UAE Corporate Tax: A Global Business Guide to Success
By implementing the Corporate Tax framework in the country, the United Arab Emirates (UAE) has taken a major step to align with the international standards and global tax frameworks. Corporate Tax is applicable in the UAE, effective from June 1, 2023, which impacts both domestic businesses and international businesses operating in the country.
For many decades, the UAE has been well known as a tax-friendly jurisdiction, attracting many multinational entities with an environment of zero tax. The recent introduction of Federal Decree Law No.47 of 2022 on the Taxation of Corporations and Businesses, aiming a high level of fair and transparent taxation and the framework is highly aligned with the OECD's Base Erosion and Profit Shifting (BEPS) action plans. This positive initiative makes the UAE a responsible country for the outside world, and on the flip side, a competitive international business hub.
This blog provides a practical guide for global businesses navigating UAE corporate tax-focusing on compliance requirements, business optimisation strategies, and the broader international taxation landscape.
This article provides a detailed and practical guide for global businesses about UAE Corporate Tax and all the major areas, including the compliance requirements, business optimisation strategies, and international taxation aspects are covered.
Key Concepts: Understanding UAE Corporate Tax
Corporate Tax Rate and Thresholds
- 0% Corporate Tax on the taxable income (profit) up to AED 375,000 (Approx: USD 102,000). This is to support the startups and SMEs.
- 9% Corporate Tax on the taxable income (Profit) over and above AED 375,000.
- 15% global minimum tax, which is applicable to Multi-national enterprises that cross group level revenue of 750 million (AED 3.15 billion).
The Global Minimum Taxation adoption aligns the UAE with international standards.
Exemptions from Corporate Tax
The following are exempt from UAE corporate tax:
- Government and government-controlled entities
- Businesses engaged in the business of extraction and non-extraction of natural resources, subject to the condition that they are already taxed at the emirate level.
- Charities, public benefit organisations, and pension funds.
- Investment funds (if certain conditions are met).
- Free Zone companies that satisfy the conditions as detailed in Cabinet Decision No.100 of 2023 and Ministerial Decision No.265 of 2023 may be eligible for 0% Corporate Tax on their Qualifying Income.
Compliance Requirements
To meet tax compliance standards, companies must:
- The first step of compliance is to register with the Federal Tax Authority for Corporate Tax purposes and obtain a Tax Registration Number. FTA has published the FTA Decision No.3 of 2024, The Timeline specified for Registration of Taxable Persons for Corporate Tax.
- Prepare and maintain financial statements and records as per International Financial Reporting Standards (IFRS)
- Submit the Corporate Tax Returns and relevant financial records within 9 months from the end of the financial period.
- Retain all the accounting records and supporting documents for a minimum period of 7 years from the end of the financial year.
The UAE in the Global Business Landscape
The UAE is strategically located at the crossroads of Europe, Asia, and Africa, making it a critical player in global trade and investment. Its infrastructure, business-friendly regulations, and ease of doing business continue to attract foreign direct investment (FDI).
UAE's double taxation treaty frameworks make the country a highly attractive jurisdiction for international taxation planning. More than 140 double taxation treaties are active in the country, and the benefits are very high for cross-border transactions. This makes the UAE a strategic location for international operations. On one side, the UAE Corporate Tax framework has a competitive tax rate compared to the global average tax rate of 23.5%, and on the other hand, the tax law outlines many benefits for businesses who operate in the country, including;
- Free Zone benefits
- Exemption of certain incomes, including foreign dividends and capital gains from sales of shares.
- Tax transparency for Family Foundations and Trusts registered in the UAE
Case in Point:
Organisations such as Amazon, Nestle, and HSBC have all set up regional hubs in the UAE. These businesses have successfully integrated local operations with international tax compliance structures, leveraging free zone provisions, transfer pricing regimes and treaty networks.
Compliance Strategies for Global Businesses
While the UAE is a favourable tax country for international businesses, staying compliant with the domestic tax law is very important for all businesses, and the information about the UAE tax compliance is the key point for those who are planning to shift their operations to the UAE. Here are effective strategies businesses can adopt;
1. Early Corporate Tax Registration
Do not wait until the last moment, for registering for corporate tax requires minimal details and documents (Trade License, MOA, Passport copy and Emirates ID copy (if resident), etc. After you get the trade license, the first compliance to be taken care of is applying for and obtaining a Tax Registration Number (TRN) for Corporate Tax purposes. The timely action on this will help to avoid administrative penalties and keep the business compliant
2. Maintain IFRS-Compliant Books
The calculation of Corporate Tax starts from the financial report prepared as per International Financial Reporting Standards (IFRS). Proper maintenance of books of accounts helps a business to segregate the taxable income and the exempt income.
3. Identify Related Party Transactions
Documentation is the key to complying with Corporate Tax. Entities must identify the related party transactions in the business using arm's length principles guided by the OECD. UAE Corporate Tax Law outlines the requirement of preparing and maintaining of Local Files and Master Files if the revenue thresholds are met
4. Segment Free Zone vs Mainland Income
A clear segregation is required for income generated by Free Zone entities. Qualifying Free Zone Persons are eligible for 0% Corporate Tax on their qualifying income and other income, which are excluded from income and are subject to tax at 9%. Without a clear view of the income sources and categories, managing the corporate tax compliance will be almost impossible.
5. Utilise Treaty Benefits
Certain incomes are mostly subject to withholding tax in the source country, especially dividend, royalty and interest payments. It is crucial to analyse the Double Taxation Treaties to understand the benefits of reduced withholding tax and Foreign Tax Credit for the taxes paid outside the UAE. Good news for International Businesses in the UAE, the withholding tax for payment remittance from the UAE is 0%. A lot of businesses who has cross-border transactions can enjoy the 0% withholding tax benefit under the UAE Corporate Tax
Optimisation Techniques for Corporate Tax Efficiency
Tax optimisation is not about avoiding tax, it's about making strategic decisions that comply with laws while reducing tax liability. Here are some tax optimisation techniques which are allowed under the provisions of tax law in the UAE.
1. Group Structuring for Tax Neutrality
Qualifying Group is not equal to Tax Group for Corporate Tax. Qualifying Groups' benefits can be enjoyed by any businesses in the UAE that are eligible with 75% common ownership (directly or indirectly), who follow the same accounting period and standards. Those who are eligible for Qualifying Group relief can transfer assets and liabilities among group companies at Net Book Value, and no profit or loss is required to be booked.
2. Free Zone Optimisation
Entities operating in UAE free zones like DMCC, DIFC, and JAFZA can retain 0% tax on qualifying income, such as trading with foreign jurisdictions or within the same zone.
To qualify, they must:
- Maintain adequate economic substance in the zone by way of adequate full-time qualified employees, operating expenditure, capital expenditure and core income-generating activities are conducted in the Free Zone.
- Keep separate accounting records.
- Not elect to be taxed at the regular rate.
- Maintain the Audited Financial Statement
- Comply with Transfer Pricing rules
3. Transfer Pricing Alignment
Most international businesses have related party transactions by way of sales, purchases, services provided or received, common facilities used, intercompany loans, etc. In order to reflect the fair market value, it is mandatory that the related party transactions are benchmarked at Arm's Length Principle and implement proper transfer pricing policies to submit to the tax authority at the time of scrutiny.
4. Utilise Foreign Tax Credits
Always look at the treaty benefits in order to avoid double taxation, get benefits on the withholding tax deduction, set-off of foreign tax paid against the Corporate Tax liability in the UAE. Make sure that all the Foreign Tax Credits taken have proper documentation in place.
Conclusion
The UAE's corporate tax regime marks a progressive shift that strengthens the country's position in global finance while ensuring businesses contribute fairly to the economy. For global companies, the opportunity lies in understanding the law, maintaining rigorous tax compliance, and leveraging the UAE's favourable structure for business optimisation.
With a competitive tax rate of 9%, an extensive treaty network and 0% Corporate Tax for Free Zone companies, the UAE remains a top choice for multi-national operations, provided that businesses in the UAE stay aligned with local rules and expectations.
To learn more about UAE Corporate Tax: A Global Business Guide to Compliance and Optimization, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.