Federal Decree Law No.47 of 2022 regarding Corporate Tax (CT) in UAE is issued by FTA. Relevant points in brief for information of our clients are as below. Interpretations and detailed guidelines on the Decree Law are expected from Ministry in a shortly period in the Executive Regulations to the Decree Law.

Some of the highlights are below:

->The corporate tax is on taxable profit of Entities/Companies doing business in UAE. There is no personal income tax on salary and other income arising to natural persons, unless they are engaged in any business in UAE.

-> The corporate tax is applicable on income for a financial year starting on or after 1 June 2023.

-> Corporate tax rate is 9% on net profit above AED 375,000/-. There is no tax on profit up to AED 375,000/-

-> As the CT is effective for the financial year starting from June 2023, the taxable period shall be different for companies having different financial year. Examples below:

-> Taxable profit shall be the accounting profit, prepared in accordance with accounting standard applicable in UAE (International Financial Reporting Standard), after adjusting dis-allowed expenses, exempt income, losses carried forward etc.
-> Certain expenses shall be dis-allowed in calculating the taxable income for a year, like;

• 50% of entertainment, amusement, recreation expenses incurred for customers, shareholders, suppliers and other business partners.
• Fines and Penalties
• Bribes or illicit payments
• Donation, gifts or charities to un-approved organizations.
• Related party expenses in excess of arm-length pricing (above usual market value)
• Non Business expenses
• Interest expenses above 30% of EBITDA (Profit/earnings before interest, tax, depreciation and amortization)
• Remuneration to Partner, owner and other connected persons in excess of market value (Arm length pricing)
• Capital expenditure incurred, but depreciation/amortization shall be allowed as expense.
• Corporate tax

-> Losses can be carried forward indefinitely to future periods to adjust in the future taxable income, provided there is no change in management.
-> Transactions between related/connected parties shall be governed by Transfer Pricing (TP) regulations. These transactions are to be on arm-length basis (at a price which two independent parties would transact).

• Related party include parent company, subsidiaries, associate firms, joint ventures or entity that is controlled or significantly influenced or managed by a person who is a related party.
• Connected person include shareholders, owners, Directors etc.

->Taxable persons covered under Transfer Pricing regulations are required to file ‘disclosure form’ along with tax return. They are also required to maintain Master file, local file subject to meeting certain conditions to be detailed in the Executive Regulations.

->Taxable persons are required to register with FTA and obtain Tax Registration Number within the time, to be prescribed by the Executive Regulations.

->Qualifying Free Zone entities are eligible for 0% tax on their qualifying income (qualifying income shall be clarified by the Executive Regulation)

• Qualifying Free Zone companies are those; 1) maintain adequate substance in UAE, 2) comply with the regulation of arm length principle and Transfer Pricing documentation, 3) and derives qualifying income.
• If the qualifying free zone company fails to meet any of the above conditions in a tax period, shall be subject to tax @ 9%.

->All supporting records relating to corporate tax are to be maintained for a period of 7 years since the end of relevant tax period.

->Taxable persons are required to file Tax Return within 9 months of the end of the taxable period.
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