LATEST UAE CORPORATE TAX (CT) – PUBLIC CONSULTATION DOCUMENT UPDATE

The Ministry of Finance published a digital public consultation providing an overview of the Corporate Tax Law on their website. The business community in the UAE and other interested parties generated their feedback regarding the Corporate Tax implementation that took effect by 1 June 2023.  This is part of the UAE government’s initiative to increase the level of transparency and design a structure which addresses the possible challenges by UAE businesses.

HIGHLIGHTS OF THE UAE CORPORATE TAX (CT) PUBLIC CONSULTATION DOCUMENT

A free zone company with a branch in UAE mainland is taxed at the regular CT rate only for its mainland sourced income.

• Where a free zone person transacts with mainland UAE but does not have a mainland branch, the free zone person can continue to benefit from the 0% CT rate if its income from mainland UAE is limited to ‘passive’ income. This would include interest and royalties, and dividends and capital gains from owning shares in mainland UAE companies.
• The 0% CT regime will apply to transactions between free zone businesses and their group companies located in mainland UAE. However, to ensure the CT neutrality of such transactions, payments made to the free zone person by a mainland group company will not be a deductible expense.
• A free zone person located in a designated zone for Value Added Tax (VAT) purposes can benefit from the 0% CT rate on income from the sale of goods to UAE mainland businesses that are the importer of record of those goods.
• To prevent free zone businesses from gaining an unfair competitive advantage compared to businesses established in mainland UAE, any other mainland sourced income will disqualify a free zone person from the 0% CT regime in respect of all their income.
• The proposed UAE CT regime will cap the amount of net interest expense that can be deducted to 30% of a business’ earnings before interest, tax, depreciation, and amortisation (EBITDA), as adjusted for CT purposes.
• Businesses will be able to offset a loss incurred in one period against the taxable income of upcoming periods up to a maximum of 75% from the future period’s taxable income. 
• A group of companies which are resident in the UAE can elect to form a tax group and be treated as a single taxable person if the parent company holds at least 95% of the share capital and voting rights of its subsidiaries. 
• Tax group formation requires that neither the parent company nor any of the subsidiaries can be an exempt person or a free zone person that benefits from 0% CT rate. Additionally, all group members must use the same financial year. 
• A requirement for availing group loss relief includes a condition that the UAE group companies are at least 75% commonly owned and will not be allowed loss transfers from companies that are exempt or benefit from a free zone 0% CT rate. 
• Intra-group transfer relief will be available for transfers of assets and liabilities between UAE resident companies that are at least 75% commonly owned. This is provided that the assets and/or liabilities being transferred remain within the same group for a minimum of three years. 
• Businesses need to maintain a master & local file whenever the arm’s length value of their related party transactions exceeds a certain threshold in the relevant tax period. The file should be in the proper format and consistent with the requirements prescribed under OECD BEPS Action 13.
• Tax returns will need to be submitted to the Federal Tax Authority (“FTA”) within nine (9) months before the end of the relevant tax period. 
• CT liabilities need to be settled within nine (9) months before the end of the relevant tax period. 
• The first CT filing and payment deadlines for businesses with financial year ending 31 December 2024 will be 30 September 2025.

TAKEAWAY

There is much work and preparation that needs to be prepared before the implementation of Corporate Tax in Dubai, Abu Dhabi & the UAE. It is best to be equipped and plan regarding such matters to have a smooth transition for UAE business operations. For more information regarding how Creation can guide you in detailed steps to accomplish and have an overview of the UAE Corporate Tax Implementation Guidelines, contact us via email [email protected] or call +971 4 878 6240 for a free consultation with our tax team.

For more information, you can watch Creation Business Consultants’ recent UAE Corporate Tax webinar:

Scott Cairns,
Managing Director