UAE corporate tax guide 2024: Eligibility, exemptions, new deadline – everything you need to know

Effective this year, the regime introduces a structured approach to taxing business profits, aligning the UAE with global taxation standards while maintaining its competitive edge in the region.

“As a leading jurisdiction for innovation and investment, the UAE plays a pivotal role in helping businesses grow, locally and globally. The certainty of a competitive and best-in-class Corporate Tax regime, together with the UAE’s extensive double tax treaty network, will cement the UAE’s position as a world-leading hub for business and investment. The introduction of a Corporate Tax regime will help the UAE achieve its strategic ambitions and incentivise businesses to establish and expand their activities in the UAE,” Younis Haji Al Khoori, Undersecretary of the Ministry of Finance (MoF) said, according to a statement by the UAE Ministry of Finance.

Here is a full guide to know everything about the UAE corporate tax

First and foremost, UAE corporate tax is governed by Federal Decree-Law No. 60 of 2023 Amending Certain Provisions of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.

Under the new system, corporate tax will be levied at a headline rate of 9 per cent on taxable income exceeding AED375,000.

Income below this threshold will benefit from a 0 per cent tax rate, a measure aimed at supporting small businesses and start-ups.

This two-tiered structure seeks to balance revenue generation with continued encouragement of entrepreneurship and investment.

Who is subject to UAE corporate tax?

The tax applies to both resident and non-resident entities operating in the UAE. Resident persons include companies incorporated in the UAE and foreign entities effectively managed and controlled within the country.

Natural persons will be subject to corporate tax as resident persons on income from both domestic and foreign sources, but only insofar as such income is derived from a business or business activity conducted in the UAE.

Non-resident persons such as foreign legal entities with a permanent establishment or deriving state-sourced income are also subject to the tax.

The concept of permanent establishment, based on OECD models, determines when a foreign entity has a sufficient presence in the UAE to warrant taxation of its business profits.

What is the UAE corporate tax imposed on?

According to the Ministry of Finance, “Corporate tax would generally be imposed annually, with the corporate tax liability calculated by the taxable person on a self-assessment basis. This means that the calculation and payment of corporate tax is done through the filing of a corporate tax return with the federal tax authority by the taxable person.”

The calculation of taxable income starts with the entity’s accounting income, as per their financial statements. Adjustments are then made for exempt income and non-deductible expenditures.

Who is exempt from UAE corporate tax?

Certain types of income, such as dividends and capital gains from domestic and foreign shareholdings, are exempt from the tax. This exemption aims to prevent double taxation on these income streams.

The system allows for the deduction of legitimate business expenses incurred wholly and exclusively for business purposes. However, limitations apply to specific expenditures.

For instance, entertainment expenses are only partially deductible, while bribes, fines, and penalties are not deductible at all. Interest deductions are capped at 30 per cent of earnings before interest, tax, depreciation, and amortisation, with exceptions for certain activities.

Free zone entities meeting specific criteria can qualify for a preferential 0 per cent tax rate on their qualifying income.

To be considered a Qualifying Free Zone Person, entities must maintain adequate substance in the UAE, derive qualifying income, comply with transfer pricing requirements, and not have elected to be subject to the standard business tax rates.

The UAE has also introduced a 0 per cent withholding tax on certain types of UAE-sourced income paid to non-residents.

While this effectively means no withholding tax is due, it establishes a framework that could be adjusted in the future if deemed necessary.

Tax groups in UAE corporate tax

A notable feature of the new system is the provision for tax groups. Two or more taxable persons meeting certain conditions can apply to form a tax group and be treated as a single taxable person for corporate tax purposes.

To qualify, the parent company must own at least 95 per cent of the subsidiary’s share capital, hold at least 95 per cent of the voting rights, and be entitled to at least 95 per cent of profits and net assets. Tax groups cannot include exempt persons or qualifying free zone persons.

According to the Ministry of Finance, to determine the taxable income of a tax group, the parent company must prepare consolidated financial accounts covering each subsidiary that is a member of the tax group for the relevant tax period. Transactions between the parent company and each group member and transactions between the group members would be eliminated for the purposes of calculating the taxable income of the tax group.

The corporate tax regime introduces new compliance obligations for businesses operating in the UAE.

All taxable persons, including free zone entities, are required to register for corporate tax and obtain a Corporate Tax Registration Number. The Federal Tax Authority may also request certain exempt persons to register.

Taxable persons must file a corporate tax return for each tax period within nine months from the end of the relevant period. The same deadline generally applies for the payment of any corporate tax due.

This timeline allows businesses sufficient time to prepare their financial statements and calculate their tax liability accurately.

To prepare for the implementation of corporate tax, businesses are advised to familiarise themselves with the Corporate Tax Law and supporting information available on the websites of the Ministry of Finance and the Federal Tax Authority.

Companies should determine whether they will be subject to corporate tax and from what date, understand the specific requirements for their business, including registration deadlines, accounting periods, and filing obligations.

Entities should also consider what elections or applications they may need to make for corporate tax purposes and ensure they have systems in place to maintain the necessary financial information and records.

Regular checks of the official websites for updates and guidance are recommended as the implementation date approaches.

When is the deadline for filing for UAE corporate tax?

The Federal Tax Authority (FTA) has extended the deadline for filing Tax Returns and settling Corporate Tax to December 31, 2024. This applies to short Tax Periods ending on or before February 29, 2024.

The FTA issued Decision No. 7 of 2024 for this postponement, relating to Federal Decree-Law No. 47 of 2022 on Corporate Taxation.

“We are deeply committed to taking proactive measures that benefit taxpayers. Recognising the potential challenges faced by businesses with a first Corporate Tax period shorter than a year, we have postponed the deadline by which certain taxpayers must file their Tax Return and settle their Corporate Tax Payable, to assist taxpayers in meeting their Corporate Tax obligations, especially for new businesses throughout their first Tax Periods,” Khaled Ali Al Bustani, Director-General of the FTA said, according to a statement by WAM.

The extension affects Taxable Persons incorporated, established or recognised on or after June 01, 2023, with a financial year ending on or before February 29, 2024, resulting in a first Tax Period shorter than 12 months.

For instance, a company incorporated on June 10, 2023 with a financial year ending December 31, 2023 now has until December 31, 2024 to file its Tax Return and settle Corporate Tax, instead of the previous September 30, 2024 deadline.