“Explore the comprehensive analysis of UAE Corporate Tax Law, article by article. Understand definitions, imposition rates, exemptions, taxable persons, and more for effective compliance.”
Decoding the UAE Corporate Tax Law: A Comprehensive Article-by-Article Interpretation
Summary of Chapters and Articles
| Chapters | Articles | ||
| One | General Provisions | 1 | Definitions |
| Two | Imposition of Corporate Tax and Applicable Rates | 2 | Imposition of Corporate Tax |
| 3 | Corporate Tax Rate | ||
| Three | Exempt Person | 4 | Exempt Person |
| 5 | Government Entity | ||
| 6 | Government Controlled Entity | ||
| 7 | Extractive Business | ||
| 8 | Non-Extractive Natural Resource Business | ||
| 9 | Qualifying Public Benefit Entity | ||
| 10 | Qualifying Investment Fund | ||
| Four | Taxable Person and Corporate Tax Base | 11 | Taxable Person |
| 12 | Corporate Tax Base | ||
| 13 | State Sourced Income | ||
| 14 | Permanent Establishment | ||
| 15 | Investment Manager Exemption | ||
| 16 | Partners in an Unincorporated Partnership | ||
| 17 | Family Foundation | ||
| Five | Free Zone Person | 18 | Qualifying Free Zone Person |
| 19 | Election to be Subject to Corporate Tax | ||
| Six | Calculating Taxable Income | 20 | General Rules for Determining Taxable Income |
| 21 | Small Business Relief | ||
| Seven | Exempt Income | 22 | Exempt Income |
| 23 | Participation Exemption | ||
| 24 | Foreign Permanent Establishment Exemption | ||
| 25 | Non-Resident Person Operating Aircraft or Ships in International Transportation | ||
| Eight | Reliefs | 26 | Transfers Within a Qualifying Group |
| 27 | Business Restructuring Relief | ||
| Nine | Deductions | 28 | Deductible Expenditure |
| 29 | Interest Expenditure | ||
| 30 | General Interest Deduction Limitation Rule | ||
| 31 | Specific Interest Deduction Limitation Rule | ||
| 32 | Entertainment Expenditure | ||
| 33 | Non-deductible Expenditure | ||
| Ten | Transactions with Related Parties and Connected Persons | 34 | Arm’s Length Principle |
| 35 | Related Parties and Control | ||
| 36 | Payments to Connected Persons | ||
| Eleven | Tax Loss Provisions | 37 | Tax Loss Relief |
| 38 | Transfer of Tax Loss | ||
| 39 | Limitation on Tax Losses Carried Forward | ||
| Twelve | Tax Group Provisions | 40 | Tax Group |
| 41 | Date of Formation and Cessation of a Tax Group | ||
| 42 | Taxable Income of a Tax Group | ||
| Thirteen | Calculation of Corporate Tax Payable | 43 | Currency |
| 44 | Calculation and Settlement of Corporate Tax | ||
| 45 | Withholding Tax | ||
| 46 | Withholding Tax Credit | ||
| 47 | Foreign Tax Credit | ||
| Fourteen | Payment and Refund of Corporate Tax | 48 | Corporate Tax Payment |
| 49 | Corporate Tax Refund | ||
| Fifteen | Anti-Abuse Rules | 50 | General anti-abuse rule |
| Sixteen | Tax Registration and Deregistration | 51 | Tax Registration |
| 52 | Tax Deregistration | ||
| Seventeen | Tax Returns and Clarifications | 53 | Tax Returns |
| 54 | Financial Statements | ||
| 55 | Transfer Pricing Documentation | ||
| 56 | Record Keeping | ||
| 57 | Tax Period | ||
| 58 | Change of Tax Period | ||
| 59 | Clarifications | ||
| Eighteen | Violations and Penalties | 60 | Assessment of Corporate Tax and penalties |
| Nineteen | Transitional Rules | 61 | Transitional Rules |
| Twenty | Closing provisions | 62 | Delegation of Power |
| 63 | Administrative Policies and Procedures | ||
| 64 | Cooperating with the Authority | ||
| 65 | Revenue Sharing | ||
| 66 | International Agreements | ||
| 67 | Implementing Decisions | ||
| 68 | Cancellation of Conflicting Provisions | ||
| 69 | Application of this Decree-Law to Tax Periods | ||
| 70 | Publication and Application of this Decree-Law | ||
Article 1 contains the definitions of the terms used under this Decree-Law.
Imposition of Corporate Tax (Article 2)
Corporate Tax shall be imposed on Taxable Income, at the rates determined under this Decree-Law, and payable to the Authority under this Decree-Law and the Tax Procedures Law.
Corporate Tax Rate (Article 3)
1. Taxable Person other than Qualifying Free Zone Person
i. 0% for income taxable up to AED 375,000/-
ii. 9% for income taxable exceeding AED 375,000/-
2. Qualifying Free Zone Person
i. 0% on Qualifying Income
ii. 9% on income other than Qualifying Income
Exempt Person (Article 4)
1. Government Entity
2. Government controlled entity.
3. Engaged in Extractive business subject to conditions specified in Article 7
4. Engaged in Non-extractive business subject to conditions specified in Article 8
5. Qualifying Public Benefit Entity
6. Qualifying Investment Fund
7. Public Pension or Social Security Fund
8. Private Pension or Social Security Fund
9. Judicial person incorporated that is wholly owned and controlled by:
- Government Entity
- Government controlled entity.
- Qualifying Investment Fund
- Public Pension or Social Security Fund
- Private Pension or Social Security Fund
The person included above should meet the following conditions:
- Undertakes part or whole of the business of the Exempt Person
- Engaged in holding assets or investing funds for the benefit of the Exempt Person
- Ancillary activities to those of Exempt Person
The person falling under 6,7,8,9 needs to apply specifically to the authority to get the Exemption from Corporate Tax.
Government Entity (Article 5)
1. The Federal Government, Local Governments, ministries, government departments, government agencies, authorities and public institutions of the Federal Government or Local Governments. (Article 1)
2. A government entity is exempt as per Article 4
3. If Government Entity performs business under the License issued by Licensing Authority, then it is Not Exempt. It will be treated as Taxable Person.
Government Controlled Entity (Article 6)
1. Any juridical person, directly or indirectly wholly owned and controlled by a Government Entity, as specified in a decision issued by the Cabinet at the suggestion of the Minister. (Article 1)
2. A government-controlled entity is exempt as per Article 4
3. If Government Controlled Entity performs business which is Not Mandated Business, then it is Not Exempt. It will be treated as Taxable Person.
4. Mandated Activity: Any activity conducted by a Government Controlled Entity per the legal instrument establishing or regulating the entity, that is specified in a decision issued by the Cabinet at the suggestion of the Minister.
Extractive Business (Article 7)
Natural Resources
Water, oil, gas, coal, naturally formed minerals, and other non-renewable, non-living natural resources may be extracted from the State’s Territory.
Extractive Business
The Business or Business Activity of exploring, extracting, removing, or otherwise producing and exploiting the Natural Resources of the State or any interest therein as determined by the Minister.
Non-Extractive Natural Resource Business
The Business or Business Activity of separating, treating, refining, processing, storing, transporting, marketing or distributing the Natural Resources of the State.
Qualifying Public Benefit Entity
Any entity that meets the conditions set out in Article 9 of this Decree-Law and that is listed in a decision issued by the Cabinet at the suggestion of the Minister.
Qualifying Investment Fund
Any entity whose principal activity is the issuing of investment interests to raise funds or pool investor funds or establish a joint investment fund to enable the holder of such an investment interest to benefit from the profits or gains from the entity’s acquisition, holding, management or disposal of investments, per the applicable legislation and when it meets the conditions set out in Article 10 of this Decree-Law.
A person in Extractive Business shall be exempt from CT if he:
i. Directly or indirectly holds or has an interest in a right, concession or Licence issued by a Local Government to undertake its Extractive Business
ii. Is covered under Article 6 of this Decree-Law.
iii. Is covered as prescribed by the Government.
Non-Extractive Natural Resource Business (Article 8)
A person in Non- Extractive Natural Resource Business shall be exempt from CT if he:
i. Directly or indirectly holds or has an interest in a right, concession or Licence issued by a Local Government to undertake its Extractive Business
ii. Is covered under Article 6 of this Decree-Law.
iii. Is covered as prescribed by the Government.
Qualifying Public Benefit Entity (Article 9)
A Qualifying Public Benefit Entity shall be exempt from Corporate Tax if:
1. It is established and operated for:
i. Exclusively for religious, charitable, scientific, artistic, cultural, athletic, educational, healthcare, environmental, humanitarian, animal protection or other similar purposes.
ii. As a professional entity, a chamber of commerce, or a similar entity operated exclusively for the promotion of social welfare or public benefit.
2. It is not engaged in any other Business Activity except it is directly related to Qualifying Public Benefit Entity.
3. Income or assets are used exclusively for the purpose for which it was established.
4. Income or assets are not used for personal purposes.
Qualifying Investment Fund (Article 10)
1. An investment fund may be exempt from Corporate Tax as a Qualifying Investment Fund if:
a) The investment fund or the investment fund’s manager is subject to the regulatory oversight of a competent authority in the State, or a foreign competent authority recognised for this Article.
b) Interests in the investment fund are traded on a Recognised Stock Exchange or are marketed and made available sufficiently widely to investors.
c) The main or principal purpose of the investment fund is not to avoid Corporate Tax.
Taxable Person (Article 11)
1. A Taxable Person shall be either a Resident Person or a Non-Resident Person.
2. Resident Person is:
i. Incorporated in the State
ii. Free Zone Person
iii. Incorporated outside of the State but effectively managed and controlled in the State.
iv. A natural person who conducts a Business or Business Activity in the State.
v. Any Branch of Person mentioned above.
3. A Non-Resident Person is a Person who is not considered a Resident Person and that either:
a) Has a Permanent Establishment in the State.
b) Derives State Sourced Income.
Corporate Tax Base (Article 12)
1. Resident Person – Taxable Income from State or outside of State.
2. Non-Resident Person:
i. Taxable Income attributable to PE
ii. State-sourced income not attributable to PE
iii. Taxable Income attributable to nexus of NR.
State-Sourced Income (Article 13)
1. Income shall be considered State Sourced Income where it is:
i. derived from a Resident Person
ii. derived from PE of a Non-Resident Person
iii. accrued in or derived from activities performed, assets located, capital invested, rights used, or services performed or benefitted from in the State
2. State Sourced Income shall include:
i. Income from the sale of goods
ii. Income from the provision of services
iii. Income from a contract
iv. Income from movable or immovable property
v. Income from the disposal of shares or capital of a Resident Person
vi. Income from the use of any intellectual or intangible property
vii. Interest that meets any of the following conditions:
a. The loan is secured by movable or immovable property located in the State.
b. The borrower is a Resident Person
c. The borrower is a Government Entity
viii. Insurance or reinsurance premiums in any of the following instances:
a. The insured asset is located in the State.
b. The Insured Person is a Resident Person
c. The insured activity is conducted in the State.
Permanent Establishment (Article 14)
1. A Non-Resident Person has a Permanent Establishment in the State where:
i. it has a fixed or permanent place in the State through which the Business of the Non-Resident Person is conducted.
ii. A person has and habitually exercises the authority to conduct a Business or Business Activity in the State on behalf of the Non-Resident Person.
iii. it has any other form of nexus in the State.
2. A fixed or permanent place in the State includes:
i. Place of management
ii. Branch
iii. Office
iv. Factory
v. Workshop
vi. Land, buildings, and other real property
vii. An installation or structure for the exploration of renewable or non-renewable natural resources
viii. A mine, an oil or gas well, a quarry or any other place of extraction of natural resources, including vessels and structures used for the extraction of such resources.
ix. Site, project or activities last more than (6) six months, including connected activities that are conducted at the site or project by one or more Related Parties of the Non-Resident Person
3. A fixed or permanent place in the State shall not be considered a Permanent Establishment of a Non-Resident Person if it is used solely for any of the following purposes:
a) Storing, displaying or delivering goods or merchandise belonging to that Person.
b) Keeping a stock of goods or merchandise belonging to that Person for the sole purpose of processing by another Person.
c) Purchasing goods or merchandise or collecting information for the Non-Resident Person.
d) Conducting any other activity of a preparatory or auxiliary nature for the Non-Resident Person.
e) Activities of preparatory or auxiliary nature of above-stated activities.
4. The mere presence of a natural person in the State does not create a Permanent Establishment for a Non-Resident Person in any of the following instances:
i. Where such presence is a consequence of a temporary and exceptional situation.
ii. Where the natural person is employed by the Non-Resident and:
a. The activities of the natural person are not part of the core income-generating activities.
b. The Non-Resident Person does not derive State Sourced Income.
Investment Manager Exemption (Article 15)
Conditions: The investment Manager shall be considered an independent agent when acting on behalf of a Non-Resident Person, where he:
i. is engaged in the business of providing investment management or brokerage services.
ii. is subject to the regulatory oversight of the competent authority in the State
iii. carrying out the transactions in the ordinary course
iv. acts in relation to the transactions in an independent capacity.
v. transacts on an arm’s length basis with the Non-Resident Person and receives due compensation for the provision of services
vi. is not the Non-Resident Person’s representative in the State in relation to any other income or transaction that is subject to Corporate Tax for the same Tax Period.
Transaction:
i. is not the Non-Resident Person’s representative in the State in relation to any other income or transaction that is subject to Corporate Tax for the same Tax Period.
ii. buying or selling any foreign currency or placement of funds at interest.
iii. transactions permissible to be carried out by the Investment Manager on behalf of a Non-Resident Person
Unincorporated Partnership (UP) (Article 16)
1. An unincorporated partnership shall not be considered a Taxable Person unless an application is made to the Authority by such partnership.
2. Whereas partners in such UP can make an application to the Authority to be treated as Taxable Person.
3. If the application under the above is approved:
a. Each partner in such UP shall be jointly and severally liable for CT Payable by UP for those tax periods when they are partners
b. One partner shall be appointed as Responsible Partner to fulfil any obligation or proceedings under this Law.
4. Commencement of UP as Taxable Person: Effective from the commencement of the Tax Period in which application is made or from a future date as determined by the Authority.
5. If such UP is not a Taxable Person, then partners of such UP shall be treated as Taxable Person under this Decree-Law.
6. Then such an entity, in layman’s language, shall be considered as a Pass-Through Entity.
7. Every partner of such UP shall be treated as:
a. Conducting the business of UP
b. Having a status, intention, and purpose of UP
c. Holding assets that the UP holds
d. Being party to the agreement to which UP entered into.
8. Assets, Liabilities, Incomes, and Expenses of UP shall be allocated to each partner in proportion to their respective share in such UP, or other manner if distributive share is not available.
9. The taxable income of each partner shall consider:
a. Expenditure incurred directly by the partner in conducting the Business of UP
b. Interest expenditure incurred by the partner in relation to contributions made to the capital account of UP.
10. Interest paid by UP to partners on their capital account shall be treated as Income in the hands of the partners, so such interest expenditure shall be treated as a Non-deductible expense while calculating the partner’s share.
11. Any Foreign Tax Credit in the books of UP shall be allocated to the partners in proportion to their distributive share in UP.
12. A Foreign Partnership shall be considered as UP for this Decree-Law if the following conditions are met:
a. It is not subject to tax under laws of foreign jurisdiction. It means Indian partnership firms will be treated as Incorporated Partnerships in UAE for CT.
b. Each partner is subject to tax with regard to their distributive income, whether received by or accrued to, Foreign Partnership.
Family Foundation (Article 17)
1. A Family Foundation can make an application to the Authority to be treated as an Unincorporated Partnership where:
a) it was established for the benefit of identified or identifiable natural persons, or for the benefit of a public benefit entity, or both.
b) The principal activity is to receive, hold, invest, disburse, or otherwise manage assets or funds associated with savings or investments.
c) it does not conduct any activity that would have constituted a Business or Business Activity had the activity been undertaken, or its assets been held, directly by its founder, settlor, or any of its beneficiaries.
d) The main or principal purpose is not the avoidance of Corporate Tax.
Qualifying Free Zone Person (Article 18)
1. A Free Zone Person that is a Qualifying Free Zone Person can benefit from a preferential Corporate Tax rate of 0% on their “Qualifying Income” only.
2. In order to be considered a Qualifying Free Zone Person, the Free Zone Person must:
- maintain an adequate substance in the UAE
- derive ‘Qualifying Income
- not have made an election to be subject to Corporate Tax at the standard rates, and
- comply with the transfer pricing requirements under the Corporate Tax Law.
3. The Minister may prescribe additional conditions that a Qualifying Free Zone Person must meet.
4. If a Qualifying Free Zone Person fails to meet any of the conditions, or makes an election to be subject to the regular Corporate Tax regime, they will be subject to the standard rates of Corporate Tax from the beginning of the Tax Period where they failed to meet the conditions.
Election to be Subject to Corporate Tax (Article 19)
1. A Qualifying Free Zone may at its option elect to pay tax at normal tax rates on its Qualifying Income.
2. The election shall be effective from:
a. Beginning of the tax period in which such election is made, or
b. Beginning of subsequent tax period.
General Rules for Determining Taxable Income (Article 20)
1. The Taxable Income shall be determined separately based on standalone financial statements prepared for financial reporting purposes.
2. The Taxable Income is adjusted for the following:
i. unrealised gain or loss
ii. Exempt Income
iii. Reliefs
iv. Deductions
v. Transactions with Related Parties and Connected Persons
vi. Tax Loss Relief
vii. Any incentives or special reliefs for a Qualifying Business Activity
viii. Any income or expenditure that has not been taken into account.
ix. Any other adjustments
3. A taxable person that prepares financial statements on an accrual basis may elect to take into account gains and losses on a realisation basis in relation to:
i. all assets and liabilities that are subject to fair value or impairment accounting
ii. all assets and liabilities held on capital account at the end of a Tax Period, whilst taking into account any unrealised gain or loss that arises in connection with assets and liabilities held on revenue account at the end of that period
4. Assets held on capital account: Assets that the Person does not trade, assets that are eligible for depreciation, or assets treated under applicable accounting standards as property, plant and equipment, investment property, intangible assets, or other non-current assets.
5. Liabilities held on capital account: Liabilities, the incurring of which do not give rise to deductible expenditure under Chapter Nine of this Decree-Law, or liabilities treated under applicable accounting standards as non-current liabilities.
6. Assets and liabilities held on revenue account: Assets and liabilities other than those held on a capital account.
7. Unrealised gain or loss: Includes an unrealised foreign exchange gain or loss.
Small Business Relief (Article 21)
1. A Taxable Person may elect to be treated as not having derived any Taxable Income for a Tax Period where:
- the Revenue of the Taxable Person for the relevant Tax Period and previous Tax Periods does not exceed a threshold.
2. Where this Article applies, the following provisions shall not apply:
i. Exempt Income
ii. Reliefs
iii. Deductions
iv. Tax Loss Relief
v. Transfer pricing documentation
Exempt Income (Article 22)
It includes:
1. Dividends and other profit distributions received from Resident Person.
2. Dividends and other profit distributions received from a Participating Interest in a foreign juridical person.
3. Any other income from a Participating Interest
4. Income of a Foreign Permanent Establishment
5. Income derived by a Non-Resident Person from operating aircraft or ships in international transportation.
Participation Exemption (Article 23)
1. Participating Interest (PI) income shall be exempt from Corporate Tax.
2. PI means 5% (five per cent) or greater ownership interest in the shares or capital of a juridical person provided such PI:
i. is held for an uninterrupted period of at least (12) twelve months.
ii. ensures not less than 5% of profits and liquidation proceeds.
iii. Not more than 50% (fifty per cent) of the direct and indirect assets of the Participation consist of ownership interests or entitlements that would not have qualified for an exemption from Corporate Tax under this Article if held directly by the Taxable Person.
3. The following income shall not be taken into account:
i. Dividends and other profit distributions received.
ii. Gains or losses on the transfer, sale, or other disposition of PI
iii. Foreign exchange gains or losses
iv. Impairment gains or losses
4. The exemption is not applicable if:
i. Participation claims a deduction of dividend.
ii. It has recognised a deductible impairment loss in respect of the Participating Interest.
iii. It has recognised a deductible impairment loss in respect of a loan receivable from the Participation.
5. No exemption on loss realised due to liquidation.
6. If 12 months criteria are not met, any income previously not taken into account under this Article shall be included in the calculation of the Taxable Income.
Foreign Permanent Establishment Exemption (Article 24)
1. Election to not take into account the income and expenditure of Foreign PE.
2. Not available to a Resident Person:
i. losses in any of its Foreign PE
ii. positive income and expenditure in any of its Foreign PE
iii. Foreign Tax Credit
3. Income and associated expenditure: an aggregate of the income and associated expenditure in each of the relevant foreign jurisdictions.
4. Foreign PE shall be treated as separate and independent Persons.
Non-Resident Person Operating Aircraft or Ships in International Transportation (Article 25)
Income derived by a Non-Resident Person from the operation of aircraft or ships in international transportation shall not be subject to Corporate Tax where:
1. The Non-Resident Person is in the Business of:
i. International transport of passengers, livestock, mail, parcels, merchandise or goods by air or by sea.
ii. Leasing or chartering aircraft or ships used in international transportation.
iii. Leasing of equipment is integral to the seaworthiness of ships or the airworthiness of aircraft used in international transportation.
2. A Resident Person that performs any of the activities above would be exempt under the applicable legislation of the country or territory in which the Non-Resident Person is resident.
Transfers Within a Qualifying Group (Article 26)
1. No gain or loss in the transfer of assets or liabilities between members of the Qualifying Group.
2. For the above purpose, assets or liabilities transferred and the consideration must be recorded at net book value.
3. The above shall not apply where within (2) two years from the date of the transfer:
i. There is a subsequent transfer of A/L outside of the Qualifying Group.
ii. A member ceases to be part of the Qualifying Group.
iii. The transfer shall be taken at Market Value.
4. Conditions for members to be part of the Qualifying Group:
i. Taxable Persons are juridical persons that are Resident Persons, or Non-Resident Persons that have a PE in the State.
ii. An either taxable person has 75% ownership in each other or a third member has in each member.
iii. None is an Exempt Person
iv. None is Qualifying Free Zone Person
v. Same financial year
vi. Same accounting standards
Business Restructuring Relief (Article 27)
1. When the entire Business or an independent part of its Business is transferred, no gain or loss shall be taken into account.
2. It shall not apply where within (2) two years from the date of the transfer:
i. Shares are transferred subsequently to another taxable person outside of the Qualifying Group.
ii. subsequent transfer or disposal of the Business or the independent part of the Business transferred.
iii. It shall be treated as having taken place at Market Value.
3. Conditions:
i. The transfer is undertaken per the applicable legislation of the State.
ii. Persons are Resident Persons or Non-Resident Persons that have a Permanent Establishment in the State.
iii. None is an Exempt Person
iv. None is Qualifying Free Zone Person
v. Same financial year
vi. Same accounting standards
vii. The transfer is undertaken for valid commercial or other non-fiscal reasons which reflect economic reality.
Deductible Expenditure (Article 28)
1. Expenditure incurred wholly and exclusively for the Business that is not capital in nature.
2. If expenditure is incurred for more than one purpose, a deduction shall be allowed for any identifiable part or proportion of the expenditure incurred wholly and exclusively to derive Taxable Income.
3. If expenditure is incurred for more than one purpose, a deduction shall be allowed for an appropriate proportion of any unidentifiable part or proportion of the expenditure incurred to derive Taxable Income that has been determined on a fair and reasonable basis, having regard to the relevant facts and circumstances of the Taxable Person’s Business.
4. Non- Deduction is allowed for:
i. Expenditure not incurred for the purposes of the Business
ii. Expenditure incurred in deriving Exempt Income.
iii. Losses not connected with or arising out of the Business.
Interest Expenditure (Article 29)
Interest expenditure incurred for deriving Exempt Income shall be allowed subject to the provisions of the General and Specific Interest Deduction Limitation Rule.
General Interest Deduction Limitation Rule (Article 30)
1. Net Interest Expenditure shall be deductible up to 30% (thirty per cent) of the EBITDA excluding any Exempt Income.
2. Net Interest Expenditure = Interest Expenditure in the current period + Interest expenditure carried forward from the previous period – Interest Income in the current period – Disallowed Interest Expenditure.
3. Un-exhausted Interest expenditure shall be carried forward for 10 subsequent periods.
4. This Rule shall not apply to:
i. Bank
ii. Insurance Provider
iii. A natural person undertaking a Business or Business Activity in the State.
Specific Interest Deduction Limitation Rule (Article 31)
1. No deduction shall be allowed for Interest expenditure incurred on a loan obtained from a Related Party in respect of any of the following transactions:
i. dividend or profit distribution
ii. redemption, repurchase, reduction or return of share capital
iii. capital contribution.
iv. acquisition of an ownership interest in a Person who is or becomes a Related Party following the acquisition.
2. Interest Expenditure shall be allowed where the Taxable Person can demonstrate that the main purpose of obtaining the loan and carrying out the transaction is not to gain a Corporate Tax advantage.
3. No Corporate Tax advantage shall be deemed to arise where the Related Party is subject to Corporate Tax or a tax of a similar character under the applicable legislation of a foreign jurisdiction on the Interest at a rate not less than the rate specified in Article 3 of this Decree-Law.
Entertainment Expenditure (Article 32)
1. Taxable Persons shall be allowed to deduct 50% (fifty per cent) of any entertainment, amusement, or recreation expenditure.
2. This applies to any expenditure incurred to receive and entertain the Taxable Person’s customers, shareholders, suppliers, or other business partners.
3. Expenditure allowed:
i. Meals
ii. Accommodation
iii. Transportation
iv. Admission Fees
v. Facilities and equipment used in connection with such entertainment, amusement or recreation
Non-deductible Expenditure (Article 33)
1. Donations, grants or gifts made to an entity that is not a Qualifying Public Benefit Entity
2. Fines and penalties, other than amounts awarded as compensation for damages or breach of contract
3. Bribes or other illicit payments
4. Dividends, profit distributions or benefits of a similar nature paid to an owner of the Taxable Person
5. Amounts are withdrawn from the Business by a natural person who is a Taxable Person or a partner in an Unincorporated Partnership
6. Corporate Tax imposed
7. Input Value Added Tax incurred by a Taxable Person
8. Tax on income imposed outside the State.
Arm’s Length Principle (Article 34)
1. The arm’s length result of a transaction must be determined by applying the following transfer pricing methods:
a) The comparable uncontrolled price method.
b) The resale price method.
c) The cost-plus method.
d) The transactional net margin method.
e) The transactional profit split method.
2. Factors to be considered:
a) The contractual terms of the transaction or arrangement.
b) The characteristics of the transaction or arrangement.
c) The economic circumstances in which the transaction or arrangement is conducted.
d) The functions performed, assets employed, and risks assumed by the Related Parties entering into the transaction or arrangement.
e) The business strategies employed by the Related Parties entering into the transaction or arrangement.
Related Parties and Control (Article 35)
1. Related Parties mean:
i. Two or more natural persons who are related within the fourth degree of kinship or affiliation, including by way of adoption or guardianship.
ii. A natural person and a juridical person where:
a. the natural person or one or more Related Parties of the natural person are shareholders in the juridical person, and the natural person, alone or together with its Related Parties, directly or indirectly owns a 50% (fifty per cent) or greater ownership interest in the juridical person; or
b. the natural person, alone or together with its Related Parties, directly or indirectly Controls the juridical person.
iii. Two or more juridical persons were:
a. one juridical person, alone or together with its Related Parties, directly or indirectly owns a 50% (fifty per cent) or greater ownership interest in the other juridical person.
b. one juridical person, alone or together with its Related Parties, directly or indirectly Controls the other juridical person; or
c. any Person, alone or together with its Related Parties, directly or indirectly owns a 50% (fifty per cent) or greater ownership interest in or Controls such two or more juridical persons;
iv. A Person and it’s Permanent Establishment or Foreign Permanent Establishment.
v. Two or more Persons that are partners in the same Unincorporated Partnership
vi. A person who is the trustee, founder, settlor or beneficiary of a trust or foundation, and its Related parties.
2. Control means:
i. 50% or more voting rights
ii. 50% or more of BOD composition
iii. 50% or more of profits sharing.
iv. The ability to determine, or exercise significant influence over, the conduct of the Business and affairs of another Person
Payments to Connected Persons (Article 36)
1. A person shall be considered a Connected Person of a Taxable Person if that Person is:
i. An owner of the Taxable Person
ii. A partner in an Unincorporated Partnership
iii. A director or officer of the Taxable Person
iv. A Related Party of any of the Persons stated above.
2. A payment or benefit provided by a Taxable Person to its Connected Person shall be deductible only if payment or benefit corresponds with the Market Value of the service and is incurred wholly and exclusively for the purposes of the Business.
3. It shall not apply to:
i. Taxable Person whose shares are traded on a Recognised Stock Exchange
ii. Taxable Person that is subject to the regulatory oversight
Tax Loss Relief (Article 37)
1. Tax losses shall be used to offset the taxable income of subsequent tax periods.
2. Tax Loss to be utilised should not exceed 75% of the taxable income before such offset.
3. Tax loss can’t be claimed for losses incurred before the commencement of this Act, losses incurred before a Person becomes a taxable person or tax loss due to an activity the income of which is exempt or not taken into account under this Decree-Law.
4. Tax loss must be set off first against the taxable income of the subsequent period before it is carried forward to the next period or transferred under section 38.
Transfer of Tax Loss (Article 38)
1. Tax Loss or part thereof shall be transferred to the other taxable person when:
a. Both taxable persons are a juridical person
b. Both taxable persons are a resident person
c. Either taxable person has a direct or indirect ownership interest of at least 75% in the other person.
d. The third person has a direct or indirect ownership interest of at least 75% in both persons.
e. The ownership interest of 75% must exist from the start of the tax period of incurring of tax loss till the end of the tax period in which such tax loss is offset against the taxable income.
f. None are exempted or qualifying free zone persons.
g. The financial year of both persons must end on the same date.
h. Both follow the same accounting standards.
2. Tax loss transferred and to be utilised should not exceed 75% of the taxable income before such offset.
Limitation on Tax Losses Carried Forward (Article 39)
1. The same person must have at least 50% of ownership interest from the beginning of the tax period in which loss is incurred till the end of the tax period in which such loss is offset against the taxable income.
2. If there is a change in ownership interest of more than 50%, the taxable person must conduct the same or similar Business or Business Activity.
3. The limitation of 50% shall not apply if the taxable person is listed on a recognised stock exchange.
Tax Group (Article 40)
1. A Parent company can form a tax group with the other Residents if:
a. The Resident Persons are juridical persons.
b. The Parent Company owns at least 95% (ninety-five per cent) of the share capital of the Subsidiary, either directly or indirectly through one or more Subsidiaries.\
c. The Parent Company holds at least 95% (ninety-five per cent) of the voting rights in the Subsidiary, either directly or indirectly through one or more Subsidiaries.
d. The Parent Company is entitled to at least 95% (ninety-five per cent) of the Subsidiary’s profits and net assets, either directly or indirectly through one or more Subsidiaries.
e. Neither the Parent Company nor the Subsidiary is an Exempt Person.
f. Neither the Parent Company nor the Subsidiary is a Qualifying Free Zone Person.
g. The Parent Company and the Subsidiary have the same Financial Year.
h. Both the Parent Company and the Subsidiary prepare their financial statements using the same accounting standards.
2. Even the Government Company which owns at least 95% of the ownership interest, directly or indirectly can form a Tax Group.
3. Tax Group shall be dealt with as a single taxable person.
4. All the members of the tax group shall be jointly and severally responsible for the Corporate Tax payable.
5. A subsidiary can join or leave the Tax Group after the parent company and such subsidiary make an application for the same.
6. If the Parent company fails to meet the condition to form a Tax Group, the Tax Group shall cease to exist.
7. A parent company can be replaced by another parent company in the Tax Group after making an Application to the Authority.
Date of Formation and Cessation of a Tax Group (Article 41)
1. Tax Group shall be formed or a new Subsidiary shall be joined from the date as specified in the application or any other Tax Period as specified by the Authority.
2. Tax Group shall cease or Subsidiary shall leave the Tax Group from the date as specified in the application or any other Tax Period as specified by the Authority.
3. Tax Group shall cease or Subsidiary shall leave the Tax Group from the beginning of the Tax Period in which the conditions under Clause 1 of Article 40 of this Decree-Law are no longer met.
Taxable Income of a Tax Group (Article 42)
1. For computing Taxable Income, the Parent company shall consolidate the financial results, assets, and liabilities of each Subsidiary for the relevant Tax Period, eliminating transactions between the Parent Company and each Subsidiary that is a member of the Tax Group.
2. Pre-Grouping Tax Losses of Subsidiary shall be carried forward as Tax Losses of Tax Group insofar as the income is attributable to the relevant Subsidiary.
3. Unutilised losses of the Tax Group shall not be utilised to offset Taxable Income of the Tax Group insofar as this income is attributable to the new Subsidiary if the new Subsidiary joins the tax group.
4. If the Subsidiary leaves a tax group, it can take only unutilised Pre-grouping losses.
5. When the tax group cease to exist, tax losses shall be allocated to the Parent company which is still a Taxable Person.
6. Tax losses of ceased tax group shall not be allocated to the Subsidiary to offset the taxable income except for unutilised Pre-grouping losses.
7. If any member of the tax group leaves the group within 2 years of the transfer of assets or liabilities, the parent company shall not eliminate the intra-group transfers except for exempted income or any other income not taxable under this Decree-Law.
8. The eliminated taxable income between the transfer and transferee in the tax group shall be taken into account on the date of leaving the group and the cost basis shall be determined accordingly.
9. Tax Group shall prepare the consolidated financial statements as per the prescribed accounting standards.
Currency (Article 43)
1. All amounts must be quantified in the United Arab Emirates dirham.
2. Any amount quantified in another currency must be converted at the applicable exchange rate set by the Central Bank of the United Arab Emirates.
Calculation and Settlement of Corporate Tax (Article 44)
The CT due under this Decree-Law is settled in the following order:
i. First: Withholding Tax Credit
ii. Second: Foreign Tax Credit
iii. Third: Any other credits
iv. Fourth: Payment of CT
Withholding Tax (Article 45)
1. State Sourced Income derived by a Non-Resident Person shall be subject to Withholding Tax at the rate of 0% (zero per cent).
2. If such income is attributable to a Permanent Establishment of the Non-Resident Person in the State, the above Withholding Tax shall not apply.
3. The Withholding Tax payable shall be deducted from the gross amount of the payment and remitted to the Authority.
Withholding Tax Credit (Article 46)
1. Person’s Corporate Tax due under this Decree-Law can be reduced by the amount of Withholding Tax Credit for that Tax Period.
2. The maximum Withholding Tax Credit is the lower of:
a. The amount of Withholding Tax deducted.
b. The Corporate Tax due.
3. Any excess Withholding Tax Credit for a Tax Period shall be refunded to the Taxable Person.
Foreign Tax Credit (Article 47)
1. Corporate Tax due under this Decree-Law can be reduced by the amount of Foreign Tax Credit.
2. The Foreign Tax Credit cannot exceed the amount of Corporate Tax due on the relevant income.
3. Any unutilised Foreign Tax Credit cannot be carried forward or carried back.
Corporate Tax Payment (Article 48)
1. A Taxable Person must settle the Corporate Tax Payable within (9) nine months from the end of the relevant Tax Period.
Corporate Tax Refund (Article 49)
1. A Taxable Person may make an application to the Authority for a Corporate Tax refund for:
a. Excess Withholding Tax Credit of CT payable.
b. Excess Corporate Tax Paid of CT payable.
General anti-abuse rule (Article 50)
1. This Article applies to a transaction or an arrangement if it can be reasonably concluded that:
a. it is not for a valid commercial or other non-fiscal reason which reflects economic reality; and
b. the main purpose or one of the main purposes of the transaction or arrangement, or any part of it, is to obtain a Corporate Tax advantage.
2. Corporate Tax Advantage includes:
a. A refund or an increased refund of Corporate Tax.
b. Avoidance or reduction of Corporate Tax Payable.
c. Deferral of payment of Corporate Tax or advancement of a refund of Corporate Tax.
d. Avoidance of an obligation to deduct or account for Corporate Tax.
3. To determine whether this Article applies to a transaction or arrangement, the following must be considered:
a) The manner in which the transaction or arrangement was entered into or carried out.
b) The form and substance of the transaction or arrangement.
c) The timing of the transaction or arrangement.
d) The result of the transaction or arrangement.
e) Any change in the financial position of the Taxable Person that has resulted, will result, or may reasonably be expected to result, from the transaction or arrangement.
f) Any change in the financial position of another Person that has resulted, will result, or may reasonably be expected to result, from the transaction or arrangement.
g) Whether the transaction or arrangement has created rights or obligations which would not normally be created between Persons dealing with each other at arm’s length in respect of the relevant transaction or arrangement.
Tax Registration (Article 51)
1. Any Taxable Person shall register for Corporate Tax with the Authority and obtain a Tax Registration Number.
2. Authority may require an Exempt Person or the Unincorporated Partnership to register for Corporate Tax and obtain a Tax Registration Number.
Tax Deregistration (Article 52)
1. A Person with a Tax Registration Number shall file a Tax Deregistration application where there is a cessation of its Business or Business Activity, whether by dissolution, liquidation or otherwise.
2. A Taxable Person shall not be deregistered unless it has paid all Corporate Tax and Penalties due and filed all Tax Returns due up to the date of cessation.
3. On approval, the Authority shall deregister the Person for Corporate Tax purposes with effect from the date of cessation or from such other date.
Tax Returns (Article 53)
1. A Taxable Person must file a Tax Return no later than (9) nine months from the end of the relevant Tax Period.
2. The Tax Return shall include at least the following information:
i. The Tax Period
ii. The name, address and Tax Registration Number
iii. The date of submission of the Tax Return.
iv. The accounting basis used.
v. The Taxable Income
vi. The amount of Tax Loss relief claimed.
vii. The amount of Tax Loss transferred
viii. The available tax credits claimed.
ix. The Corporate Tax Payable
3. Authority may request the authorised partner in an Unincorporated Partnership that has not had an application approved to be treated as a Taxable Person to file a declaration on behalf of all the partners in the Unincorporated Partnership.
4. The Parent Company must file a Tax Return on behalf of the Tax Group.
Financial Statements (Article 54)
1. The Authority may request a Taxable Person to submit the financial statements used to determine the Taxable Income for a Tax Period.
2. The Authority may request a partner in an Unincorporated Partnership to provide financial statements showing:
i. the total assets, liabilities, income, and expenditure of the Unincorporated Partnership.
ii. the partner’s distributive share in the Unincorporated Partnership’s assets, liabilities, income and expenditures.
Transfer Pricing Documentation (Article 55)
Connected Person: Any Person affiliated with a Taxable Person as determined in Clause 2 of Article 36 of this Decree-Law.
1. The Authority may require a Taxable Person to file a disclosure containing information regarding the Taxable Person’s transactions and arrangements with its Related Parties and Connected Persons.
2. The Taxable Person must maintain both a master file and a local file.
3. The documentation above must be submitted to the Authority within (30) thirty days following a request by the Authority.
4. Taxable Person shall provide the Authority with any information to support the arm’s length nature of the Taxable Person’s transactions or arrangements with its Related Parties and Connected Persons, within (30) thirty days following the request by the Authority.
Record Keeping (Article 56)
1. Taxable Person shall maintain all records and documents for a period of (7) seven years following the end of the Tax Period.
2. Exempt Person shall maintain all records for a period of (7) seven years following the end of the Tax Period.
Tax Period (Article 57)
1. A taxable Person’s Tax Period is the Financial Year or part thereof.
2. The Financial Year of a Taxable Person shall be the Gregorian calendar year or the (12) twelve-month
Change of Tax Period (Article 58)
1. Taxable Persons can make an application to the Authority to change the start and end date of their Tax Period.
Clarifications (Article 59)
1. A Person may make an application to the Authority for a clarification regarding the application of this Decree-Law or the conclusion of an advance pricing agreement with respect to a transaction or an arrangement proposed or entered into by the Person.
Assessment of Corporate Tax and penalties (Article 60)
1. A Person may be subject to CT assessment as per the Tax Procedures Law.
2. Self-assessment: a Corporate Tax assessment may be requested by a Taxable Person.
3. Departmental Audit: a Corporate Tax assessment may be requested by the Authority.
4. The Tax Procedures Law shall determine the relevant penalties and fines relevant to the implementation of this Decree-Law.
Transitional Rules (Article 61)
1. The Opening Balance Sheet of the Tax Year in which CT is applicable is the closing Balance sheet of the previous financial year prepared as per Accounting Standards applied in the State.
2. Opening Balance Sheet shall be prepared as per Article 34 of this Decree-Law.
3. The provisions of Article 50 of this Decree-Law shall apply to transactions or arrangements entered into on or after the date this Decree-Law is published in the Official Gazette.
Revenue Sharing (Article 65)
CT revenues and penalties under this Decree-Law shall be shared between Federal and Local Governments as per the federal law issued in this regard.
International Agreements (Article 66)
To the extent the terms of an international agreement that is in force in the State are inconsistent with the provisions of this Decree-Law, the terms of the international agreement shall prevail.
Cancellation of Conflicting Provisions (Article 68)
Any text or provisions contrary to or inconsistent with the provisions of this Decree-Law shall be abrogated.
Application of this Decree-Law to Tax Periods (Article 69)
This Decree-Law shall apply to Tax Periods commencing on or after 1 June 2023.
Publication and Application of this Decree-Law (Article 70)
This Decree-Law shall be published in the Official Gazette and shall come into effect (15) fifteen days following the date of publication.
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Author:
CA Bharat Bhutani: [email protected]
CA Rishabh Agarwal (LLM- International Tax-Vienna)
Author Bio
