Virtuzone’s Free Webinar on UAE Corporate Tax

July 10th, 2024

Notes by Gabriel Souto

Introduction to Corporate Tax (CT)

Corporate Tax (CT) is a form of direct tax levied on the net income or profit of
corporations and other entities from their business activities. The UAE's Corporate Tax
is governed by Federal Decree-Law No. 60 of 2023, which amends certain provisions
of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and
Businesses.

Objectives of UAE Corporate Tax

The introduction of Corporate Tax aims to:

 Cement the UAE’s position as a leading global hub for business and investment.
 Accelerate its development and transformation to achieve strategic objectives.
 Reaffirm its commitment to international standards for tax transparency and the
prevention of harmful tax practices.

Effective Date

The UAE Corporate Tax regime is effective for financial years starting on or after 1
June 2023. For example:

 A business with a financial year starting on 1 July 2023 will be subject to Corporate
Tax from 1 July 2023.
 A business with a financial year starting on 1 January 2023 will be subject to
Corporate Tax from 1 January 2024.

Scope of Corporate Tax

Corporate Tax applies to:

 All businesses and individuals conducting business activities under a commercial

licence in the UAE.
 Free zone businesses, provided they comply with regulatory requirements and do not
conduct business with the UAE mainland.
 Foreign entities and individuals if they conduct trade or business in the UAE regularly.
 Banking operations.
 Businesses engaged in real estate management, construction, development, agency,
and brokerage activities.
 Exemptions from Corporate Tax

Exemptions from CT include:

 Businesses engaged in the extraction of natural resources, which will remain subject to
Emirate-level corporate taxation.
 Dividends and capital gains earned by a UAE business from its qualifying
shareholdings.
 Qualifying intra-group transactions and reorganizations, provided necessary conditions
are met.
 Income earned by individuals from employment, bank deposits, saving schemes, and
personal investment in real estate.
 Foreign investors' income earned from dividends, capital gains, interest, royalties, and
other investment returns.

Corporate Tax Rates

The Corporate Tax rates are:

 0% for taxable income up to AED 375,000.

 9% for taxable income above AED 375,000.
 A different tax rate for large multinationals that meet specific criteria related to the
OECD Base Erosion and Profit Shifting Project (Pillar Two).

Administration and Enforcement

The Federal Tax Authority (FTA) is responsible for the administration, collection, and
enforcement of Corporate Tax. Businesses can find more information on registration
and filing on the FTA website.

Free Zone Tax in the UAE

Background on Free Zone Tax

The UAE has introduced a new Corporate Tax framework that also applies to Free
Zone businesses. Free Zone entities, referred to as Qualifying Free Zone Persons
(QFZPs), can still benefit from a 0% tax rate on qualifying income, provided they meet
specific conditions set by the tax authorities. Non-qualifying income is taxable at 9%.

Understanding "Person" in UAE Tax Law

 Natural Person: Freelancers, sole proprietors, or part of a civil company are

considered 'Natural Persons' and are subject to Corporate Tax rules similar to those for
individuals and businesses outside Free Zones.
 Juridical Person: Corporations and partnerships are recognized as 'Juridical Persons'
and are eligible for the 0% CT rate on qualifying income if they meet the criteria set
out in UAE tax laws.

Criteria for Qualifying Free Zone Person (QFZP)

To qualify as a QFZP, businesses must:

 Maintain adequate substance in the UAE (physical premises and employees).

 Generate qualifying income from compliant business activities within the Free Zone or
with international clients.
 Not elect to be taxed under the standard CT rates for non-Free Zone businesses.
 Ensure non-qualifying income does not exceed the de minimis threshold (below 5% of
total revenue or AED 5 million, whichever is lower).
 Maintain audited financial statements in accordance with IFRS.
 Meet any additional conditions prescribed by the Free Zone authority.

Qualifying Activities

Qualifying activities for tax relief include:

 Manufacturing and processing of goods or materials.

 Trading of qualifying commodities.
 Holding shares and other securities for investment.
 Ownership, management, and operation of ships.
 Reinsurance and fund management services.
 Wealth and investment management services.
 Headquarter and treasury services to related parties.
 Financing and leasing of aircraft.
 Distribution of goods from a Designated Zone.
 Logistics services.
 Ancillary activities to the above.

Qualifying Income

Qualifying Income for QFZPs refers to income eligible for the 0% corporate tax rate. It
includes:

 Income from transactions with another Free Zone person.

 Income from other transactions satisfying the de minimis requirements. Excluded from
qualifying income are:
 Income from domestic (mainland) or foreign permanent establishments.
 Income from immovable property outside the Free Zone.
 Non-commercial property income.
 De Minimis Rule

The De Minimis Rule allows QFZPs with non-qualifying income below 5% of total
revenue or AED 5 million to benefit from the 0% tax rate. Excluded income includes
revenue related to immovable property within the Free Zone and income from
domestic or foreign permanent establishments.

Impact on Free Zone Businesses

The introduction of Corporate Tax impacts Free Zone businesses by:

 Introducing a 9% tax on non-qualifying income.

 Requiring compliance with qualifying criteria to maintain the 0% tax rate.
 Necessitating careful financial planning to manage the tax burden and prevent
unnecessary cash leakages.

Steps for Compliance

 Determine if your business qualifies as a QFZP.

 Ensure compliance with substance requirements and qualifying income criteria.
 Maintain accurate financial records and have them audited in line with IFRS.
 Register with the FTA and understand the filing process for Corporate Tax returns.

Non-Resident Persons and Corporate Tax

Definition of Non-Resident Persons

Non-resident persons include companies with a permanent establishment in the UAE

and those deriving UAE-sourced income not attributable to the permanent
establishment or having a nexus in the UAE.

Taxation for Non-Resident Persons

Non-resident persons are taxed solely on the income associated with their UAE
permanent establishment or nexus. The deadlines for submitting a Tax Registration
Application are:

Category of Non-Resident Deadline for Submitting

Person Tax Registration
Application
Has a permanent establishment Nine months from the date of
prior to 1 March 2024 existence of the permanent
establishment
Has a nexus prior to 1 March Three months starting from 1
 2024
Has a permanent establishment
on or after 1 March 2024
Has a nexus on or after 1 March
2024
March 2024
Six months from the date of
existence of the permanent
establishment
Three months from the date of
establishment of the nexus

Penalties for Non-Compliance

All taxable persons must submit their corporate tax registration application within the
designated deadlines. Failure to do so may result in an administrative penalty of AED
10,000.

Exempt Persons

Certain entities are automatically exempt from corporate tax in the UAE. This includes
government entities and government-controlled entities. Other exempt persons include:

 Extractive businesses in the UAE.

 Non-extractive natural resource businesses in the UAE.
 Qualifying public benefit entities.
 Qualifying investment funds.
 Pension or social security funds, both public and private.
 Wholly-owned and controlled UAE subsidiaries of certain exempt entities.
 Small businesses with revenues falling below AED 3 million for the latest and all
previous tax periods (available until 31 December 2026).

Filing and Compliance

Frequency of Filing Corporate Tax Returns

UAE businesses are required to file corporate tax returns only once per tax period. The
CT return is due nine months after the tax period has ended. No advance or
preliminary corporate tax filings are necessary.

Deadline for Corporate Tax Return Filing

Businesses in the UAE have up to nine months from the end of the relevant tax period
to submit their tax return and pay the Corporate Tax to the Federal Tax Authority
(FTA). For example:
 A company with a first tax period beginning on June 1, 2023, has a deadline up to
February 28, 2025.
 A company with a first tax period beginning on January 1, 2024, has a deadline up to
September 30, 2025.

Benefits of Filing Corporate Tax Returns

Filing corporate tax returns on time ensures efficient cost management, proper control
of time, a single tax return for a group, and the ability to combine the amount of group
tax paid, where certain companies make a taxable profit while others may have a tax
loss.

How to File Corporate Tax Returns

Corporate Tax Returns can be filed online through the EmaraTax portal. The FTA
approves the pre-registration of corporate tax for selected entities. If eligible,
businesses can register for corporate tax in EmaraTax. The platform is integrated with
the UAE Central Bank and UAE PASS to enhance user experience.

Procedure of Corporate Tax Return Filing

The procedure includes:

1. Tax Registration: Obtain a tax registration number from the Federal Tax Authority
(FTA) by submitting the required documents and information.
2. Record Keeping: Maintain proper records of all financial transactions and tax-related
documents in accordance with UAE tax laws.
3. Preparation of Tax Return: Calculate taxable income and prepare a tax return based
on the records maintained, taking into account tax deductions and exemptions as per
UAE tax laws.
4. Filing of Tax Return: Submit the tax return to the FTA through their online platform,
e-Services, on or before the due date.
5. Payment of Tax: Pay the tax liability as per the tax return filed on or before the due
date.
6. Tax Audit: In case of a tax audit, the FTA may request additional information or
documents to verify the accuracy of the tax return filed.

Record-Keeping Requirements

Businesses must maintain all relevant records and documents for seven years
following the end of the tax period to which they relate to ensure compliance with
UAE tax regulations and facilitate any future audits.

Compliance Assistance
To assist with the transition to the new regime, services such as obtaining the tax
registration number, preparing audited financial statements, and submitting annual
corporate tax returns are available. Consulting with tax professionals can ensure
accurate preparation and timely submission of corporate tax returns.

By understanding and adhering to these guidelines, businesses in the UAE, especially

those in Free Zones and non-resident persons, can navigate the new Corporate Tax
regime effectively.