defined as a 5% or greater ownership stake in the capital or equity of the foreign legal entity that fulfills the criteria of the participation exemption regime.
Under the participation exemption regime, capital gains derived from a Participating Interest are exempt from UAE corporate tax. Additionally, there is relief from corporate tax for capital gains that may occur during intra-group transfers and in reorganization or restructuring transactions.
All other capital gains will be treated as ordinary income and subject to corporate tax.
There may be situations where a UAE business makes a strategic investment in another company that does not achieve a 5% or greater ownership interest, or where the ownership percentage in the Participation falls below the 5% threshold due to circumstances beyond the control of the UAE shareholder company. To address these situations and lessen the administrative burden of monitoring ongoing compliance with the minimum ownership requirement under the participation exemption regime, the Minister may establish a specific minimum acquisition cost or value. This would allow ownership interests in other legal entities above that threshold to be considered qualifying "Participations," enabling the income from such investments to benefit from the participation exemption.