The United Arab Emirates (UAE) has remained a part of the Organization of Economic Co-operation and Development (OECD) and has always been committed towards improving tax transparency and effective exchange of information in international tax matters.

As a part of the OECD’s project to achieve tax transparency, Base Erosion and Profit Sharing (BEPS) Action Plans were released in 2015 to tackle double non-taxation of Multi-National Enterprises (MNEs) which were structuring business operations in a way to reduce payment of taxes in any jurisdiction. 

However, observing that BEPS 1.0 Action Plans were not apt for curtailing double non-taxation in a digitalised economy, the OECD released an Inclusive Framework (IF) statement in October 2021 introducing a two-Pillar model whereby, it was proposed that MNEs would be required to incur a minimum 15 percent corporate tax in each jurisdiction and a failure thereto, would provide the counter jurisdiction(s) a right to collect such taxes in the form and manner prescribed.

The UAE welcomed the IF statement issued by the OECD and the G20 (G20/OECD) on the IF on BEPS 2.0 with regard to laying the building blocks for a new global tax framework and joined the consensus along with 139 other countries within the OECD framework.

In its endeavour to strengthen the UAE’s position as a global hub for business and investment while honouring its commitment towards the OECD, the UAE Ministry of Finance (MoF) announced the introduction of a federal corporate tax on business profits in 2022.

This move not only establishes a more sustainable and progressive future with a stable revenue stream for the UAE government, which can be reinvested into strategic public initiatives, it also marks a new phase in empowering the private sector and the national economy, thereby advancing the country’s position as a global business and financial hub.

The UAE corporate tax regime is based on a set of internationally accepted principles to ensure efficiency, fairness, transparency and predictability in the design and execution. The key principles are:

- Flexibility and alignment with modern business practice

- Certainty and simplicity

- Neutrality and equity

- Transparency

UAE corporate tax law – An overview

The UAE corporate tax regime has come into effect for financial years beginning on or after 1 June 2023. Under the UAE corporate tax law, tax will be payable on profits of UAE businesses as reported in their financial statements, prepared in accordance with internationally acceptable accounting standards (i.e., IFRS), with minimal exceptions and adjustments. 

The UAE corporate tax law comprises of 20 chapters and 70 articles, covering, inter alia, the scope of tax, its application, and rules pertaining to compliance and administration of the UAE corporate tax regime.

The UAE corporate tax law applies to all business and commercial activities carried out by a natural person or a juridical person – divided into resident and non-resident persons.

Below is a summary of Taxable Persons under UAE corporate tax law:

Resident Person	Non-resident Person
Legal persons incorporated in UAE (UAE corporate tax applies on worldwide income).	Foreign entities taxed on UAE sourced income – defined to include income for which goods/ services are benefitted/ consumed in UAE.
Natural persons undertaking ‘business or commercial activity’ – Business Activities defined to exclude salary or wages, investment income and real estate income provided such income is not earned under a Trade License and a Trade License is not required to earn such income.	Permanent Establishment (PE) of foreign entities on income attributed to UAE – includes a Fixed Place PE, Service PE and Agency PE.
Foreign entities ‘effectively managed and controlled’ from UAE – Deemed to be tax resident in UAE.	Non-residents having business ‘nexus’ in UAE – defined to include only income from immovable property in UAE.

It is pertinent to note that all natural persons carrying on business or business activities and all juridical persons (whether categorised as resident juridical persons or non-resident juridical persons) would be required to obtain a registration under UAE corporate tax law and there are no exceptions provided other than, non-juridical persons who merely have state sourced income in UAE and do not have a permanent establishment in UAE.

UAE corporate tax law does provide for categories of “exempt persons” as under (subject to conditions): 

- UAE government entity

- UAE government controlled entity

- Person engaged in an extractive business in the UAE

- Person engaged in a non-extractive natural resource business in the UAE

- Qualifying public benefit entity

- Qualifying investment fund

- Public pension or social security fund, or a private pension or social security fund that is subject to regulatory oversight of the competent authority in the state and that meets any other conditions that may be prescribed by the Minister

- Juridical person incorporated in the state that is wholly owned and controlled by certain exempt persons

- Any other person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister.

UAE corporate tax law categorizes certain taxable persons wherein incentives/ beneficial provisions apply. Such categories of persons are as follows:

- Qualifying Free Zone Persons (QFZP) – Persons who are incorporated or otherwise registered in a free zone, subject to certain conditions.

- Small businesses – Businesses where gross revenues of previous year do not exceed AED 3 million. Fiscal unity within a group of companies – There are two types of fiscal unity possible under UAE corporate tax law – Forming a tax group or/and a qualifying group.

UAE corporate tax is applicable at the following rates:

Category of persons Taxable Persons (including tax groups)	Taxable Income Taxable income up to AED 375,000 Taxable income above AED 375,000	UAE corporate tax rates 0% 9%
QFZP	Qualifying income Taxable income that is not Qualifying income	0% 9%
Small businesses	If gross revenues of previous year do not exceed AED 3m If gross revenues exceed AED 3m	0% Same as taxable person

In addition to the aforesaid rates, to comply with BEPS Pillar Two regulations, FAQs issued by the MoF state that UAE has committed to a framework to adopt the Pillar Two rules. However, until such time as the Pillar Two rules is adopted by the UAE, MNCs will be taxable under the regular UAE corporate tax regime i.e., rates prescribed above.

Given the above, it important to determine the impact of such business taxes on MNCs operating in UAE.

Separately, it is also pertinent to note that UAE corporate tax law has robust transfer pricing regulations following the OECD guiding principles and general anti-avoidance rules to mitigate artificial re-structuring/ transaction(s)/ arrangement(s) to avail tax benefits in UAE.

Compliances under UAE corporate tax law

Under UAE corporate tax law, taxable persons are mandated to file corporate tax returns within nine months from the end of a tax year. In addition to the above, UAE corporate tax law provides for withholding tax provisions on certain categories of domestic and foreign payments. However, presently such withholding tax would be levied at zero percent and there are no withholding tax filings prescribed.

Conclusion

The introduction of corporate tax in the UAE logically follows from the UAE’s role as a member of the OECD IF, particularly in light of discussions on global minimum tax proposed by BEPS Pillar Two. The proposed tax rate of nine percent still remains highly competitive in comparison to other tax jurisdictions.

In addition, it is evident that the UAE corporate tax law is based on well-recognised and practiced international principles and best practices, making the cost and process of implementing the law relatively efficient for businesses subject to similar regimes in other jurisdictions.

The law seemingly also incorporates and maintains distinct tax benefits committed by the UAE regulatory authorities, for example, QFZP benefits. Inevitably, different businesses might want to reconsider corporate holding structures in order to avail bonafide tax benefits under the law.