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UAE CT will be applicable across all Emirates and will apply to all business and commercial activities alike, except for the extraction of natural resources, which will continue to be subject to Emirate level taxation.
UAE CT will be applicable at the following rates:
|Taxable income||UAE CT rate|
|Taxable income not exceeding AED 375,000||0%|
|Qualifying Income of a Qualifying Free Zone Person||0%|
|Taxable income exceeding AED 375,000||9%|
|Non-Qualifying Income of a Qualifying Free Zone Person||9%|
Free Zone businesses are within the scope of UAE CT and are required to register and file a CT return, but will now have two categories of income for CT purposes - i) Qualifying income subject to CT at 0% and ii) Non-qualifying income subject to CT at 9%.
Certain categories of taxpayers such as Government entities, Government controlled entities, entities engaged in extractive business, public benefit entities, investment funds are exempt from UAE CT subject to specified conditions.
The CT Law also includes relief for small businesses whereby a small business may elect to be treated as not having derived Taxable Income for a Tax Period.
Under the UAE CT law, tax is paid on the accounting net profit reported in the financial statements of the business, subject to certain exceptions and adjustments. The CT law also provides for a limitation on the deductibility of interest. Tax losses incurred from the CT effective date would be carried forward to offset taxable income in future financial periods.
UAE CT will not apply to the following income streams
Employment income, income from real estate, income from savings, investment returns and other income earned by individuals in their personal capacity that is not attributable to a UAE trade or business.
The following incomes are exempt from UAE CT
Dividends and other profit distributions from a UAE resident person
Dividend and other profit distributions received from a Participating Interest in a foreign juridical person capital gains
The following incomes are exempt from UAE CT subject to satisfying participation exemption conditions
Dividends and other profit distributions received from a foreign Participation
Gains or losses on the transfer, sale, or other disposition of a Participating Interest
Domestic and cross border payments of interest, dividends, royalties and other payments will not attract a withholding tax in the UAE, and a foreign tax credit may be available for taxation incurred by UAE businesses on income earned outside the UAE.
Under the UAE CT law, a return has to be filed electronically for each financial period within 9 months from end of the financial year without a requirement for advance UAE CT payments on the basis of provisional tax returns.
UAE group companies can form a tax group and file a single tax return for the entire group, and transfer tax losses to other members of the group.
The UAE CT regime has introduced transfer pricing rules and documentation requirements in line with the OECD Transfer Pricing Guidelines. The Federal Tax Authority is responsible for the administration, collection and enforcement of CT.
The CT Law does not provide any guidance on the application of Pillar Two in a domestic context. However, the Corporate Tax FAQs indicate that multinationals will be subject to CT under the regular UAE CT regime until the UAE adopts the Pillar Two rules. It is expected that the UAE will adopt a minimum 15% CT rate or a Qualified Domestic Minimum Top Up Tax for MNEs.