The terms "Business" and "Business Activity," as defined in the Corporate Tax Law, specify when the activities of certain individuals create a UAE Corporate Tax (CT) liability by designating the individual as a taxable person. "Business" refers to any economic activity, whether ongoing or temporary, undertaken by any individual. It is understood that such activities are conducted with the intent to generate profit and that there is some level of organization and structure involved. However, for UAE CT purposes, a business or business activity retains its identity even if it does not yield a profit. In the context of the Corporate Tax Law for companies and other juridical persons, all activities conducted and assets used or held will typically be regarded as activities and assets associated with a "Business." Individuals may earn income through wages, salaries, investments, or by engaging in commercial, industrial, or professional activities, either directly or as sole proprietors. For natural persons, a Cabinet Decision will be issued in the future to provide further details on the criteria that would bring them within the scope of UAE CT.

Companies incorporated in the UAE, such as LLCs, PSCs, PJSCs, and other juridical entities, will be classified as resident persons for Corporate Tax (CT) purposes.

Any entity incorporated in the UAE will automatically be regarded as a 'resident' person under the UAE CT framework. Similarly, individuals engaged in a business or business activity in the UAE will also be classified as resident persons for these purposes.

A foreign company may be considered a resident person for UAE CT purposes if it is effectively “managed and controlled” in the UAE. When determining where a company is effectively managed and controlled, all relevant facts and circumstances must be taken into account. A key indicator may be the location where strategic decisions that impact the business are made.

Non-resident persons will only be liable for UAE Corporate Tax (CT) on:

• income generated from their Permanent Establishment in the UAE; or

• income sourced from within the UAE, which is subject to a 0% withholding tax.

This page aims to offer guidance on the UAE Corporate Tax (CT) regime. You can access Federal Decree-Law No. 47 of 2022 regarding the Taxation of Corporations and Businesses (Corporate Tax Law) here. Please note that the information provided in these questions and answers should not be construed as legal or tax advice. It is not comprehensive, and it may not offer a definitive solution for every situation. These questions and answers do not cover all aspects of the UAE CT regime, and individual or business-specific circumstances should be taken into account when making decisions. The content may change without prior notice. Additional information and detailed guidance on the UAE CT regime will be provided in the future.

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Corporate Tax (CT) is a direct tax imposed on the net income or profit of corporations and other businesses. In some jurisdictions, it is also known as "Corporate Income Tax" or "Business Profits Tax."

Most countries worldwide, including the majority in the Middle East, have a comprehensive Corporate Tax (CT) regime.

UAE Corporate Tax (CT) applies to juridical persons incorporated in the UAE and those effectively managed and controlled within the UAE, as well as to foreign juridical persons with a permanent establishment in the UAE (see the question ‘Who is considered resident for UAE CT purposes?’ under the section on Scope and Rate).

Individuals will only be subject to CT if they are involved in a business or business activity in the UAE, either directly or through an unincorporated partnership or sole proprietorship. A Cabinet Decision will be issued in the future to provide further details on the criteria that would bring a natural person within the scope of UAE CT.

Yes, the UAE Corporate Tax (CT) is a federal tax, meaning it will be applicable throughout all the Emirates.

No, Corporate Tax (CT) and Value Added Tax (VAT) are distinct types of taxes. Both will remain in effect in the UAE.

Yes, applicable service fees will still need to be paid to the relevant Emirate and Federal Governments. Expenses related to business setup, license renewal, and other government fees incurred solely in the ordinary course of business are deductible for UAE Corporate Tax purposes.

Existing international agreements, including those aimed at avoiding double taxation, to which the UAE is a party, should be taken into account under the UAE Corporate Tax regime. If there is a conflict between the Corporate Tax Law and an international agreement regarding the right to tax a specific item of income, the international agreement may take precedence and limit the application of UAE Corporate Tax.

The Ministry of Finance will continue to serve as the 'competent authority' for bilateral and multilateral tax agreements, as well as for the international exchange of tax-related information. Additionally, the Ministry has the authority to provide further guidance and issue implementing regulations for UAE Corporate Tax and other federal taxes.

To evaluate the implications of the UAE Corporate Tax (CT) regime for your business, you should start by:

1. Reviewing the Corporate Tax Law and the related information available on the websites of the Ministry of Finance and the Federal Tax Authority.

2. Using this information to determine whether your business is subject to UAE CT and, if so, from what date.

3. Understanding your business's obligations under the Corporate Tax Law, including a. Whether your business needs to register for UAE CT. b. The accounting or tax period applicable to your business. c. The deadline for filing a UAE CT return. d. Any elections or applications your business can or should make for UAE CT purposes. e. How UAE CT may affect your business’s obligations and liabilities under contracts with customers and suppliers. f. The financial information and records your business must maintain for UAE CT purposes.

4. Regularly visiting the websites of the Ministry of Finance and the Federal Tax Authority for additional information and guidance on the UAE CT regime.

The taxable income for a Tax Period will be based on the accounting net profit (or loss) of the business, adjusted for specific items outlined in the Corporate Tax Law. The accounting net profit (or loss) is the figure reported in the financial statements, which are prepared in accordance with internationally recognized accounting standards. Adjustments to this net profit (or loss) must be made for the following items:

1. Unrealized gains and losses (depending on the election regarding the application of the realization principle);

2. Exempt income, such as qualifying dividends and capital gains;

3. Income from intra-group transfers;

4. Deductions that are not permitted for tax purposes;

5. Transactions with Related Parties and Connected Persons;

6. Transfers of tax losses within the group, where applicable;

7. Incentives or tax reliefs; and

8. Any other adjustments as determined by the Minister.

Since Corporate Tax (CT) is assessed annually, it is important to define the "Tax Period." Typically, the Tax Period will align with the Gregorian calendar year (i.e., from January 1 to December 31), unless the business uses a different 12-month period for its financial statement preparation.

Taxpayer Applicable CT Rate

• Individuals and Juridical Persons 0% for taxable income up to and including AED 375,000 (this threshold is subject to confirmation in a Cabinet Decision) 9% for taxable income exceeding AED 375,000

• Qualifying Free Zone Persons (see further details below) 0% on qualifying income 9% on taxable income that does not qualify as qualifying income

In addition to the 0% Corporate Tax (CT) rate for taxable income up to AED 375,000, small businesses with revenue below a specified threshold can apply for "small business relief," allowing them to be considered as having no taxable income during the relevant Tax Period and potentially simplifying their compliance requirements. To qualify for small business relief, a formal election must be submitted to the FTA.

Any UAE resident juridical person or individual with revenues below the threshold established by the Minister, and who meets any additional conditions that may be specified, can apply for small business relief.

In the Corporate Tax Law, the term "Natural Person" refers to an individual.

For specific types of business activities, natural persons can establish a sole proprietorship or civil company. For Corporate Tax (CT) purposes, these entities will be regarded as the natural person or persons who own them.

The individual will submit a single Corporate Tax (CT) return that encompasses all their business activities subject to UAE CT.

Self-employed individuals will be liable for UAE Corporate Tax (CT) only if their activity qualifies as a taxable business or business activity, as outlined in an upcoming Cabinet Decision. Even if a self-employed person is deemed to be engaged in a taxable business or activity, they will not owe CT on the first AED 375,000 of net income or profit generated from that activity. Additionally, further relief (small business relief) may be available to self-employed individuals and other entrepreneurs.

UAE and foreign individuals will not be liable for UAE Corporate Tax (CT) on dividends, capital gains, or other income earned from holding shares or other securities in their personal capacity.

A "juridical person" is an entity established or recognized under UAE laws and regulations, or the laws of a foreign jurisdiction, that possesses a legal personality distinct from its founders, owners, and directors. Examples of domestic juridical persons in the UAE include limited liability companies, foundations, 'onshore' trusts, public or private joint stock companies, and other entities with separate legal personality under applicable UAE mainland legislation or Free Zone regulations.

Branches of domestic or foreign juridical persons in the UAE are considered extensions of their "parent" or "head office" and are therefore not regarded as separate juridical persons.

All activities conducted by a juridical person will be classified as "business activities" and fall within the scope of UAE Corporate Tax (CT), unless explicitly exempted.

This will need to be evaluated on a case-by-case basis, considering factors such as the location where key decision-makers, like directors, make the strategic decisions impacting the juridical person.

No, but individuals conducting business in the UAE through a sole proprietorship or civil company may be liable for Corporate Tax (CT) if they engage in a relevant business or business activity.

The Corporate Tax Law differentiates between unincorporated and incorporated partnerships.

“Unincorporated Partnerships” (as defined in the Corporate Tax Law) refer to a contractual relationship or arrangement between two or more individuals, rather than being a distinct juridical entity separate from their partners or members. For UAE Corporate Tax (CT) purposes, unincorporated partnerships are treated as ‘transparent.’ This means they are not subject to UAE CT as entities; instead, each partner is liable for UAE CT on their share of the income generated through the partnership.

Incorporated partnerships, such as limited liability partnerships and partnerships limited by shares, include structures where none of the partners have unlimited liability for the partnership’s obligations or the actions of other partners. These partnerships are subject to CT in the same way as a corporate entity (see section ‘Juridical persons’).

For UAE Corporate Tax (CT) purposes, a foreign partnership will typically be treated as an Unincorporated Partnership, provided it meets specific conditions, including that it is not subject to tax in the relevant foreign jurisdiction (see the question ‘How will the UAE CT regime apply to partnerships?’ under the section on Partnerships).

An investment fund is an entity whose primary activity involves issuing investment interests to raise capital, pool investor funds, or create a joint investor fund. The goal is to allow the holders of these investment interests to benefit from the profits or gains derived from the entity’s acquisition, holding, management, or disposal of investments, in accordance with applicable legislation.

A recognized stock exchange includes:

• UAE: Any stock exchange located in the UAE that is licensed and regulated by the relevant competent authority (e.g., Nasdaq Dubai, Abu Dhabi Securities Exchange, or Dubai Financial Market);

• Foreign: Any stock exchange established outside the UAE that is of comparable standing to those in the UAE.

To qualify for the investment fund exemption, either the investment fund or its manager must be subject to regulatory oversight, but not necessarily both.

When the conditions of the Investment Manager Exemption are satisfied, a UAE-based investment manager should not establish potential UAE residency for Corporate Tax (CT) purposes for the foreign investment fund or investment vehicle it manages.

Yes, the income generated by UAE branches will be included in the taxable income and corporate tax return of their UAE "parent" or "head office."

No, UAE branches of either domestic or foreign entities are extensions of their "parent" or "head office" and are not regarded as separate legal entities.

The income from foreign branches or foreign permanent establishments of a UAE business will be included in the taxable income and corporate tax return of their UAE "head office," unless the UAE business chooses to claim an exemption for its foreign branch profits. This exemption applies to profits that have already been taxed in the foreign jurisdiction.

Preparatory or auxiliary activities refer to those carried out in preparation for or in support of the more significant business activities of a foreign entity. Examples include storage, display, or delivery of goods owned by the foreign entity, limited marketing and promotional efforts, conducting market research, and participating in seminars or conventions.

When assessing whether a permanent establishment exists or if the activities are preparatory or auxiliary, it is important to consider the application of any relevant international agreements aimed at avoiding double taxation.

Foreign entities operating in the UAE through a permanent establishment or deemed resident in the UAE for corporate tax purposes will be subject to UAE corporate tax. Simply earning income sourced from the UAE does not trigger a corporate tax obligation or necessitate registration and filing for UAE corporate tax.

A foreign legal entity may be classified as a UAE resident for corporate tax purposes and be subject to UAE corporate tax on its income derived from both the UAE and overseas if it is effectively managed and controlled within the UAE (as mentioned above).

A foreign individual who does not engage in a taxable business or business activity in the UAE (refer to the question "Can a foreign individual be subject to UAE CT as a resident person?" in the Foreign Persons section) would typically not be liable for UAE corporate tax. Simply earning income sourced from the UAE does not create a tax obligation or require the foreign individual to register and file for UAE corporate tax.

A foreign individual who owns property in the UAE in a personal capacity would typically not be subject to UAE corporate tax or related compliance requirements.

However, an investment in UAE real estate by a foreign legal entity may create a taxable permanent establishment if the property serves as a fixed place of business in the UAE through which the foreign entity conducts its operations, either wholly or partially. For further details on what constitutes a "fixed or permanent place of business" under the permanent establishment rules, refer to the question "How do I know if I have a Permanent Establishment in the UAE?" in the Foreign Persons section.

Income from dividends, capital gains, interest, royalties, and other investment returns earned by foreign legal entities or individuals will generally not be subject to UAE corporate tax, unless that income can be linked to a permanent establishment of the foreign entity in the UAE.

The taxable income for a tax period is the accounting net profit (or loss) of the business, adjusted for specific items as outlined in the Corporate Tax Law.

Taxpayers are required to prepare their financial statements and determine their taxable income on an accrual basis, unless they are allowed to use the cash basis of accounting. The Minister may specify the situations in which a taxpayer can use the cash basis, which is anticipated to be applicable to certain categories of individual entrepreneurs and small businesses.

When a business prepares its financial statements on an accrual basis, it has the following options regarding the UAE corporate tax treatment of unrealized accounting gains and losses:

Option 1: The taxpayer can choose to recognize gains and losses on a "realization basis" for UAE corporate tax purposes for all assets and liabilities. This means that unrealized gains would not be taxable, and unrealized losses would not be deductible, until they are realized.

Option 2: The taxpayer can opt to recognize gains and losses on a "realization basis" for UAE corporate tax purposes only for assets and liabilities held on capital account. In this case, unrealized gains and losses related to capital account assets and liabilities would not be taxable or deductible until realized, while unrealized gains and losses from assets and liabilities on revenue account would still be included in taxable income on a current basis.

Generally, assets and liabilities are considered held on capital account when they are not expected to be sold or traded during the regular course of business operations.

There is no distinction between gains from the sale of capital assets and those from the sale of non-capital (revenue) assets. Capital gains from asset disposals are included in annual taxable income just like other business income. However, capital gains from the sale of shares may be exempt from corporate income tax, provided certain conditions are met (see the question "Are capital gains exempt from UAE CT?" in the section on Income exempt from CT).

In general, all legitimate business expenses incurred to generate taxable income are deductible, although the timing of these deductions may vary based on the type of expense and the accounting method used. For capital assets, expenditures are typically recognized through depreciation or amortization deductions over the asset's economic lifespan.

Expenses with a dual purpose, such as those incurred for both personal and business reasons, must be allocated accordingly, with the relevant portion treated as incurred solely for the taxable person's business purposes.

Dividends paid by UAE companies are not deductible for corporate tax purposes.

Only irrecoverable input Value Added Tax can be deducted for corporate tax purposes. Otherwise, Value Added Tax charged and incurred will not affect the calculation of taxable income.

Yes, transfer pricing rules apply to UAE businesses engaging in transactions with Related Parties and Connected Persons, regardless of whether these parties are located in the UAE mainland, a Free Zone, or in a foreign jurisdiction.

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:

1. The comparable uncontrolled price method.

2. The resale price method.

3. The cost-plus method.

4. The transactional net margin method.

5. The transactional profit split method.

Yes, transfer pricing rules will apply to all transactions with Related Parties and Connected Persons. As a result, any loan obtained from or granted to a Related Party or Connected Person must be conducted at arm’s length (e.g., regarding interest rate, duration, etc.).

Withholding tax is a type of Corporate Tax collected at the source by the payer on behalf of the income recipient. This tax is present in many tax systems and usually applies to cross-border payments of dividends, interest, royalties, and other income types.

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.

Yes, businesses involved in real estate management, construction, development, agency, and brokerage activities will be subject to UAE corporate tax.

Charities and other public benefit organizations will be exempt from UAE corporate tax, provided they meet specific conditions and are included in a Cabinet Decision.

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:

1. Dividends and other profit distributions received from UAE-incorporated or resident legal entities.

2. Dividends and other profit distributions received from a Participating Interest in a foreign legal entity (more details below).

3. Certain other income (e.g., capital gains, foreign exchange gains/losses, and impairment gains or losses) derived from a Participating Interest (more details below).

4. Income from a foreign branch or permanent establishment when an election is made to claim the "Foreign Permanent Establishment" exemption.

5. 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.