https://taxsummaries.pwc.

com/united-arab-emirates/Corporate
Worldwide Tax Summaries

United Arab Emirates

Last reviewed - 04 September 2023

Corporate - Significant developments

There is a growing trend of tax reforms in the Middle East region, and the United Arab Emirates (UAE) has implemented excise tax, value-
added tax (VAT), and economic substance regulations in October 2017, January 2018, and April 2019, respectively. Country-by-country
(CbC) reporting was also implemented in April 2019.

On 31 January 2022, the UAE Ministry of Finance (MoF) announced the introduction of a federal corporate tax (CT) in the United Arab
Emirates that will be effective for financial years starting on or after 1 June 2023. On 3 October 2022, the Federal Decree-Law No. 47 of
2022 on the Taxation of Corporations and Businesses (‘UAE CT Law’) was signed.

UAE CT will be applicable across all Emirates and will apply to all business and commercial activities, subject to certain exceptions.
Transfer Pricing rules and documentation requirements are also introduced as part of the UAE CT regime. The Federal Tax Authority (FTA)
will be responsible for the administration, collection, and enforcement of CT.

Economic substance regulations

On 30 April 2019, the UAE MoF issued economic substance regulations ('Regulations'), which were followed by the amended Regulations
on 1 September 2020 introducing a requirement for certain juridical persons (persons with separate legal personality) and unincorporated
partnerships that carry on a relevant activity in the United Arab Emirates ('UAE licensees') to have adequate 'economic presence' in the
United Arab Emirates, relative to the activities they undertake.

It is currently unclear what impact the proposed UAE CT regime will have on the economic substance requirements in the United Arab
Emirates, especially in relation to entities subject to CT at the 9% rate.
See Economic substance requirements in the Other issues section for more information.

Corporate - Taxes on corporate income

Under the Emirate-level tax decrees, income tax is payable under a progressive rate system, with rates up to 55%. However, in practice,
these tax decrees have not been applied. Instead, branches of foreign banks are subject to income tax at a flat rate of 20% under separate
Emirate-level bank decrees. Companies engaged in UAE oil and gas and petrochemical activities are subject to income tax at varying
rates under their individual UAE concession agreements or fiscal letters.

The Federal UAE CT Law, which is effective for each taxable person’s new financial year beginning on or after 1 June 2023, will be
applicable across all Emirates and will apply to all business and commercial activities, except to the following exempt persons (subject to
conditions):

UAE government entity.

UAE government-controlled entity.

Person engaged in an extractive business in the United Arab Emirates.

Person engaged in a non-extractive natural resource business in the United Arab Emirates.

Qualifying public benefit entity.

Qualifying investment fund.

Public pension or social security fund, or a private pension or social security fund that is subject to regulatory oversight of the
competent authority in the state and that meets any other conditions that may be prescribed by the Minister.

Juridical person incorporated in the state that is wholly owned and controlled by certain exempt persons.
Any other person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister.

UAE CT will be applicable at the following rates:

Taxable income UAE CT rate (%)

 Taxable income not exceeding 375,000 UAE dirham (AED).
0
Qualifying income of a Qualifying Free Zone Person (QFZP). *

Taxable income exceeding AED 375,000.

9
Non-qualifying income of a QFZP.

* Please refer to Free trade zones (FTZs) in the Tax credits and incentives section.

Corporate - Corporate residence

Historically, UAE corporate tax residence has been certified by UAE tax authorities based on a number of documents submitted for UAE
incorporated legal entities only, both in the mainland and in Free Zones.

Under the UAE CT Law, companies and other juridical persons that are incorporated or otherwise formed or recognised under the laws of
the United Arab Emirates will be considered a resident person. This covers juridical persons incorporated in the United Arab Emirates
under either mainland legislation or applicable Free Zone regulations.

Foreign companies and other juridical persons may also be treated as resident persons for CT purposes where they are effectively
managed and controlled in the United Arab Emirates.

A non-resident person, which is a UAE taxable person, is a person who is not considered a person and either:

has a permanent establishment (PE) in the United Arab Emirates

derives state-sourced income, or

has nexus in the United Arab Emirates by way of earning income from immovable property in the United Arab Emirates.

Permanent establishment (PE)

Under the UAE CT Law, the definition of a PE is aligned with the definition in the Organisation for Economic Co-operation and
Development (OECD) Model Tax Convention.

In terms of the UAE CT law, a non-resident person would generally be considered to have a PE in the United Arab Emirates where:

it has a fixed or permanent place in the United Arab Emirates through which the business of the non-resident person, or any part
thereof, is conducted

where a person has and habitually exercises an authority to conduct a business or business activity in the United Arab Emirates on
behalf of the non-resident person (this means either the person habitually concludes contracts in the name of the non-resident
person or the person habitually negotiates contracts that are concluded by the non-resident person without the need for material
modification by the non-resident person), or

the non-resident person has any other form of nexus in the United Arab Emirates as might be specified through a Cabinet decision.
A fixed or permanent place in the United Arab Emirates will not be considered a PE if it is used solely for conducting activities of a
preparatory or auxiliary nature. The mere presence of a natural person in the United Arab Emirates will not create a PE for a non-resident
person in the following instances:

Such a presence is a consequence of a temporary and exceptional situation.

The natural person is employed by the non-resident person and its activities in the United Arab Emirates are not part of the core
income-generating activities of the non-resident person or its related parties.
The UAE CT Law further provides an investment manager exemption, which allows an investment manager (i.e. a person who provides
brokerage or investment management services subject to regulatory oversight in the United Arab Emirates) to be considered an
independent agent when acting on behalf of a non-resident person for purposes of determining whether or not the investment manager
will create a PE in the United Arab Emirates. This is applicable to investment managers who deal in transactions involving, amongst others,
commodities, real property, bonds, shares, derivative, securities, or foreign currency.

Corporate - Other taxes

Value-added tax (VAT)

VAT was introduced in the United Arab Emirates on 1 January 2018. The general VAT rate is 5% and applies to most goods and services,
with some goods and services subject to a 0% rate or an exemption from VAT (subject to specific conditions being met).

The 0% VAT rate applies to goods and services exported outside the VAT-implementing Gulf Cooperation Council (GCC) member states,
international transportation, the supply of crude oil/natural gas, the first supply of residential real estate, and some specific areas, such as
health care and education.

Further, according to Cabinet Decision (No. 46 of 2020) on 4 June 2020, a person shall be considered as being ‘outside the state’, and
thus fall under zero-rating export of services, if they only have a short-term presence in the state of less than a month and the presence is
not effectively connected with the supply.

A VAT exemption applies to certain financial services, as well as to the subsequent supply of residential real estate. Further, transactions in
bare land and domestic passenger transport are also exempt from VAT.

Certain transactions in goods between companies established in UAE Designated (Free) Zones (DZs) may not be subject to VAT. The
supply of services within DZs is, however, subject to VAT in accordance with the general application of the UAE VAT legislation.

For UAE resident businesses, the mandatory VAT registration threshold is AED 375,000 and the voluntary registration threshold is AED
187,500. No registration threshold applies to non-resident businesses making supplies on which the UAE VAT is required to be charged.

VAT grouping is allowed, provided certain conditions are met.

There are specific documentary and record-keeping requirements, such as the requirement to issue tax invoices and submit VAT returns
(on a quarterly or monthly basis depending on the allocation by the FTA).

Excess input VAT can, in principle, be claimed back from the FTA, subject to a specific procedure. Alternatively, VAT credits may be
carried forward and deducted from future output VAT.

Businesses that do not comply with their VAT obligations can be subject to fines and penalties. There are both fixed and tax-geared
penalties.

Customs duties
Generally, a customs duty of 5% is imposed on the cost, insurance, and freight (CIF) value of imports. Other rates may apply to certain
goods, such as alcohol and tobacco, and certain exemptions and reliefs may also be available. Further, the United Arab Emirates imposes
anti-dumping duties on imports of certain goods, such as car batteries, ceramic and porcelain tiles, and hydraulic cement. The anti-
dumping duty rates vary depending on the HS codes of the goods and country of export and/or origin. In some cases, the anti-dumping
duty is 67.5% of the CIF value of the goods.

The United Arab Emirates is part of the GCC Customs Union, which was established in 2003 to remove customs and trade barriers among
the GCC member states. No customs duties are levied on trade between the GCC member states (subject to certain conditions).
Additionally, the United Arab Emirates grants duty-free imports to most national goods originating in member countries of the Greater Arab
Free Trade Agreement, Singapore, the European Free Trade Association countries (i.e. Norway, Switzerland, Iceland, and Liechtenstein),
Israel, and India.

While the UAE free trade zones (FTZs) are areas within the territory of the United Arab Emirates, these are considered outside the scope of
the customs territory. Therefore, goods imported into the UAE FTZs are not subject to customs duty. Customs duty is suspended until the
goods are imported into the GCC local market.

Excise taxes
On 1 October 2017, the United Arab Emirates introduced an excise tax on tobacco and tobacco products, carbonated drinks, and energy
drinks.

On 1 December 2019, the United Arab Emirates expanded the scope of excise tax to include sweetened drinks, electronic smoking
devices and tools, as well as liquids used in electronic smoking devices and tools.

The applicable tax rates are as follows:

100% on tobacco and tobacco products, electronic smoking devices and tools, liquids used in electronic smoking devices and tools,
and energy drinks.

50% on carbonated drinks and sweetened drinks.

Municipal or property tax

Most Emirates impose a municipality tax on properties, mostly by reference to the annual rental value. It is generally the tenants' obligation
to pay the tax. In some cases, separate fees are payable by both tenants and property owners. For example, in the Emirate of Dubai, the
municipality tax on property is currently imposed at 2.5% on annual rental value for commercial properties (paid by property owners) and
5% for residential properties (paid by tenants).
A registration fee may be levied on transfer of ownership of land or real property. For example, a land registration fee is levied in the
Emirate of Dubai at a rate of 4% of the fair market value of the property, payable to the Dubai Land Department. In Dubai, the registration
fee may also apply on the direct or indirect transfer of shares in an entity that owns real property.

These levies are imposed and administered differently by each Emirate.

Stamp taxes
Currently, there are no separate stamp taxes levied in the United Arab Emirates.

Payroll taxes
Since there is currently no personal income tax in the United Arab Emirates, there is no payroll tax withholding obligation for employers.

Social security contributions

There is a social security regime in the United Arab Emirates that applies to qualifying UAE and other GCC national employees only. Non-
GCC nationals are not subject to social security in the United Arab Emirates.

For UAE national employees (with the exception of those employed in Abu Dhabi), social security contributions are calculated at a rate of
20% of the employee's gross remuneration as stated in the local employment contract. Social security obligations also apply to employees
of companies and branches registered in an FTZ. Out of the 20%, 5% is payable by the employee, 12.5% is payable by the employer, and
an additional 2.5% contribution is made by the government. A higher rate of 26% is applied in the Emirate of Abu Dhabi, where the
contribution of the employer is increased to 15%, the government’s contribution is increased to 6%, and the employee’s contribution
remains 5%. The contributions are subject to a statutory minimum and maximum salary amount (against which the amount of the pension
contributions is calculated) of AED 1,000 and AED 50,000, respectively.

For other GCC nationals working in the United Arab Emirates, social security contributions are determined in accordance with the social
security regulations of their home country.

The employer is responsible for withholding and remitting employee social security contributions together with the employer’s share.

In the Dubai International Financial Centre (DIFC), the DIFC Employee Workplace Savings Scheme (DEWS) has been introduced, replacing
the End of Service Gratuity Benefit (EOSG), with the aim of protecting long-term employee savings. The new scheme was rolled out on 1
February 2020, and employers now are required to make monthly contributions to DEWS or an alternative regulated Qualifying Scheme, as
opposed to paying a lump sum ‘gratuity payment’ to an employee at the end of their employment. Employers are required to contribute
monthly contributions of 5.83% or 8.33% of the employee’s basic salary (the actual percentage is contingent upon the employee’s length
of service) into the scheme.

Corporate - Branch income

In certain Emirates, branches of foreign banks are governed by special banking tax decrees, under which they are taxed at 20% of their
adjusted taxable income.

Under UAE CT Law, a branch of a non-resident person could be regarded as a PE in the United Arab Emirates and the income attributable
to such branch could be subject to UAE CT.

The United Arab Emirates does not have a branch profits tax. Repatriation of profits between branches and their head offices are also not
subject to withholding tax (WHT) or other forms of repatriation tax in the United Arab Emirates.

Corporate - Income determination

The tax decrees of the various Emirates provide that taxable income is calculated by reference to the financial accounting profit, subject to
certain book-tax adjustments.

Under the UAE CT Law, the accounting net profit (or loss) as stated in the standalone financial statements of a business is taken as the
starting point for determining its taxable income. The law prescribes a number of key adjustments to the accounting net profit (or loss) in
order to compute the taxable income.

The following table sets out the aspects to consider when determining the nature of a taxable person (i.e. resident vs. non-resident) as well
as the applicable tax base:
 Resident person Tax base

An entity that is incorporated in the United Arab Emirates (including a Free Zone entity) Worldwide income

A foreign entity that is effectively managed and controlled in the United Arab Emirates Worldwide income

A natural person / individual who conducts a business or business activity in the United Arab
Worldwide income
Emirates

Any other person (may be determined by a Cabinet decision) Worldwide income

Non-resident person Tax base

Has a PE in the United Arab Emirates Taxable income attributable to the PE

The UAE-sourced income not attributable to the

Derives UAE-sourced income
PE

Has nexus in the United Arab Emirates Taxable income attributable to the nexus

Capital gains
There are no separate capital gains provisions under the UAE CT law. Any gains / (loss) on disposal of capital assets would form part of
the taxable income, which would be subject to 0% or 9% tax rate as the case may be.
Unrealised gains or losses
Based on the CT Law and the FAQs, a taxable person that prepares financial statements on an accrual basis of accounting can opt for the
following:

Elect to recognise gains and losses on a ‘realisation basis’ for CT Law purposes (i.e. any and all unrealised gains would not be
taxable [and conversely, any and all unrealised losses would not be deductible] until they are realised).

Elect to recognise gains and losses on a ‘realisation basis’ for CT Law purposes for assets and liabilities held on capital account only
(i.e. only unrealised gains and losses in respect of assets and liabilities held on capital account would not be taxable or deductible,
respectively, until they are realised). Unrealised gains and losses arising from assets and liabilities held on revenue account, on the
other hand, would continue to be included in taxable income on a current basis.

Exempt Income
To avoid instances of double taxation, and recognising the United Arab Emirates’ position as an international business hub and leading
holding company location, the UAE CT regime exempts dividends and other profit distributions received by a taxable person from a UAE
tax resident entity (i.e. local dividends) or received from non-UAE tax resident persons, as well as other types of income as detailed below.

Participation exemption
Dividends and other profit distributions relating to ownership interest (referred to as a ‘participating interest’) in a foreign juridical person
(referred to as ‘participation’) will be exempt from tax if:

the ownership interest is at least 5%

a 12-month uninterrupted holding period (or the intention to hold for 12 months) is in place

the participation is subject to tax in its country or territory of residence at a rate that is not lower than 9%, and

not more than 50% of the assets directly or indirectly owned by the participation consist of an ownership interest or entitlements that
would not qualify for the participation exemption if these assets were held directly by the taxable person.
The ‘subject to tax’ test would be satisfied if:

A 9% effective tax rate (ETR) is applied on income or profits of the participation.

 In the event such a 9% ETR is not applicable based on the relevant jurisdiction’s tax regime, a 9% ETR is reached if re-calculated
based on the provisions of the UAE CT Law.
Further, an entity could be treated as satisfying the condition that it must be subject to tax at a rate that is not lower than the UAE CT rate
(i.e. at least 9%) if its principal business objective and activity is to acquire and hold shares or equitable interests that are considered as
participating interests and the income of the participation during the relevant tax period substantially consists of income from participating
interests. The tax rate requirement will also be treated as met where the juridical person is a QFZP or exempt person.

A participating interest of less than 5% could also qualify for the exemption where the acquisition cost of the ownership interest exceeds
AED 4 million.

Foreign permanent establishment exemption

A resident person could create a PE in another jurisdiction based on the domestic tax laws of this jurisdiction, subject to any tax treaty.
Generally, the income attributed to such a foreign PE will be taxed in that jurisdiction. In such a scenario, the UAE CT Law provides an
option to the resident person to elect for an exemption of this income in the United Arab Emirates. The exemption will be available if the
foreign PE is subject to CT or similar taxes at a rate not less than 9% in the foreign jurisdiction. If the resident person opts for this
exemption, it will not be eligible to take into account losses, income, expenditure, and foreign tax credits in relation to the foreign PE in the
United Arab Emirates.

International transportation exemption

Income earned by a non-resident from operating aircraft or ships in international transportation will not be subject to CT in the United Arab
Emirates if the income earned by a UAE resident person that carries on these activities is exempt from CT in the jurisdiction of the non-
resident.

Partners in an unincorporated partnership

As a general rule, an unincorporated partnership will not be treated as a taxable person, i.e. the partnership is looked through and each
partner is treated as a taxable person on their distributive share. This would mean each partner would be responsible for complying with
UAE CT administration and compliance burdens and for paying UAE CT on their taxable income as if each carrying on independent
business subject to UAE CT. Assets, liabilities, income, and expenditure of the partnership should be allocated to each partner in
accordance with their distributive share.

Partners in an unincorporated partnership can make an irrevocable (save exceptional circumstances) application to the FTA for the
unincorporated partnership to be treated as a taxable person, i.e. to be recognised as its own entity subject to UAE CT. Where this
application is made, partners remain jointly and severally liable for the partnership’s CT liability. One partner will be appointed as the
responsible partner for any UAE CT obligations and proceedings for the partnership.

Foreign partnerships
Foreign partnerships will be treated as unincorporated partnerships where the partnership is not subject to tax under the laws of the
foreign jurisdiction and each partner is individually subject to tax on their distributive share of the partnership’s income when the
partnership receives or accrues it. Partnerships are flexible vehicles that are typically complex from a tax perspective. The approach
adopted in the UAE CT law attempts to simplify the tax treatment and is in line with international best practice.

Family foundations
The CT Law identifies family foundations, trusts, and similar entities as independent juridical persons that are used to protect and manage
the assets of an individual or a family with a separate legal personality. A family foundation can apply to be treated as a transparent
’unincorporated partnership‘ for UAE CT purposes under certain conditions. This would generally prevent the income of the foundation or
trust from attracting UAE CT and could be a useful vehicle for families to ensure a tax efficient holding structure, proper governance, as
well as succession planning.

Corporate - Deductions

Expenditure that is not of a capital nature and is incurred wholly and exclusively for the purposes of the taxable person’s business should
generally be tax deductible. The UAE CT Law disallows / restricts the deduction of certain expenses. This is to ensure that relief can only
be obtained for expenses incurred for the purpose of generating taxable income and to address possible situations of abuse or excessive
deductions.

Where expenditure is incurred for more than one purpose, a deduction will be allowed for any identifiable part or proportion of the
expenses incurred wholly and exclusively for deriving taxable income. Also, an appropriate proportion of any unidentifiable part or
proportion of the expenses incurred for the purposes of deriving taxable income that has been determined on a fair and reasonable basis
can be claimed for deduction for UAE CT purposes.
Depreciation and amortisation
The CT Law is silent on the tax treatment of depreciation / amortisation.

Interest expenses
The UAE CT Law provides that net interest expense (NIE) up to 30% of tax adjusted earnings before interest taxes depreciation and
amortisation (EBITDA) will be deductible. However, this should not apply if the NIE for the relevant tax period does not exceed the
threshold of AED 12 million. If this threshold is exceeded, the taxable person may deduct the higher of the threshold or 30% of EBITDA.

The following would be considered as interest for the purpose of the general interest limitation rule:

Amounts incurred in connection with raising finance (including guarantee fees, arrangement fees, commitment fees, and any other
fees similar in nature).
Interest on Islamic Financial Instruments that is compliant with the Sharia principles or any equivalent instruments or the combination
of both,

Interest component on forward contracts, futures contracts, options, interest rate and foreign exchange swap agreements, or any
other financial derivative instruments.

The finance element of finance and non-finance lease payments.

Foreign exchange gains.

EBITDA is mainly the taxable income adjusted for the following items:

NIE for the relevant tax period (excluding any in relation to qualifying infrastructure projects).
Depreciation and amortisation expenditure taken into account in determining the taxable income for the relevant tax period.

Any interest income or expenditure relating to historical financial assets or liabilities held prior to 9 December 2022.
If the EBITDA arrived at after the above calculation is negative, the amount of EBITDA to be considered for determining the 30% limit will
be AED 0.
The NIE attributed to debt instruments, the terms of which are agreed prior to 9 December 2022, are exempt from the application of the
general interest limitation rule. NIE incurred by a qualifying infrastructure project person will not be subject to the general interest limitation
rule.

Interest capping rules will not apply to banks, insurance businesses, and certain other regulated financial service entities. Also, interest
capping rules will not apply to business carried on by natural persons / individuals or any other person that may be determined by a
Cabinet decision.

The net interest expense amount disallowed for deduction under the interest capping rules could be carried forward and deducted in the
subsequent ten tax periods.

In addition to the general interest limitation rule set out above, no interest deduction will be allowed if the loan was obtained, directly or
indirectly, from a related party for the following transaction with the related party:

dividends / profit distribution

redemption, repurchase, reduction, or return of share capital

capital contribution, or

acquisition of ownership interest in a legal entity, who is or becomes a related party following acquisition.

Charitable contributions
Donations paid to entities that are non-qualifying public benefit entities will not be considered as deductible for UAE CT purposes.

Entertainment expenses
Expenses associated with entertainment of customers, shareholders, suppliers, and other business partners, such as meals,
accommodation, transportation, admission fees, facilities, and equipment used for entertainment and other expenses specified by a
Cabinet decision, can be deducted up to 50% of the amount incurred.

Bribes, kickbacks, and illegal payments

Bribes or other illicit payments will not be considered as deductible for UAE CT purposes.
Fine and penalties
Fines and penalties (other than compensation for damages for breach of the contract) will not be considered as deductible for UAE CT
purposes.

Taxes
CT, recoverable VAT, and taxes imposed outside the United Arab Emirates will not be considered as deductible for UAE CT purposes.

Other non-deductible expenses

Dividends / profit distribution and other expenses specified in Cabinet decision will not be considered as deductible for UAE CT purposes.

Net operating losses

The CT Law provides that a business can offset tax losses against the taxable income of subsequent tax periods when computing the
taxable income for that period. The set-off during any tax period cannot exceed 75% of the taxable income for the tax period (except in
circumstances that may be prescribed in a Cabinet decision). Any tax loss remainder can be carried forward to a further subsequent tax
period indefinitely.

A taxable person cannot claim tax loss relief for losses incurred before the date of commencement of the UAE CT regime, losses incurred
before it became a taxable person under the CT Law, and losses incurred from an asset or activity the income of which is exempt or
otherwise not taken into account under the CT Law.

UAE CT allows transfer of tax losses between group entities where there is 75% or more common ownership and where other certain
conditions are met, such as having the same financial year and using the same accounting standards and not being an exempt person or
QFZP.

In order to curb transfer of tax losses through transfer of ownership in case of taxable persons that are not listed on a recognised stock
exchange, the CT Law provides that the tax losses can only be carried forward and utilised by a taxable person on satisfaction of the
following conditions:
 The same person or persons continuously owned at least a 50% ownership interest in the taxable person from the beginning of the
tax period in which the tax loss is incurred to the end of the tax period in which the tax loss or part thereof is offset against taxable
income of that period.

The taxable person continued to conduct the same or a similar business following a change in ownership of more than 50%.

Corporate - Group taxation

UAE group entities may elect to form a tax group provided all the following conditions are met:

The parent company, which must be UAE tax resident, directly or indirectly holds at least 95% of the (i) share capital, (ii) voting rights,
and (iii) entitlement to profits and net assets.
They have the same financial year and prepares the financial statements using the same accounting standards.

Neither the parent company nor the subsidiary is an exempt person or a QFZP.
When a tax group is formed, the parent entity will be responsible for the administration, such as submission of one tax return and
settlement of the tax liability for the tax group.

Transfer pricing
The CT Law introduces transfer pricing rules and regulations. The transfer pricing regulations take immediate effect coinciding with the
effective date of the other tax provisions.

Arm’s-length principle
Both cross-border and domestic transactions and arrangements between related parties (including transactions undertaken by Free Zone
entities) need to adhere to the arm’s-length standard (i.e. transactions must be undertaken as if they are carried out between independent
parties under similar circumstances).

Furthermore, payments and benefits provided to connected persons should be at market value, which should be determined by applying
the arm’s-length standard.
Transfer pricing methods and their application
In order to determine the arm’s-length nature of the transactions between related parties, the CT Law prescribes five methods, broadly
aligned with the OECD Transfer Pricing Guidelines. In case the taxable person can demonstrate that none of the prescribed methods can
be reasonably applied, the taxpayer is allowed to apply any other method. In alignment with the OECD Transfer Pricing Guidelines,
appropriate factors must be considered when applying the most appropriate method, namely (i) contractual terms, (ii) characteristics of the
transaction, (iii) economic circumstances, (iv) functions, assets, and risks, and (v) business strategies.

Related parties
The definition of related parties is broadly aligned with the previously issued public consultation document and is summarised below:

Two or more natural persons related up to fourth degree of kinship.

A natural person and a juridical person related by ownership (50% or greater) or control.
Two or more juridical persons related by ownership (50% or greater) or control.

A person and its PE or foreign PE.

Partners in the same unincorporated partnership.

Trustee, founder, settlor, or beneficiary of a trust or foundation and its related parties.
In this regard, the term ‘control’ has now been defined as the ability of a person to influence another person, including the ability to:

exercise 50% or more voting rights

determine composition of 50% or more of the Board of Directors

receive 50% or more profits, or

exercise significant influence over the conduct/affairs of another person.
The CT Law does not provide a clarification on how ’significant influence‘ is interpreted, and it is yet to be seen whether additional
guidance will be issued and whether or not reference will be made to the interpretation as per accounting standards.

Connected persons
Any payment or benefit provided by a taxable person to a connected person should (i) correspond to the market value of the service or
benefit and (ii) be incurred wholly and exclusively for business purposes in order for a deduction to be allowed. The market value should
be determined by applying the arm’s-length standard. A specific exclusion on this limitation of deductibility applies in the event that the
payment or benefit is provided by:

a taxable person whose shares are traded on a recognised stock exchange

a taxable person subject to regulatory oversight of a competent state authority, and

any other person to be determined under a separate decision, which is yet to be issued.

The definition of ’connected persons‘ is broadly aligned with the previously issued public consultation document and could be any of the
below:

A natural person who directly or indirectly owns an ownership interest or controls the taxable person.

A director or officer of the taxable person.

Partners in the same unincorporated partnership.

Related party(ies) of any of the above.

Transfer pricing adjustments

The taxable income may be adjusted by the FTA if the results of the transaction between related parties do not fall within the arm’s-length
range.

In the event of an adjustment made by the FTA or a taxable person to the taxable income, the authority will make a corresponding
adjustment to the taxable income of the related party that is party to the transaction. On the other hand, where an adjustment is made by a
foreign competent authority, the taxable person can apply for corresponding adjustment relief. Further guidance is awaited on the exact
mechanism of implementation (e.g. potentially through a Mutual Agreement Procedure or other mechanism).

Advance Pricing Agreement (APA)

The CT Law provides a person the option to make an application for an APA (existing or proposed transactions). Detailed guidance in this
regard will be prescribed by the FTA at a later date.

Transfer pricing documentation

Taxpayers are required to maintain transfer pricing documentation, specifically a Master File and a Local File, in case:
 the taxable person is part of a multinational enterprise (MNE) group with a total consolidated group revenue of at least AED 3.15
billion in the relevant tax period, or
the taxable person has revenues of at least AED 200 million or more in a relevant tax period.

Furthermore, the following transfer pricing documentation requirements could be applicable for taxable persons (in both the mainland and
Free Zone):

The FTA may require a taxable person to file a disclosure form along with the tax return, containing information regarding the
transactions and arrangements with related parties and connected persons.

The FTA may also require any taxable person to submit (within 30 days) any information supporting the arm’s-length nature of the
transactions and arrangements with related parties and connected persons.

Corporate - Tax credits and incentives

Foreign tax credit

A credit is available for foreign taxes paid on a UAE taxable person’s income. The foreign tax credit is limited to the amount of CT due on
the relevant income. Any unutilised foreign tax credit cannot be carried forward or back and will ultimately be lost.

Small business relief

The UAE CT Law provides tax relief for small businesses. A tax resident person may elect to be treated as not having derived any taxable
income where the revenue for the relevant and previous tax periods does not exceed AED 3 million during each relevant tax year. If such
threshold is exceeded, then the taxable person will be subject to UAE CT at the relevant rates as provided under the CT Law. The
abovementioned revenue threshold will be applicable starting on or after 1 June 2023. However, it will only apply to subsequent tax
periods that end before or on 31 December 2026. If a tax resident person applies for ’small business relief‘, certain provisions of the CT
Law will not apply, such as exempt income, reliefs, deductions, tax loss relief, and transfer pricing compliance requirements, as specified
in the relevant chapters of the CT Law. The FTA may request any relevant records or supporting information to verify the compliance
within a timeline (to be confirmed). If a taxable person intentionally separates its business solely to meet the threshold of AED 3 million and
elects not to be subject to UAE CT, the FTA can make compensating adjustments to the UAE CT liability of the relevant taxable person.
Transfers within a qualifying group
The UAE CT Law provides tax relief on intra-group transfer of assets or liabilities between taxable persons that are members of the same
qualifying group. Taxable persons will be treated as members of the same qualifying group if all the following conditions are met:

The taxable persons are tax resident entities, or non-residents that have a PE in the United Arab Emirates.

The taxable persons are at least 75% commonly owned and have the same financial year and prepare the financial statements using
the same accounting standards.

None of the taxable persons are regarded as an exempt person or a QFZP.

There is a clawback period of two years from the date of initial transfer in the case there is a subsequent transfer of such asset or liability
outside the permitted group or where transferor or transferee ceases to be a member of the permitted group.

Business restructuring relief

Similar to intra-group transfer of assets or liabilities within a qualifying group, the UAE CT Law provides tax relief on mergers, spin-offs,
and other corporate restructuring transactions where the whole or an independent part of the business is being transferred in exchange for
shares or other ownership interest, provided the following conditions are met:

The transfer is undertaken in accordance with the applicable regulations in the United Arab Emirates.

The taxable persons are resident persons, or non-resident persons that have a PE in the United Arab Emirates.

None of the persons are regarded as an exempt person or a QFZP.

They have the same financial year and prepare the financial statements using the same accounting standards.

The transfer is undertaken for valid commercial or economic reasons.

There is a claw back period of two years from the date of the transfer if there is a subsequent transfer to a third party, or shares or
ownership interests received are transferred or otherwise disposed of, and the gains or losses on the initial transfer will be reported in the
period in which the subsequent transfer is made to the third-party.

Free trade zones (FTZs)

Companies and branches registered in a Free Zone are considered taxable persons under the UAE CT Law and are required to meet
normal compliance obligations, including transfer pricing requirements. However, provided a Free Zone entity meets the conditions to be
considered a Qualifying Free Zone Person (QFZP), it should be eligible for a 0% UAE CT rate on its qualifying income. The income of a
QFZP that is not qualifying income will be taxed at a 9% CT rate.

In order to qualify for the 0% UAE CT rate, a QFZP must meet all of the following conditions:

Be a Free Zone person (i.e. a juridical person incorporated, established, or otherwise registered in a Free Zone, including branches).

Maintain adequate substance in the United Arab Emirates (in a Free Zone).
Derive qualifying income.

Not have made an election to be subject to the standard UAE CT regime.

Comply with all transfer pricing rules and documentation requirements.

Its non-qualifying revenue does not exceed the de minimis requirements.

Prepares audited financial statements.

Meet any other conditions as prescribed by the MoF.

Adequate substance
In order to maintain adequate substance in a Free Zone, the QFZP’s core income-generating activities (CIGAs) shall be undertaken in a
Free Zone and the QFZP must maintain adequate assets, adequate number of qualified employees, and incur an adequate amount of
operating expenditures.

The QFZP may opt to outsource its CIGAs to a related party in a Free Zone or a third party in a Free Zone, and the QFZP must have
adequate supervision of the outsourced activity.

Qualifying income
Qualifying income includes the following:

Income derived from transactions with other Free Zone persons, except for income derived from ‘excluded activities’.
Income derived from transactions with a non-Free Zone person, but only in respect of ‘qualifying activities’ that are not ‘excluded
activities’.
 Any other income, provided that the QFZP satisfies the de minimis requirements.

Excluded activities
Excluded activities include the following:

Transactions with natural persons (subject to certain exceptions under ‘qualifying activities’ related to shipping and aircraft plus fund,
wealth, and investment management).

Regulated banking, finance, leasing, and insurance activities.

Ownership or exploitation of intellectual property assets.

Ownership or exploitation of immovable property, except for transactions with Free Zone persons in relation to commercial property
located in a Free Zone.

Qualifying activities
Qualifying activities include the following:

Manufacturing or processing of goods or materials.

Holding of shares and other securities.

Ownership, management, and operation of ships.

Regulated reinsurance, fund management, wealth, and investment management.

Headquarter, treasury, and financing services to related parties.

Financing and leasing of aircraft.

Logistics.

Distribution of goods or materials in or from a Designated Zone to a customer that resells such goods or materials, or parts thereof,
or processes or alters such goods or materials, or parts thereof, for the purposes of sale or resale.

Any activities that are ancillary to the activities listed above (i.e. serve no independent function but are necessary for the performance
of the main qualifying activity).
The activity of distributing goods or materials must be undertaken in or from a Designated Zone, and the goods or materials entering the
state must be imported through the Designated Zone.

Generally, the listed excluded and qualifying activities shall have the meaning provided under the respective laws regulating these
activities, unless otherwise prescribed.

De minimis requirements
The de minimis requirements will be satisfied where non-qualifying revenue does not exceed 5% of total revenue or AED 5 million,
whichever is lower. Non-qualifying revenue is revenue derived from excluded activities or activities that are not qualifying activities where
the other party is a non-Free Zone person.

Certain revenue shall not be included in the calculation of non-qualifying revenue and total revenue. This includes revenue attributable to
certain immovable property located in a Free Zone (non-commercial property, and commercial property where transactions are with non-
Free Zone persons). It also includes revenue attributable to a domestic PE or a foreign PE.

Where a Free Zone person fails to meet any of the qualifying conditions set out in UAE CT Law and in the corresponding Decisions, it will
be treated as a taxable person subject to 9% CT rate for a minimum of five tax years.

Domestic PE
The Decisions introduce the concept of a domestic PE where a QFZP has a place of business or other form of presence outside the Free
Zone in the United Arab Emirates. Income attributable to a domestic PE should be calculated as if the establishment was a separate and
independent person and shall be subject to CT at 9%. However, it will not disqualify the Free Zone person from benefitting from a 0% CT
rate on qualifying income or be factored into the de minimis test (as above). A mainland branch of a QFZP will therefore generally
constitute a domestic PE and be subject to CT at 9%.

Corporate - Withholding taxes

With the broader objective of having a simplified yet robust UAE CT regime to reduce the compliance burden for taxpayers, a WHT
(currently set at 0%) will apply to certain types of UAE-sourced income derived by non-residents insofar as it is not attributable to a PE of
the non-resident. The applicable WHT rate, as well as the categories of income to which WHT applies, may be set out in a decision issued
by the Cabinet.
Given the current 0% WHT rate, it is not expected that there will be any registration or filing obligation.

WHT credits
A credit is available for WHT suffered by a taxable person to reduce the CT payable. This WHT credit is limited to the lower of the amount
of WHT deducted by the taxable person under the UAE CT Law and the CT due under this law.

Any excess of the WHT credit will be refunded to the taxable person.

Tax treaty network

UAE national or resident individuals and UAE resident companies have access to an extensive and growing double tax treaty (DTT)
network. The DTTs could allow for relief from taxation in DTT partner countries. The DTTs currently in force are listed below. A number of
other DTTs are at various stages of negotiation and ratification.

WHT (%)
Recipient
Dividends Interest Royalties

Albania 0/5/10 0 5

Algeria 0 0 10

Andorra 0 0 0

Angola 8 8 8

Argentina 10/15 12 10

Armenia 0/3 0 5

Austria 0/10 0 0
 WHT (%)
Recipient
Dividends Interest Royalties

Azerbaijan 5/10 0/7 5/10

Bangladesh 5/10 10 10

Barbados 0 0 0

Belarus 5/10 0/5 5/10

Belgium 0/5/10 0/5 0/5

Belize 0 0 0

Bermuda 0 0 0

Bosnia and Herzegovina 0/5/10 0 0/5

Botswana 5/7.5 7.5 7.5

Brazil 5/15 0/10/15 15

Brunei 0 0 5

Bulgaria 0/5 0/2 0/5

Cameroon 0/10 0/7 10

Canada 5/10/15 0/10 0/10

China, People’s Republic of 0/7 0/7 10

 WHT (%)
Recipient
Dividends Interest Royalties

Comoro Islands 0 0 0

Costa Rica 0/5/15 0/5/10 12

Croatia 5 5 5

Cyprus 0 0 0

Czech Republic 0/5 (1) 0 (1) 10 (1)

Egypt 5/10 0/10 10

Estonia 0 0 0

Ethiopia 5 5 0/5

Fiji 0 0 10

Finland 0 0 0

France 0 0 0

Georgia 0 0 0

Greece 0/5 0/5 10

Guinea 0 0 0

Hong Kong 0/5 0/5 5

Hungary 0 0 0
 WHT (%)
Recipient
Dividends Interest Royalties

India 10 0/5/12.5 10

Indonesia 0/10 0/5 5

Ireland 0 0 0

Israel 0/5/15 0/5/10 12

Italy 5/15 0 10

Japan 5/10 0/10 10

Jersey 0 0 0

Jordan 7 0/7 10

Kazakhstan 0/5 0/10 10

Kenya 5 10 10

Korea, Republic of 5/10 0/10 0

Kosovo 0/5 0/5 0

Kyrgyzstan 0 0 5

Latvia 0/5 0/2.5 5

Lebanon 0 0 5

Liechtenstein 0 0 0
 WHT (%)
Recipient
Dividends Interest Royalties

Lithuania 0/5 0 5

Luxembourg 0/5/10 0 0

Malaysia 0/10 (2) 0/5 10

Maldives 0 0 0

Malta 0 0 0

Mauritania 0 0 0

Mauritius 0 0 0

Mexico 0 0/4.9/10 10 (1)

Moldova 5 6 6

Montenegro 0/5/10 0/10 0/5/10

Morocco 0/5/10 0/10 0/10

Mozambique 0 0 0/5

Netherlands 0/5/10 0 0

New Zealand 15 0/10 10

Niger 0 0 10

North Macedonia 0/5 0/5 0/5

 WHT (%)
Recipient
Dividends Interest Royalties

Pakistan 10/15 0/10 12

Panama 5 0/5 5

Paraguay 15 6/15 15

Philippines 0/10/15 0/10 10

Poland 0/5 0/5 5

Portugal 5/15 0/10 5

Romania 0/3 0/3 3

Russia (3) 0 0 N/A

San Marino 0 0 10

Saudi Arabia 5 0 10

Senegal 5 5 5

Serbia 0/5/10 0/10 10

Seychelles 0 0 5

Singapore 0 (1) 0 (1) 0/5 (1)

Slovakia 0 0/10 0/10

Slovenia 0/5 0/5 5

 WHT (%)
Recipient
Dividends Interest Royalties

South Africa 5/10 10 10

Spain 0/5/15 0 0

Sri Lanka 0/10 0/10 10

St. Vincent & the Grenadines 0 0 0

Sudan 0 0 0/5

Switzerland 0/5/15 0 0

Syria 0 0/10 18

Tajikistan 0 0 10

Thailand 10 (1) 0/10/15 (1) 15

Tunisia 0 2.5/5/10 7.5

Turkey 5/10/12 0/10 10

Turkmenistan 8 8 10

Ukraine 0/5 (1) 0/3 (1) 0/10 (1)

United Kingdom 0/15 0/20 0

Uruguay 5/7 (1) 0/10 0/5/10

Uzbekistan 0/5/15 0/10 10

 WHT (%)
Recipient
Dividends Interest Royalties

Venezuela 0/5/10 0/10 10

Vietnam 0/5/15 0/10 10

Yemen 0 0 10

Zimbabwe 5 0 9

Notes

1. This DTT includes a ‘favoured nation’ clause. If this jurisdiction ever concludes a more favourable treaty WHT rate with a country
other than the United Arab Emirates, then the more favourable treaty WHT rate will automatically apply to the UAE treaty as well.
Note that the above-mentioned rates do not reflect the more favourable DTT rates but only the rates presented in the DTT between
the United Arab Emirates and the relevant jurisdiction. The more favourable rates will need to be confirmed separately.

2. The UAE-Malaysia DTT provides for a reduced rate of 10% where dividend payments are made from a UAE entity to a Malaysian
entity. The DTT, however, provides for a lower rate of 0% where payments are made from a Malaysian entity to a UAE entity.
3. Government institutions only.

Corporate - Tax administration

The FTA will be responsible for the administration, collection, and enforcement of UAE CT, while the MoF will remain the ‘competent
authority’ in terms of international tax agreements and the exchange of information for tax purposes.

Taxable period
A taxable person’s tax period is the financial year (the Gregorian calendar year or the 12-month period for which financial statements are
prepared) or part thereof for which a UAE CT return is required to be filed.

A taxable person can make an application to the FTA to change the start and end date of its tax period, or use a different tax period,
subject to the following conditions:

The change is for liquidation purposes.

The change is for aligning the taxable person’s financial year either for tax grouping, financial reporting, or domestic and foreign tax
relief purposes.

There is valid commercial, economic, or legal reason to change the tax period.

The UAE resident person has not yet filed the tax return with the FTA for which they are requesting a change in tax period.

The application is made no later than six months after the end of the original tax period (i.e. three months before the original tax
return is due).
It is important to note that a taxable UAE resident person may only change the relevant tax period by means of either extending the
current tax period to be a maximum of 18 months or shortening the following tax period to be a minimum of 6 months and a maximum 12
months.

CT registration, returns, and payments

Every taxable person will be required to electronically register for UAE CT with the FTA within a prescribed timeline and obtain a Tax
Registration Number. The registration will need to be undertaken even if the taxable person has already been registered for VAT purposes.

In order to keep the administrative burden on taxpayers to a minimum, the CT Law requires a taxable person to file only one tax return for
each tax period.

The filing will need to be done electronically no later than nine months from the end of the relevant tax period. Any UAE CT payable will
also need to be settled within these timelines.

Please see examples in the table below:

 Fiscal year- Registration Due date of filing first CT return and Due date for first transfer pricing
First reporting period
end date payment disclosure form

December January 2024 to To be

30 September 2025 30 September 2025
2023 December 2024 determined

To be
June 2023 July 2023 to June 2024 31 March 2025 31 March 2025
determined

Tax assessment
A taxable person may be subject to a UAE CT assessment in accordance with the Tax Procedures Law. In case a non-compliance to the
CT Law is identified during the assessment, penalties and fines determined per the Tax Procedures Law could be imposed.

Financial statements
A taxable person may be required to submit the financial statements used to determine the taxable income for a tax period in the form and
manner and within the timeline prescribed by the FTA.

Taxable persons shall prepare financial statements by applying International Financial Reporting Standards (IFRS). Such financial
statements shall be audited if the taxable person earns revenue exceeding the threshold of AED 50 million during a relevant tax period or if
the taxable person is regarded as a QFZP.

In case the revenue does not exceed AED 3 million or through an application in exceptional circumstances to the FTA, the financial
statements may be prepared on a cash basis (as opposed to accrual).

Record keeping
A taxable person must maintain all relevant records and documents for the following periods:

The retention period for real estate records is seven years from the end of the calendar year in which such record or document was
created.
The general document retention period of five years will be extended by one year starting from the date of submission of a voluntary
disclosure in the fifth year from the end of the relevant tax period.

Additional four years in case of ongoing tax audit, tax dispute, or a notification by FTA on a pending tax audit.
 Legal representatives are required to continue to retain the required books and records of the person they were representing for a
period of one year from the date on which such legal representation ends.

Clarifications
A person can make an application to the FTA for a clarification regarding any part of the UAE CT Law or for concluding an APA for a
transaction or arrangement.

General anti-abuse rule (GAAR)

In line with international best practice, the UAE CT Law includes a GAAR, which applies to transactions giving rise to a tax advantage
where no valid commercial reason exists and where the tax advantage was the main or one of the main purposes of the transaction.

Where the GAAR applies, the FTA can make a determination that one or more specified CT advantages are to be counteracted or
adjusted. If such a determination is made, the FTA must issue an assessment giving effect to the determination and can make
compensating adjustments to the UAE CT liability of any other person affected by the determination.

In any proceeding concerning the application of the GAAR, the FTA must demonstrate that the determination made is just and reasonable.

Corporate - Other issues

Base erosion and profit shifting (BEPS)

The United Arab Emirates joined the G20 / OECD Inclusive Framework on BEPS (the 'Inclusive Framework') on 16 May 2018. Through
joining the Inclusive Framework, the United Arab Emirates has committed to implement, in the immediate to short term, the following four
BEPS minimum standards Actions:

Action 5: Countering harmful tax practices.

Action 6: Countering tax treaty abuse.

Action 13: Transfer pricing documentation and CbC reporting.

Action 14: Improving dispute resolution mechanisms.
The United Arab Emirates has also committed to implement the other (11) BEPS measures in the medium to long term.

On 30 April 2019 and amended in 2020, the United Arab Emirates issued its CbC reporting regulations, which are in line with the guidance
issued by the OECD on CbC reporting. The rules introduce a CbC reporting requirement (either filing or notification) for ultimate parent
entities that are tax resident in the United Arab Emirates and that are part of a multinational group with consolidated revenues equal to or
exceeding AED 3.15 billion in the preceding financial year. CbC reporting requirements are applicable to ‘financial reporting years’ starting
on or after 1 January 2019 with the relevant CbC report to be submitted within 12 months from the end of the reporting year.

Failure to comply with the CbC reporting requirements is likely to expose the UAE taxpayers concerned to stringent and varying levels of
administrative penalties in the United Arab Emirates.

The United Arab Emirates has signed and ratified the BEPS Multilateral Instrument (MLI). The key positions that the United Arab Emirates
decided to adopt include:

The United Arab Emirates has chosen to include additional wording in the preamble of its Double Tax Treaties (DTT)s stating that the
DTTs should not be used for treaty abuse (BEPS Action 6 minimum standard).
The United Arab Emirates has chosen to include a principal purpose test with the ability to refer to a competent authority for final
assessment of the availability of treaty benefits (BEPS Action 6 minimum standard).

The United Arab Emirates has chosen to include additional wording in its DTTs to improve the dispute resolution process through
Mutual Agreement Procedures (BEPS Action 14 minimum standard).
The United Arab Emirates has chosen to retain the existing 'permanent establishment' definition in its DTTs, and has not elected to
adopt the expanded 'permanent establishment' definition.

The United Arab Emirates has chosen to retain its existing position on the taxation of capital gains realised on real estate rich
entities, and has not elected to adopt the proposed 'real estate rich' provisions in its existing DTTs.
In respect of the remaining measures included under the United Arab Emirates' MLI position, the United Arab Emirates has opted to agree
specific changes to its DTTs through bilateral negotiation.

Economic substance regulations

In scope entities
On 30 April 2019, the UAE MoF issued economic substance regulations (Regulations), which were followed by the amended Regulations
on 1 September 2020 introducing a requirement for certain juridical persons (persons with separate legal personality) and unincorporated
partnerships that carry on a 'relevant activity' in the United Arab Emirates (UAE Licensees) to have adequate 'economic presence' in the
United Arab Emirates, relative to the activities they undertake.

Save for some limited exceptions, the Regulations apply to all UAE Licensees that undertake one or more of the 'relevant activities' listed
below:

Banking.

Insurance.

Investment fund management.

Lease-finance.

Headquarters.

Shipping.
Holding company.

Intellectual property (IP).

Distribution and service centre.

The Regulations apply to financial periods commencing on, or after, 1 January 2019. Only UAE Licensees that undertake and earn income
from a 'relevant activity' are required to satisfy the applicable economic substance test. The Regulations do not apply to non-UAE tax-
resident entities, investment funds, and their underlying SPVs / investment holding entities (except for self-managed investment funds),
wholly UAE resident owned UAE entities with domestic transactions only (that are not part of a multinational group), and UAE branches of
foreign companies that are subject to tax on all their 'relevant income' in a foreign jurisdiction.

Compliance requirements
There are two filing requirements, being:

Notification.

Substance report (applicable only to entities that perform 'relevant activities' and generate 'relevant income' from those 'relevant
activities').
The notification and substance report should be submitted electronically via the MoF online portal within 6 and 12 months of the financial
year end of the UAE Licensee, respectively. These filings must be made on an annual basis, if applicable.

Notification requirements
Under the Regulations, only entities that perform a 'relevant activity' should file a notification. This filing should be made via the MoF online
portal and will be due six months after the entity’s financial year end (e.g. an entity with a 31 December financial year end should file its
notification by 30 June of the following year).

Annual return/declaration requirements

To satisfy the economic substance requirements, and unless the UAE Licensee is carrying on a 'holding company business', the UAE
Licensee must provide documentation to support that, in the relevant financial period:

the UAE Licensee’s relevant 'core income-generating activities' were conducted in the United Arab Emirates

the UAE Licensee was 'directed and managed' in the United Arab Emirates, and

with reference to the level of activities performed in the United Arab Emirates:
there was an adequate number of qualified full-time employees in the United Arab Emirates

an adequate amount of operating expenditure was incurred in the United Arab Emirates, and

there were adequate physical assets in the United Arab Emirates.

It is possible for a UAE Licensee to carry out more than one 'relevant activity' at a time, in which case the economic substance
requirements outlined above will need to be satisfied for each 'relevant activity'.

A UAE Licensee undertaking a holding company business 'relevant activity' is subject to reduced economic substance requirements. On
the other hand, additional economic substance documentary requirements apply to 'high-risk' IP-related activities.

In the event 'relevant income' (i.e. gross income relating to a 'relevant activity') is generated, the UAE Licensee would be required to file an
annual substance report via the MoF’s Portal within 12 months of its financial year-end (e.g. by 31 December 2021 if the UAE Licensee has
a 31 December 2020 financial year-end).

Templates, supporting documentation, and the mechanism for the annual substance report filing have been released by the MoF on their
dedicated economic substance landing page. In general, the following information is required to be submitted by the UAE Licensee in the
annual substance report:
 The 'relevant activity' conducted by the UAE Licensee.

The amount of 'relevant income' in respect of the 'relevant activity'.

The amount of operating expenses and tangible assets in respect of the 'relevant activity'.

The number of qualified full-time employees who are responsible for carrying on the UAE Licensee’s 'relevant activity'.

Confirmation of the 'core income-generating activity' performed in respect of the 'relevant activity'.

The UAE Licensee’s financial statements.

Declaration as to whether or not the UAE Licensee satisfies the economic substance test.

In the case of a 'relevant activity' being an IP business, a declaration as to whether or not it is a 'high risk IP business'.
If the UAE Licensee declares that it is a ‘high risk IP business’, the National Assessing Authority (i.e. the Federal Tax Authority) will
automatically determine that the UAE Licensee did not meet the economic substance test unless the UAE Licensee can prove otherwise.
On this basis, the UAE Licensee should provide the National Assessing Authority with information and documentation that it does and
historically has exercised a high degree of control over the development, exploitation, maintenance, protection, and enhancement of the IP
asset exercised by an adequate number of full-time employees, with the necessary qualifications, who permanently reside and perform
their activities in the United Arab Emirates. This can be demonstrated through submitting the following documents:

Business plan showing the reasons for holding the ownership in the IP asset in the United Arab Emirates.
Employees' information, including level of experience, type of contracts, qualifications, and duration of employment with the UAE
Licensee.

Evidence that decisions regarding the IP were made within the United Arab Emirates.
Where a 'core income-generating activity' of the UAE Licensee’s 'relevant activity' is outsourced:

the UAE Licensee must be able to monitor, control, and demonstrate adequate supervision in the UAE of the 'core income-
generating activity' being carried out by the outsourcing provider

the employees, expenditures, and physical assets of the outsourcing provider must be adequate relative to the 'core income-
generating activity' being carried out by them

the 'relevant activity' being outsourced is a 'core income-generating activity' being carried out in the United Arab Emirates, and
 the employees, expenditure, and physical assets of the outsourcing provider must not be counted multiple times by multiple UAE
Licensees when evidencing compliance with the economic substance test.
It is anticipated that documentation supporting the above aspects will likely be maintained to assist in the evaluation of whether a UAE
Licensee has sufficient economic substance in the United Arab Emirates relative to the activities it undertakes.

Consequences of non-compliance
In addition to exchanging information with foreign authorities and the ultimate parent and beneficial owners of the UAE Licensee, failure to
demonstrate adequate substance would result in administrative penalties (AED 50,000 in the first year of failure, increased to an amount of
AED 400,000 for a consecutive year of failure). Additional penalties, such as suspending, revoking, or not renewing the UAE Licensee’s
trade or commercial licence, could also apply.

Other administrative penalties include: (i) AED 20,000 for failure to submit the notification; (ii) AED 50,000 for failure to submit the annual
substance report, as well as deemed failure to meet the economic substance test; and (iii) AED 50,000 for providing inaccurate
information, as well as deemed failure of the economic substance test.

United States (US) Foreign Account Tax Compliance Act (FATCA)

On 17 June 2015, the United Arab Emirates signed the Model 1B Intergovernmental Agreement (IGA) with the United States, which came
into force on 19 February 2016 (US-UAE Model 1 IGA), with the US Internal Revenue Services (IRS) regarding the exchange of information
related to US individuals and certain type of US-owned entities, with an effective date of 1 July 2014.

On 6 July 2015, the UAE MoF issued guidance notes on the requirements of the US-UAE Model 1 IGA on the implementation of FATCA
(UAE FATCA Guidance Notes). The UAE FATCA Guidance Notes expand upon the UAE-US Model 1 IGA, including the definitions,
implementation of the due diligence procedures, and reporting obligations. The UAE FATCA Guidance Notes do not hold the force of law.

The exchange of information is conducted on an annual basis, occurring in September of each year, between the UAE competent
authority and the US IRS. UAE reporting financial institutions for FATCA purposes need to submit their FATCA returns to their relevant
financial regulator (or the UAE MoF for unregulated entities) by 30 June of each year (unless otherwise informed). Filing of nil reports is
required under FATCA.

Common Reporting Standard (CRS)

On 22 February 2017, the United Arab Emirates signed the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of
Financial Account Information, and the Convention on Mutual Administrative Assistance in Tax Matters (MAC) was signed on 21 April
2017.

The exchange of information is conducted on an annual basis, occurring in September of each year, between the UAE competent
authority and competent authorities of jurisdictions which have agreed to exchange information with the United Arab Emirates.

On 3 August 2020, UAE MoF issued Guidance Notes for CRS purposes (UAE CRS Guidance Notes). The UAE CRS Guidance Notes do
not hold the force of law.

UAE reporting financial institutions for CRS purposes need to submit their CRS returns to their relevant financial regulators (or the UAE
MoF for unregulated entities) by 30 June of each year (unless otherwise informed). Filing of nil reports is required under the CRS.

United Arab Emirates contacts

Jochem Rossel
Tax Partner - Middle East Specialist Tax Services Leader, PwC Middle East

+971 50 225 6909

Hanan Abboud
Tax Partner - M&A and International Tax, PwC Middle East
+971 56 177 7642

© 2017 - 2024 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity.
Please see www.pwc.com/structure for further details.