UAE Corporate Tax Q&A

1. What is the main law covering Corporation Tax in this jurisdiction?

The primary law governing Corporation Tax in the UAE is Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. This law, issued on October 3, 2022, represents a major policy shift by introducing Corporate Tax to the UAE. This Decree-Law, effective 15 days after the date of its publication in the Official Gazette, outlines the framework for levying and collecting Corporate Tax on businesses operating in and from the UAE. The law covers various aspects including tax rates, the definition of taxable persons, tax exemptions and reliefs, compliance requirements, and penalties for non-compliance.

The Decree aims to align UAE tax policy with international tax standards and global best practices, especially the OECD's Base Erosion and Profit Shifting ("BEPS") initiative. It positions the UAE as a responsible global player while maintaining its competitiveness, thereby enhancing its attractiveness to investors and businesses seeking a stable and compliant environment for growth and expansion.

2. Which body or regulator is responsible for the levying and collection of Corporation Tax?

The Federal Tax Authority ("FTA") is the government body responsible for administering, enforcing, and collecting Corporate Tax in the UAE. The FTA was established under Federal Decree-Law No. 13 of 2016 to oversee the implementation and enforcement of federal taxes, including value added tax ("VAT"), Excise Tax, and now Corporate Tax.

Key responsibilities of the FTA include:

• Tax registration and deregistration: The FTA handles the registration of businesses for Corporate Tax purposes, issues tax registration numbers, and processes deregistration requests for entities that cease to be liable for Corporate Tax.
• Filing and payment: The FTA manages the filing of Corporate Tax returns through its electronic platform, ensuring businesses report their taxable income accurately and pay the correct amount of tax within the specified timeframes.
• Audits and assessments: The FTA has the authority to conduct audits and assessments of businesses to verify their tax compliance, including reviewing financial statements and other supporting documents.
• Penalties and enforcement: The FTA enforces compliance by imposing penalties for late payment, incorrect filings, or other breaches of the tax laws.

The FTA also provides guidance to businesses through workshops, FAQs, public guides, private clarifications and other communication channels to ensure a clear understanding of the tax legislation in the UAE.

3. Who is liable to pay Corporation Tax?

In the UAE, Corporate Tax is levied on a range of entities, including:

• Resident juridical persons: Any company or legal entity incorporated or legally established in the UAE is subject to Corporation Tax. This includes companies incorporated in mainland UAE, free zones, and financial free zones. Even though certain free zone entities may benefit from a 0% tax rate on qualifying income, they are still considered taxable persons.
• Non-resident persons: Non-residents who conduct business through a permanent establishment in the UAE or derive UAE sourced income are liable for Corporate Tax. A permanent establishment is defined as a fixed place of business, such as an office or branch, through which the non-resident conducts substantial activities in the UAE. Additionally, non-resident persons that derive income from immovable property located in the UAE, or from government contracts, are also taxable.
• Natural persons conducting a business: Individual entrepreneurs and sole proprietors (natural persons) who conduct business activities in the UAE, such as through sole establishments, are subject to Corporate Tax if their business income exceeds the relevant threshold (AED 1,000,000) Notably, income derived from employment or personal investments (e.g., dividends or real estate rents) is not subject to Corporate Tax unless the individual is engaged in a business.

Exempt persons, such as government entities, qualifying public benefit entities, and entities engaged in the extraction of natural resources, are excluded from Corporate Tax unless they engage in taxable business activities.

4. How does Corporation Tax liability work for the subsidiaries or branches of international companies based in this jurisdiction?

Subsidiaries and branches of international companies operating in the UAE are subject to Corporate Tax on the income they derive from their activities in the UAE. The treatment of international companies under UAE Corporate Tax law aligns with international norms, particularly the OECD's BEPS framework, which aims to prevent profit shifting and ensure that profits are taxed where economic activities generating the profits are performed.

• Subsidiaries: A subsidiary of a foreign company that is incorporated in the UAE is considered a resident juridical person and is taxed on its worldwide income, similar to any other UAE-incorporated entity. However, if the subsidiary earns income from outside the UAE, it may be able to benefit from a foreign tax credit to offset taxes paid in other jurisdictions.
• Branches: Under the UAE Federal Decree-Law No. 47 of 2022, branches of foreign companies operating within the UAE are considered part of the same taxable entity as their foreign parent company. According to Clause 3 of Article 11, a branch in the UAE is treated as one and the same Taxable Person as the foreign parent, meaning it is not viewed as a separate non-resident entity but rather as an extension of its parent for Corporate Tax purposes. Consequently, the branch is subject to Corporate Tax on income derived from its UAE-based activities, which constitutes a "permanent establishment" in the UAE. This status subjects the branch's UAE-sourced income to taxation under UAE law, while income generated by the foreign parent outside the UAE remains outside the scope of UAE Corporate Tax unless it is directly sourced from UAE activities. This approach aligns with international tax norms, where branches are regarded as part of the same legal entity as the parent company, ensuring that UAE-based income is properly taxed within the jurisdiction

The concept of a permanent establishment is critical in determining the tax liability of non-resident companies. A PE may be established if the company has a fixed place of business in the UAE (such as an office or workshop) or if a dependent agent in the UAE habitually concludes contracts on behalf of the foreign company. The law also recognizes preparatory and auxiliary activities, which may not trigger a PE if the activities are deemed insignificant.

5. Are companies that are based or have branches in the free zones subject to the same Corporation Tax liabilities as other companies in this jurisdiction?

Companies established in UAE free zones are subject to Corporate Tax but can benefit from a preferential 0% tax rate on qualifying income if they meet specific conditions. Under Article 3(2) of the Federal Decree-Law No. 47 of 2022, a Qualifying Free Zone Person—defined as an entity registered in a free zone and meeting certain criteria—may be eligible for a 0% Corporate Tax rate on income derived from Qualifying Activities. Article 18 of the Decree-Law and Cabinet Decision No. 55 of 2023 specify that Qualifying Activities may include activities such as manufacturing, logistics, holding company operations, and certain consultancy services within the free zone or with other free zone entities.

If a free zone entity generates non-qualifying income (i.e., income from activities that do not meet the Qualifying Activities criteria, such as financial services to mainland UAE customers or retail sales), or conducts excluded activities (activities specifically excluded from the 0% rate by the Minister's decision), then that income is subject to the standard 9% Corporate Tax rate from the first dirham. Unlike other businesses in the UAE, non-qualifying income for free zone entities does not benefit from the AED 375,000 tax-free threshold.

Thus, free zone entities must carefully distinguish between qualifying and non-qualifying income to determine their tax obligations accurately. Any income from non-qualifying or excluded activities will be taxed at 9% on the full amount, while qualifying income that meets the prescribed requirements remains eligible for the 0% rate

6. What is considered when deciding if a non-resident company has to pay Corporation Tax in this jurisdiction?

A non-resident company will be subject to Corporate Tax in the UAE if it satisfies certain conditions:

• Permanent establishment: The presence of a permanent establishment (PE) in the UAE is a key criterion for taxing non-residents. A PE may be established if the non-resident has a fixed place of business (e.g., office, factory, workshop) in the UAE, or if they conduct business through a dependent agent who habitually concludes contracts on their behalf. The PE concept aligns with the definitions in most international tax treaties, reflecting the UAE's commitment to the OECD's BEPS standards.

Preparatory or auxiliary activities, such as market research or storing goods, are generally not sufficient to establish a PE. Additionally, non-residents deriving income from immovable property in the UAE, such as rental or capital gains from real estate, will be subject to UAE Corporate Tax.

• State-sourced income: Even if a non-resident does not have a permanent establishment, they may be liable for Corporate Tax if they derive State-sourced income. This includes income generated from activities performed in the UAE, such as income from UAE government contracts, or income from services provided in the UAE.

The presence of a double taxation agreement (DTA) may influence the treatment of non-residents, allowing for exemptions or credits in the company's home country to prevent double taxation. A recent guide issued by the FTA has clarified that DTAs take precedence over local federal laws.

7. What is the main rate of Corporation Tax? Do other rates or exemptions apply to particular types of company?

(Maybe add a table better )

The UAE's Corporate Tax regime features a tiered tax rate structure to support both small businesses and large corporations:

• 0% rate:  For most businesses operating in mainland UAE, the first AED 375,000 of taxable income is subject to a 0% Corporate Tax rate. This threshold provides relief to startups and small businesses (SMEs), allowing them to grow with minimal tax burdens. However, this AED 375,000 threshold does not apply to free zone entities. Instead, free zone entities that meet specific conditions to achieve the status of Qualifying Free Zone Person (QFZP) are eligible for a 0% rate on income derived from qualifying activities.

9% rate: Taxable income exceeding AED 375,000 is subject to the standard 9% Corporate Tax rate for most mainland businesses. For free zone entities, any income that does not meet the requirements for qualifying income—such as non-qualifying or excluded income is also subject to the 9% rate. This 9% rate applies from the first dirham of non-qualifying or excluded income earned by free zone entities, as these entities are not eligible for the AED 375,000 threshold.

In addition to these rates, the UAE Corporate Tax Law provides exemptions for certain types of entities and income such as:

Government entities: Entities wholly owned by the federal or local governments are exempt from Corporate Tax unless they engage in commercial business activities that compete with private businesses.

Public benefit entities: Organizations established for religious, charitable, scientific, or cultural purposes may be exempt from Corporate Tax if they are recognized by the UAE Cabinet as qualifying public benefit entities.

Extractive and non-extractive natural resource businesses: Companies engaged in the extraction of oil, gas, and other natural resources in the UAE are exempt from federal Corporate Tax, as these activities are taxed at the Emirate level under specific tax regimes.

8. How does the basic calculation for Corporation Tax work?

The calculation of Corporation Tax in the UAE is based on a company's taxable income, which is derived from the company's accounting net profit or loss reported in its financial statements, adjusted for specific items as per the Corporate Tax Law. The taxable income is calculated as follows:

1. Accounting income: The starting point for calculating taxable income is the accounting income, which represents the net profit or loss for the financial period as per the company's audited financial statements. This must be prepared in accordance with internationally accepted accounting standards (IFRS).
2. Adjustments for tax purposes: The accounting income is then adjusted for tax purposes. Adjustments may include:
   • Any unrealised gain or loss (if election made): Unrealized gains and losses—changes in asset or liability values without actual transactions—must be included in taxable income as per Article 20(2) of the Corporate Tax Law. However, businesses may elect the Realization Basis, taxing these gains or losses only upon actual sale or disposal. Election to be made in the first Tax Period at the time of submitting the first Tax Return and is irrevocable.
   • Exempt income:Certain types of income, such as dividends from qualifying participations or income from qualifying foreign permanent establishments, are exempt from Corporate Tax and excluded from taxable income.
   • Non-deductible expenses: Certain expenses, such as fines, penalties, and costs related to the generation of exempt income, are not deductible for Corporate Tax purposes.
   • Non-arm's length Related party/Connected person transaction: Transactions with related parties or connected persons must meet the arm's length principle as required under Article 34 of the Corporate Tax Law. This means prices and terms must reflect fair market value to prevent tax manipulation. Any non-arm's length transaction may require adjustment to taxable income to ensure compliance with this standard
   • Other adjustments specified in a Ministerial Decision No. 134: Under Article 20(2)(i) of the Corporate Tax Law and Articles 2–5 of Ministerial Decision No. 134 of 2023, additional adjustments include substituting the Equity Method of Accounting with the Cost Method for taxable income calculations and addressing intra-group transfers in qualifying groups. For example, Article 4 of the Decision specifies adjustments for transfers within a Qualifying Group, ensuring that unrealized gains are deferred until actual realization.
   • Deductions: Businesses can deduct expenses that are wholly and exclusively incurred for the purpose of generating taxable income, including operating expenses, salaries, and depreciation of assets.
3. Tax loss carry forward: If a company incurs a tax loss, it can carry forward these losses to offset future taxable income. Losses can be carried forward indefinitely, but the amount that can be utilized in any future period is limited to 75% of the taxable income for that period.

The calculated taxable income is then subject to the relevant Corporate Tax rate: 0% on income up to AED 375,000, and 9% on income exceeding that threshold.

The corporate tax liability is subsequently calculated and adjusted against withholding tax and any applicable foreign tax credits, ensuring that taxes paid to foreign jurisdictions are accounted for and do not result in double taxation, as allowed under Article 47 of the Corporate Tax Law. This adjustment enables companies to offset their UAE tax liability with taxes paid abroad, up to the amount of UAE tax due on the same income.

9. Is revenue generated by a company treated differently depending on how it is created? If so, what are the main differences and what impact can they have on liabilities?

Yes, under UAE Corporate Tax law, different types of revenue are treated differently depending on their source and nature. Key distinctions include:

• Qualifying income from Qualifying free zone Persons: Qualifying Free Zone Persons (QFZPs) are taxed at a 0% rate on qualifying income derived from specified qualifying activities.. However, any non-qualifying income, including income from excluded activities, is subject to the standard 9% rate from the first dirham earned, with no threshold exemption.
• Exempt income: Certain types of income are exempt from Corporate Tax, including dividendsd received from qualifying participations and capital gains from the sale of shares in subsidiaries that meet the participation exemption criteria. Income from qualifying foreign permanent establishments may also be exempt, subject to certain conditions.
• Domestic vs. foreign-sourced income: While UAE-sourced income is generally subject to Corporate Tax, foreign-sourced income may benefit from relief in the form of tax credits if it has been subject to taxation in another jurisdiction. The UAE has numerous double taxation agreements (DTAs) in place, taking precedence over local laws, which may provide further relief.

The treatment of revenue directly impacts a company's tax liability, as some sources of income may be taxed at preferential rates or be exempt altogether.

10. Since when has Corporation Tax been in operation in this jurisdiction? If it is a recent development, when was Corporation Tax first assessed and when was it first payable?

Corporate Tax in the UAE was introduced through Federal Decree-Law No. 47 of 2022, which applies to Tax Periods starting on or after 1 June 2023. The recent clarification (document CTP003) provides additional guidance on how the first Tax Period is determined, particularly for companies established before this date.

For juridical persons established before 1 June 2023:

• Their first Tax Period for Corporate Tax purposes aligns with the start of their first full Financial Year that begins on or after 1 June 2023. For example, if a company's Financial Year runs from 1 January to 31 December, the first Tax Period would begin on 1 January 2024 and end on 31 December 2024, with the Corporate Tax first assessed for this period.
• Corporate Tax payment will be due within nine months after the end of the first Tax Period. In this example, for a Financial Year ending on 31 December 2024, the tax return and payment would be due by 30 September 2025.

For newly established companies after 1 June 2023:

• The Corporate Tax Law applies starting from their incorporation or registration date, and their first Tax Period will commence from that date until the end of their Financial Year. If a new company is incorporated on 1 August 2023, and its Financial Year also ends on 31 December 2023, its first Tax Period would be from 1 August 2023 to 31 December 2023.

Ongoing Tax Periods: Once the first Tax Period is set, subsequent periods must follow the company's Financial Year and should generally last for 12 months, unless otherwise specified. This clarification helps companies ensure compliance by confirming the starting point of Corporate Tax obligations based on their Financial Year

11. Over what period is Corporation Tax assessed, when do any returns need to be made, and when are resulting payments due?

Corporate Tax is assessed on an annual basis, aligned with the company's financial year. The tax period is typically the 12-month period for which a company prepares its financial statements, although shorter periods may apply if a company's first or last financial period is less than 12 months.

• Tax returns: Taxable persons must file their Corporate Tax returns within nine months after the end of their financial year. For example, if a company's financial year ends on December 31, 2024, its Corporate Tax return must be filed by September 30, 2025.
• Payments: Corporate Tax payments must also be made within the same nine-month window. The FTA allows companies to file and pay their taxes through its online portal.

Failure to file returns or make payments on time may result in penalties.

12. What form do any Corporation Tax returns take, including what forms (if any must be submitted) or what apps or websites must be used?

Corporate Tax returns in the UAE must be filed electronically through the Federal Tax Authority's online portal, EMARATAX. The FTA has developed a comprehensive digital system to facilitate tax compliance, enabling businesses to submit their tax returns, supporting documents, and payments via the online platform.

Key forms and documents required for the Corporate Tax return include:

• Financial statements: Taxable persons must prepare financial statements in accordance with internationally accepted accounting standards (typically IFRS) and submit these with their tax returns. As an exception, a Taxable Person generating Revenue of less than AED 50 million may apply IFRS for Small & Medium-sized Entities (SMEs)
• Taxable income calculation: The return must include details of the company's taxable income, tax adjustments, and any applicable tax credits or exemptions.
• A Taxable Person must use the accrual basis of accounting when preparing financial statements. However, as an exception, a Taxable Person with annual revenue below AED 3 million may apply to use the cash basis of accounting, subject to approval by the Federal Tax Authority (FTA) under exceptional circumstances. Additionally, a Taxable Person can elect to use the realisation basis for recognizing certain gains and losses.

If accounting records are kept in a currency other than UAE Dirhams, all amounts must be converted to AED using exchange rates set by the UAE Central Bank, in the following order of preference:

• Spot rate on transaction date, if practical
• Average monthly exchange rate if using the spot rate is impractical and this method provides a reasonable estimation of Corporate Tax liability.
• Average annual exchange rate, if neither of the previous methods is practical.

• Supporting schedules: Additional schedules may be required to report specific items such as exempt income, related-party transactions, or carryforward tax losses.
• Transfer Pricing Documentation (general): The FTA reserves the right, through notice or formal decision, to mandate that a Taxable Person submit, alongside their Tax Return, a disclosure detailing information regarding transactions and arrangements with Related Parties and Connected Persons, as prescribed by the FTA's specified format.
• Transfer Pricing Documentation (Master file and Local file): As per Article 25 of the Corporate Tax Law, where a Taxable Person's transactions with its Related Parties and Connected Persons for a given Tax Period meet the conditions established by the Minister, the Taxable Person shall be required to maintain a master file and a local file, in the format specified by the FTA.

The FTA's electronic system ensures that all information is submitted securely and accurately, streamlining the filing and payment process for businesses.

13. If a company is in its first year of business, is there a difference in the length of the first assessment period and when Corporation Tax payments are first due?

Yes, there can be a variation in the length of the first tax period for companies in their first year of business. The tax period generally follows the company's financial year, which is typically 12 months. However, if a company is newly established, its first tax period may be shorter or longer than 12 months, depending on the start date of its financial year.

For example:

• If a company is incorporated on June 1, 2023, and its financial year ends on December 31, 2023, its first tax period would be just seven months.
• If a company is incorporated in the middle of a financial year and elects to align its financial year-end with the calendar year, the first tax period may be less than 12 months.

Despite any variations in the first assessment period, companies are required to file their tax returns and make payments within nine months from the end of the financial year, irrespective of how long the first financial period is. So, for a company with a financial year ending December 31, 2023, the tax return and payment would be due by September 30, 2024.

14. When a new company is established or first operates in the jurisdiction, do they need to register with the body or regulator responsible for the levying and collection of Corporation Tax?

Yes, any new company established in the UAE, including branches of foreign companies and businesses operating in free zones, must register with the Federal Tax Authority  for Corporation Tax purposes. Registration must be completed within the timeframe specified by the FTA.

The registration process includes:

• Online registration: Companies must complete their registration through the FTA's online portal, providing the necessary details, such as the company's name, legal structure, commercial license, and financial year.
• Tax Registration Number (TRN): Once registered, the company will be assigned a Tax Registration Number, which must be used in all tax filings and communications with the FTA.

Failure to register for Corporate Tax within the stipulated timeframe can result in penalties. The FTA regularly publishes guidance to help businesses understand their registration obligations.

15. Once a company becomes liable for Corporation Tax, could this have an impact on any other current disclosure requirements they may have?

Yes, once a company becomes liable for Corporate Tax, it may have additional disclosure requirements. These could impact several areas of its compliance and reporting obligations, including:

• Financial reporting standards: The company's financial statements must comply with International Financial Reporting Standards or another internationally recognized standard. Accurate financial records are essential for determining taxable income and must be disclosed in the Corporate Tax return.
• Transfer pricing documentation: Companies engaging in transactions with related parties or connected persons may be subject to transfer pricing rules. These transactions must be conducted at arm's length, and detailed documentation may be required to demonstrate compliance with transfer pricing regulations.
• Audited financial statements: Certain businesses, particularly those above specific thresholds or in regulated sectors, may be required to prepare audited financial statements for submission to the FTA along with their Corporate Tax return. This enhances transparency and ensures that tax liabilities are accurately calculated.

Moreover, as per article 56 of the Corporate Tax Law, businesses may need to maintain detailed records and supporting documentation to substantiate their tax filings, which must be retained for a minimum period (typically seven years). Non-compliance with these disclosure and reporting requirements can result in administrative penalties.

16. What are the penalties for late or non-payment of Corporation Tax, or for late provision of annual return information?

The Federal Tax Authority  imposes strict penalties for non-compliance with Corporate Tax obligations. These penalties apply to various breaches, including the late filing of tax returns, late payment of tax, and failure to provide accurate information.

The UAE imposes specific penalties to ensure compliance with Corporation Tax obligations, covering failure to register, delays in tax return filing, and late payments. These penalties, outlined in the Cabinet Decision 75 of 2023 on Violations Related to the Application of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, are structured to escalate with repeated non-compliance and are intended to encourage compliance, prompt filing and payment of taxes.

• Failure to Register:  A penalty of AED 10,000 is imposed for failing to submit a registration application within the specified timeframe.
• Late Filing of Tax Returns:  For entities that fail to submit their tax return by the specified deadline, Item 7 of Table 1 in Cabinet Decision 75 imposes penalties designed to escalate with repeated infractions. The penalty for a first twelve months is AED 500 for each month, or part thereof, for the first twelve months and AED 1,000 for each month, or part thereof, from the thirteenth month onwards. 
• Late Payment of Corporation Tax:  If a taxable person does not settle the payable tax within the specified timeframe following submission of a tax return, voluntary disclosure, or tax assessment, they are subject to significant penalties. As per item 8 of Table 1 in Cabinet Decision 75 a monthly penalty of 14% per annum, for each month or part thereof, on the unsettled Payable Tax amount from the day following the due date of payment and on the same date monthly thereafter.
• Failure to maintain or provide records: Penalties may also be imposed for failure to maintain proper records, or for failing to provide records when requested by the FTA. This can result in both monetary fines and potentially more serious consequences if it is deemed an attempt to evade tax. As per item 1 of Table 1 in Cabinet Decision 75 One of the following penalties shall apply:
  • AED 10,000 for each violation
  • 20,000 in each case of repeated violation within 24 months from the date of the last violation.

The specific penalty amounts and structures can be detailed in the relevant cabinet decisions or guidance documents issued by the FTA. Persistent non-compliance may result in further legal action.

17. If a company fails to pay Corporation Tax due, are there any other individuals who can be liable to pay it?

In general, Corporate Tax liability rests with the company itself as a legal entity. However, there are instances where individuals associated with the company may be held accountable if there is deliberate misconduct or negligence.

Situations in which individuals may be held liable include:

• Directors or officers' liability: If company directors or officers are found to have intentionally evaded taxes or engaged in fraudulent practices, they could potentially be held personally liable. This can occur if they were responsible for tax decisions or financial management and intentionally disregarded tax laws.
• Partners in unincorporated partnerships: For partnerships that are not incorporated (i.e., unincorporated partnerships), the partners may be jointly liable for the partnership's tax liabilities, depending on the structure of the partnership and the legal arrangements governing the business.
• Liquidators or administrators: If a company is going through liquidation, the liquidators or administrators overseeing the winding-up process are responsible for ensuring that all outstanding tax liabilities are settled before distributing assets to shareholders. Failure to do so could result in personal liability for the tax owed.

While the Corporate Tax Law primarily focuses on corporate liability, individuals can still face penalties if they engage in tax fraud, negligence, or other prohibited conduct.

18. How can intangible fixed assets impact the calculation of Corporation Tax?

Intangible fixed assets, such as patents, trademarks, goodwill, and software, play a significant role in determining taxable income because they can be depreciated or amortized over time. Under the Corporate Tax Law, the treatment of intangible assets for tax purposes includes:

• Amortization of intangible assets: Businesses are allowed to claim deductions for the amortization of intangible assets over their useful economic life. This means that the cost of acquiring or developing intangible assets can be spread over several years, reducing taxable income in those years.
• Impairment losses: If the value of an intangible asset decreases significantly (e.g., due to market conditions or obsolescence), the company may be allowed to recognize an impairment loss. This loss can reduce taxable income, although the law may limit the extent to which impairment losses can be deducted.
• Transfer pricing considerations: Intangible assets, particularly those transferred between related parties, must be valued appropriately for transfer pricing purposes. Transactions involving intangibles must be conducted at arm's length, and businesses may need to provide supporting documentation to justify the valuation and transfer of these assets.

The rules regarding the treatment of intangible assets are aligned with international accounting and tax practices, ensuring businesses can claim appropriate deductions while maintaining compliance with tax laws.

19. What happens if a company does not currently prepare financial statements but is liable for Corporation Tax?

Companies that are liable for Corporate Tax in the UAE must prepare financial statements in accordance with recognized accounting standards, such as International Financial Reporting Standards. The financial statements form the basis for calculating taxable income, as they provide an accurate reflection of the company's revenue, expenses, and profits.

If a company does not currently prepare financial statements but becomes liable for Corporate Tax, it will need to implement proper accounting practices immediately. The key requirements include:

• Accrual basis of accounting: Taxable persons must use the accrual basis of accounting, meaning income is recognized when earned, and expenses are recognized when incurred, regardless of when the cash transactions occur.
• Cash basis of accounting: A Taxable Person may prepare Financial Statements using the Cash Basis of Accounting under either of the following circumstances: if the Person's Revenue does not exceed AED 3,000,000 (three million United Arab Emirates dirhams); or in exceptional circumstances, pursuant to an application submitted by the Person to the Authority.
• Audited financial statements: Certain companies, particularly those above specific size thresholds, are required to have their financial statements audited by a licensed auditor. This ensures that the reported financial information is accurate and reliableand is a mandatory requirement for all QFZPs and a condition of free zone entities to obtain QFZP status.
• Record-keeping requirements: Companies must maintain proper records for a minimum of seven years to support their tax filings. These records include financial statements, invoices, contracts, and any other documents relevant to the company's taxable income and deductions.

Failure to comply with these requirements may result in penalties and could expose the company to audits or assessments by the FTA.

20. What are the main principles that cover how Corporation Tax operates where there is a group?

The UAE Corporate Tax regime provides for the taxation of tax groups, allowing companies within the same group to be treated as a single taxable person. This is beneficial for groups of companies with shared ownership and allows for more efficient tax reporting and potential tax savings.

Key principles governing tax groups include:

• Formation of a tax group: A parent company that holds at least 95% of the share capital and voting rights of its subsidiaries can apply to form a tax group with those subsidiaries. The parent company must apply to the FTA for tax group status.
• Single tax return: Once the tax group is approved, the parent company files a single Corporate Tax return on behalf of the entire group. The tax group's taxable income is the aggregate of the taxable income of all the member companies.
• Intragroup transactions: Transactions between members of the tax group are disregarded for tax purposes, meaning they do not result in taxable income or deductible expenses. This simplifies the reporting of intragroup transfers of goods, services, and assets.
• Tax losses: Tax losses incurred by one group member can be offset against the taxable income of another group member, subject to certain limitations. This provides flexibility in managing the group's overall tax liability.

Forming a tax group can streamline compliance and reduce the administrative burden for large corporate groups. However, each member of the group remains jointly and severally liable for the group's Corporate Tax liabilities.

21. Are there rules governing capital allowances which can impact how Corporation Tax is levied? If so, what are the main principles?

The UAE Corporate Tax Law does not specifically outline capital allowance rules or specify detailed provisions for depreciating fixed assets to reduce taxable income. Instead, Article 20(2) of the Federal Decree-Law No. 47 of 2022 indicates that taxable income is based on net profit or loss reported in the financial statements, with certain adjustments allowed as specified by ministerial decisions.

For asset valuation changes, Article 20(3) provides that businesses may elect the Realisation Basis for calculating taxable income. Under this option, unrealized gains or losses related to assets are deferred for tax purposes until an actual disposal or sale of the asset occurs, aligning taxable income with actual transaction events.

Without specific capital allowance rules in the law or guide, businesses rely on financial statement treatment, adjusted in accordance with ministerial decisions or future Federal Tax Authority (FTA) guidelines, to determine allowable deductions related to asset usage and depreciation.

22. Is there a capital gains tax in place in this jurisdiction – and if so, how does it basically operate? If not, can capital gains have an impact on Corporation Tax?

The UAE does not impose a separate capital gains tax. However, capital gains are considered part of a company's taxable income and are therefore subject to Corporation Tax.

• Capital gains on the sale of assets: If a company sells an asset (e.g., property, shares, or equipment) and realizes a gain, this gain is included in the company's taxable income and taxed at the applicable Corporate Tax rate (0% or 9%, depending on the amount and circumstances).
• Exemption for qualifying participations: Capital gains from the sale of shares in subsidiaries or investments may be exempt from Corporate Tax under the participation exemption, provided certain conditions are met.

Thus, while there is no specific capital gains tax, capital gains are generally treated as part of taxable income unless exempted.

23. Can the payment of dividends impact Corporation Tax? If so, how?

Yes, the payment of dividends can have an impact on Corporate Tax, but it depends on how the dividends are treated:

• Dividends received: Dividends received by a UAE company from another company (either domestic or foreign) may be exempt from Corporate Tax. Dividends received from a domestic company is exempt from corporate tax without further conditions. Dividends received from foreign company is exempt if they meet the conditions of the participation exemption. This typically applies if the recipient holds at least 5% of the shares in the company paying the dividend for a specified period and the payer company is engaged in an active business. The exemption helps prevent double taxation of profits at both the company and shareholder level.
• Dividends paid: Dividends paid by a UAE company to its shareholders are not deductible for Corporate Tax purposes, as they are considered a distribution of after-tax profits. This treatment ensures that dividends are subject to taxation only at the corporate level, with no additional tax burden on the payment of dividends.

24. What are the main types of loss reliefs (if any) which can be used to impact Corporation Tax due?

The UAE Corporate Tax regime allows for various forms of loss relief, which enable businesses to offset tax losses against future taxable income, thereby reducing their Corporate Tax liability.

Key types of loss relief include:

• Carry forward of tax losses: Businesses can carry forward their tax losses indefinitely, meaning that losses incurred in one financial period can be used to offset taxable income in future periods. However, the amount of losses that can be utilized in any given period is limited to 75% of the taxable income for that period.

It is important to point out that carry forward and utilization of losses is not allowed in instances of change of ownership (more than 50%) unless the taxable persons maintain the same or similar business activity.

• Group loss relief: Within a tax group, tax losses incurred by one group member can be offset against the taxable income of another group member, providing flexibility in managing the group's overall tax position. However, group loss relief is subject to certain conditions, including common ownership thresholds.

These loss relief provisions help businesses smooth out their tax liabilities over time, particularly during periods of fluctuating profitability.

25. Does Corporation Tax operate differently for small companies? If so, who is classed as a small company, and what are the main differences?

Yes, small businesses can benefit from certain reliefs and exemptions under the UAE Corporate Tax regime. One of the key reliefs available is the small business relief introduced to support SMEs (small and medium enterprises).

• Small business relief: Companies with taxable income below AED 3,000,000 are subject to a 0% Corporate Tax rate. This threshold provides relief to small businesses and startups, ensuring that they are not burdened by tax liabilities during their early growth stages.

The relief helps promote entrepreneurship and supports the growth of small businesses in the UAE.

26. Is there a procedure for obtaining guidance from the regulator if a company is unsure of a particular Corporation Tax treatment?

Yes, the Federal Tax Authority  provides various channels for businesses to seek clarification and guidance on Corporate Tax matters. These include:

• Public rulings and FAQs: The FTA regularly issues public rulings, or what is known as "Public Clarification", guides, and FAQs that provide general guidance on the interpretation and application of Corporate Tax laws.
• Private rulings: In specific cases where a company is uncertain about the tax treatment of a particular transaction or arrangement, it can request a private ruling or what is known as "Private clarification" from the FTA. The ruling provides binding advice on the correct tax treatment, offering certainty to the taxpayer.
• Helplines and online services: The FTA offers support through helplines and online inquiry services, where businesses can seek clarification on technical tax issues or compliance requirements.

This process ensures that businesses can access the necessary support and guidance to comply with Corporate Tax laws effectively.

27. How does Corporation Tax work if a company is dormant?

If a company is dormant (i.e., not actively trading or generating income), it may still be required to file a tax return, even if no tax is due. The key considerations include:

• Filing obligations: Dormant companies are generally required to submit a Corporate Tax return declaring their inactivity, as part of their ongoing compliance obligations. The FTA may issue specific instructions or simplified filing processes for dormant entities.
• No tax liability: Since the company is not generating taxable income, it would not be liable for Corporate Tax. However, it is essential to remain registered with the FTA and file returns as required.

Failure to file returns, even if no tax is due, can result in penalties.

28. How does Corporation Tax operate when a company ceases to trade or becomes insolvent?

When a company ceases to trade or becomes insolvent, specific rules apply to ensure that all outstanding tax liabilities are settled. The process includes:

• Submission of De-registration Application: The company must File a Tax Deregistration application within 3 months of the date of cessation of the Business or Business Activity.

• Final tax return: The company will then have to file a final Corporate Tax return for the period up to the cessation of trade or the commencement of liquidation. This return must include all relevant information about income earned and expenses incurred up to the date of cessation.
• Tax clearance: Before a company can be formally liquidated, it must obtain tax clearance from the FTA or what is known as a De-registration certificate , confirming that all taxes due have been paid. The liquidator is responsible for ensuring that all tax liabilities are settled before distributing any remaining assets to creditors or shareholders.
• Insolvency proceedings: If the company is insolvent, the liquidator or administrator handling the insolvency process must ensure that outstanding tax liabilities are included in the claims against the company's assets. Tax liabilities have priority over certain other claims

It is important to note that deregistration is effective only after payment of all final Corporate Tax due and meeting all outstanding obligations (e.g. filing tax returns)

29. Is there an appeal process if a company disputes Corporation Tax declared due or Corporation Tax fines/penalties levied against them? If so, how are appeals lodged, and how does the appeal process basically work?

Yes, the UAE's tax framework includes an appeals process for companies that wish to challenge Corporate Tax assessments, fines, or penalties. The process involves several stages:

• Objection to the FTA: If a company disagrees with an assessment or penalty imposed by the FTA, it can file an objection within the time limit specified by the Tax Procedures Law (typically 20 business days). The FTA will review the objection and issue a decision.
• Appeal to the Tax Disputes Resolution Committee: If the company is not satisfied with the FTA's decision, it can appeal to the Tax Disputes Resolution Committee, an independent body established to review tax disputes. The appeal must be lodged within 20 business days of receiving the FTA's decision.
• Judicial appeal: If the company disagrees with the Tax Disputes Resolution Committee's ruling, it may further appeal to the competent court.

This multi-tiered process ensures that companies have access to a fair and transparent mechanism for resolving tax disputes.