UAE Corporate Tax Guide 2024

The UAE has introduced a competitive corporate tax regime with two main rates: 0% for taxable income up to AED 375,000, and 9% for taxable income above AED 375,000. This structure is designed to support small businesses and startups while ensuring larger corporations contribute their fair share. It's important to note that different rates may apply to large multinationals that meet specific criteria under the OECD's global minimum tax rules.

The UAE corporate tax applies to a wide range of entities. This includes UAE-incorporated companies, foreign entities that have a permanent establishment in the UAE, and individuals conducting business activities under a commercial license in the UAE. However, certain entities are exempt, such as government entities, pension funds, investment funds, and public benefit organizations. Understanding your entity's tax status is crucial for compliance and proper tax planning.

Free Zone companies in the UAE can benefit from a 0% corporate tax rate on their qualifying income. This preferential treatment is designed to maintain the attractiveness of UAE Free Zones for international business and investment. However, it's important to note that this benefit is subject to certain conditions, including compliance with regulatory requirements and economic substance regulations. Free Zone companies should carefully assess their activities to ensure they meet all criteria for this preferential tax treatment.

The UAE corporate tax regime incorporates transfer pricing rules based on the OECD Transfer Pricing Guidelines. The arm's length principle applies to transactions between related parties and with connected persons. This means that prices for goods, services, or financial arrangements between related entities should be set as if the transaction was between independent parties. Companies need to prepare and maintain transfer pricing documentation to support their inter-company transactions.

The UAE corporate tax system allows for the formation of tax groups. Under this provision, a UAE group of companies can elect to form a tax group and be treated as a single taxable person. This can provide several benefits, including the ability to offset losses within the group and simplify compliance procedures. However, there are specific conditions that must be met to form and maintain a tax group, including a minimum ownership threshold.

To prevent double taxation, the UAE corporate tax system allows for foreign tax credits. This means that taxes paid in foreign jurisdictions on income that is also subject to UAE corporate tax can be credited against the UAE tax liability. This provision is particularly important for UAE companies with international operations or income sources. The application of foreign tax credits is subject to certain conditions and limitations, and companies should carefully document their foreign tax payments to claim these credits effectively.

Under the UAE corporate tax regime, capital gains are generally subject to corporate tax. This includes gains from the sale of shares, real estate (if not subject to real estate transfer tax), and other capital assets. However, certain exemptions may apply, particularly for intra-group transfers that meet specific conditions. It's also worth noting that capital gains from the sale of shares in UAE companies may be exempt under certain circumstances. Businesses should carefully consider the tax implications of any significant asset disposals.

The UAE corporate tax system allows for the carry forward of taxable losses indefinitely. This means that losses incurred in one tax period can be used to offset taxable income in future periods, providing a valuable tax planning tool for businesses. However, there are restrictions on the use of carried forward losses, particularly in cases of change in ownership or control of the company. Additionally, the amount of loss that can be utilized each year may be limited to a percentage of that year's taxable income.

Compliance with UAE corporate tax regulations requires businesses to file annual tax returns within 9 months from the end of the relevant tax period. Companies need to maintain proper financial records and supporting documentation for at least 7 years. The Federal Tax Authority may conduct tax audits to ensure compliance. Penalties may apply for non-compliance, including late filing, failure to maintain proper records, or tax evasion. It's crucial for businesses to establish robust internal processes to ensure timely and accurate tax compliance.

To support the growth of small businesses, the UAE corporate tax regime offers relief for businesses with revenue up to AED 3 million. This relief aims to reduce the compliance burden for smaller entities. However, certain conditions must be met to qualify for this relief, and businesses should carefully assess their eligibility. Even if eligible for relief, small businesses should maintain proper records and be prepared for potential growth that may bring them into the standard corporate tax regime in future years.