Frequently Asked Questions (FAQs)

Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses. Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.

Natural persons and juridical persons:
  • 0% for Taxable Income up to and including AED 375,000.
  • 9% for Taxable Income exceeding AED 375,000.

Qualifying Free Zone Persons :
  • 0% on Qualifying Income.
  • 9% on Taxable Income that is not Qualifying Income as specified in Cabinet Decision No. 55 of 2023.

Taxable entities must maintain financial statements to compute their Taxable Income and retain all relevant documents and records backing the information submitted in the Corporate Tax Return or any other filings with the Authority. Exempt entities should uphold records validating their exempt status.

The obligation to arrange and uphold audited financial statements applies to the following entities:
Taxable entities with Revenue surpassing AED 50 million in the applicable Tax Period.
Qualifying Free Zone Entities.

The penalties for non-compliance with corporate tax regulations in the UAE include:

No.	Violation Description	Administrative Fine/Penalty in AED
1	If necessary, information and records are not maintained as per Corporate Tax and Tax Procedures Law, there may be penalty/fine of AED 10,000 per violation	For each violation AED 10,000 and More than 20,000 AED for multiple violations within a 24-month period
2	Not providing information, records, and paperwork in Arabic as requested by the Authority	AED 5,000
3	Failure to submit the deregistration application by the deadline; a fine of AED1,000 each month, up to AED10,000	AED 1,000 each month, up to AED 10,000
4	Failure to notify the Authority of any case necessitating updating tax records	AED1,000 for each infraction, More than AED 5,000 for multiple infractions over a 24-month period
5	The Legal Representative's failure to announce their appointment	AED 1,000 (from personal funds of the Legal Representative)
6	The Legal Representative's failure to timely file a tax return	500 AED for each month throughout the first 12 months and AED 1,000 monthly after 1st year (from the funds of Legal Representative)
7	Failure in filing an income tax return on time	AED 500 for the first 12 months AED 1,000 for each month after the 13th months
8	Not paying the payable taxes	A 14% annual monthly penalty on the outstanding amount of payable taxes, beginning the day after the payment deadline
9	Filing an inaccurate Tax Return	AED 500, if it isn't amended by the deadline
10	Filing a voluntary disclosure regarding mistakes in a tax return, tax assessment, or application for a refund	A one percent monthly penalty on the tax difference, beginning the day after the applicable tax return, tax refund application, or tax assessment deadline
11	Failure to submit a voluntary disclosure knowingly about an audit	1 percent monthly fine imposition in case of Tax Difference, applicable from the filing of refund application, Tax Return, or from the date of Tax Assessment, additional fine of 15% may be imposed on the Difference of Tax
12	Not providing the Tax Auditor with facilitation	AED 20,000 (from the money of the Person, Legal Representative, or Tax Agent, as appropriate)
13	Not submitting, or submitting a Declaration	AED 500 after the deadline for each of the first twelve months AED 1,000 for every month starting in the thirteenth month
14	Not submitting the corporate tax registration application by the deadline	AED 10,000

Expenses incurred in the course of generating Taxable Income in business are deductible, with exceptions and limitations outlined in the Corporate Tax Law. Deduction timing may vary based on expense types and accounting methodologies employed. Expenditure on capital assets is usually recognized through depreciation or amortization deductions spread over the asset's economic lifespan or benefit period.

For expenses serving dual purposes, such as those for both personal and business use, apportionment is necessary. The relevant portion allocable to the business purpose is treated as incurred solely for the Taxable Person's business.

The UAE, as a participant in the OECD BEPS Inclusive Framework, is dedicated to tackling international tax jurisdiction challenges. Introducing a Corporate Tax regime provides the UAE with a structure to adopt Pillar Two rules.

Until the adoption of Pillar Two rules by the UAE, multinationals will remain subject to Corporate Tax under the standard UAE Corporate Tax regime.

A natural person becomes liable for UAE Corporate Tax if their annual turnover from a 'Business' or 'Business Activity' in the UAE exceeds AED 1 million, as defined by the Corporate Tax Law and Cabinet Decision No. 49 of 2023.

A natural person is liable for UAE Corporate Tax if they engage in any business or business activity that generates an annual turnover surpassing AED 1 million. However, certain income sources, not classified as businesses or business activities, are exempt from this requirement. These include:
  • Employment income
  • Personal investment income
  • Real estate investment income.

The taxable income of a natural person encompasses all income derived from the business or business activity conducted within the UAE. This includes income earned abroad if it's associated with the business or business activity conducted by the natural person within the UAE.

A natural person subject to Corporate Tax can choose to apply for Small Business Relief provided they satisfy the conditions outlined in Ministerial Decision No. 73 of 2023.

A 'juridical person' refers to an entity established or officially acknowledged under the laws and regulations of the UAE or a foreign jurisdiction, possessing a distinct legal identity apart from its creators, proprietors, and managers. Examples of domestic juridical entities in the UAE encompass a limited liability company, a foundation, an 'onshore' trust, a public or private joint-stock company, and other entities endowed with independent legal status under relevant UAE 'mainland' legislation or Free Zone regulations.

Whereas, branches of UAE-based or foreign juridical entities within the UAE are viewed as extensions of their 'parent' or 'head office,' and hence, they do not possess autonomous juridical personality.

Separate legal personality denotes that an entity possesses its own distinct rights, obligations, and liabilities. Consequently, the owners of such an entity typically enjoy limited liability concerning the entity's debts and obligations.

All activities conducted by a juridical person are considered 'Business Activities' and are thus encompassed within the scope of UAE Corporate Tax, unless expressly exempted.

Assessment of this status must be done on a case-by-case basis, considering factors such as the location where key decision-makers, like directors, make strategic decisions impacting the juridical entity.

Yes, however, dividends from domestic shareholdings are unconditionally exempt, and dividends from foreign shareholdings as well as capital gains from both domestic and foreign shareholdings are exempt, contingent upon meeting Participation Exemption criteria.

No, but natural persons operating a Business in the UAE through a sole proprietorship or civil company may be subject to Corporate Tax if engaged in relevant Business or Business Activities.

The following Persons are automatically exempted from UAE Corporate Tax:
  • The UAE Federal and Emirate Governments and their departments, authorities and other public institutions
  • Companies wholly owned and controlled by a Government Entity that carry out a Mandated Activity, and that are listed in a Cabinet Decision
  • Businesses engaged in the extraction of UAE Natural Resources or related non-extractive activities that are subject to Emirate-level taxation, subject to meeting certain conditions; and
  • Qualifying Public Benefit Entities that are listed in Cabinet Decision No. 37 of 2023 or any subsequent relevant decisions.

The following Persons are exempted from UAE Corporate Tax upon approval of an application submitted to the Federal Tax Authority:

  • Qualifying Investment Funds that meet the prescribed conditions
  • Public or private pension or social security funds that meet the conditions specified in Ministerial Decision No. 115 of 2023 and
  • UAE juridical persons that are wholly-owned and controlled by certain exempted entities and undertaking activities specified in paragraph (h) of Clause 1 of Article 4 of the Corporate Tax Law.

Entities eligible to qualify as Public Benefit entities must be legal entities. This encompasses incorporated companies, foundations, and trusts that possess distinct legal personalities. These entities must be established and operated exclusively to promote social welfare or public benefit and must meet other criteria outlined in the Corporate Tax Law.

A private pension fund is established to manage pension contributions and provide payments to retired individuals above a specified retirement age.

A private social security fund is created by a private employer to provide statutory end-of-service gratuity payments to employees.

Public pension and social security funds in the UAE are exempt from Corporate Tax upon approval by the Federal Tax Authority.

Income exemption applies solely to private pension funds or private social security funds generated from investments and deposits held for the benefit of pension plan members or end-of-service gratuity payment beneficiaries. This limitation aims to prevent these funds from being exploited to evade Corporate Tax through commercial activities taxable in the UAE.

Contributions to a private pension fund or private social security fund are not restricted, but for Corporate Tax deduction purposes, contributions are only deductible up to 15% of each employee’s total remuneration.

An Exempt Person, such as a Qualifying Investment Fund, public pension or social security fund, or a legal entity wholly owned and controlled by an Exempt Person, must first register for Corporate Tax. Subsequently, they must submit an application to the Federal Tax Authority for approval, meeting the conditions stipulated in the Corporate Tax Law or relevant implementing Decisions. However, certain entities such as Government Entities, Government Controlled Entities, and others specified by Cabinet Decisions are exempt from this requirement.

Private pension funds or private social security funds seeking exemption from Corporate Tax must have their annual financial statements audited by a licensed auditor. The auditor's role is to verify the fund's compliance with the conditions for exemption from Corporate Tax.

Transfer pricing regulations aim to ensure that transactions between Related Parties adhere to arm's length principles, simulating transactions between independent entities. This measure prevents the manipulation of Taxable Income by mandating that transactions with Related Parties and Connected Persons be valued based on their 'Market Value' as per various provisions of the Corporate Tax Law.

Transfer pricing regulations apply to UAE businesses engaging in transactions with Related Parties and Connected Persons, regardless of their location, whether within the UAE mainland, Free Zones, or foreign jurisdictions.

Related Parties typically include relatives of a natural person and companies wherein the natural person, alone or with their Related Parties, holds a controlling ownership interest, typically 50% or more of shares.

Similarly, for companies, Related Parties refer to other companies where the company, alone or with their Related Parties, holds a controlling ownership interest, typically 50% or more of shares, or shares greater than 50% common ownership.

Connected Persons differ from Related Parties and include:
The owner of the business.
Directors or officers of the business.
Related Parties of the aforementioned individuals.

Taxable Persons are generally required to use one or more of the following methods:
  • Comparable uncontrolled price method
  • Resale price method
  • Cost-plus method
  • Transactional net margin method
  • Transactional profit split method

Businesses must maintain information regarding transactions with Related Parties and Connected Persons. Some may need to submit this information with their Tax Returns. However, businesses eligible for Small Business Relief are exempt from these rules.

Businesses must ensure compliance with arm's length principles for all transactions with Related Parties and Connected Persons.

Generally, transactions within a Tax Group are eliminated in financial consolidation. However, specific cases may require transfer pricing compliance, such as pre-Grouping Tax Losses or individual Tax Group member calculations.

The fourth degree of kinship includes relatives separated by several generations, such as great-great-grandparents or great-great-grandchildren, and first cousins.

A master file provides an overview of a Multinational Enterprise Group’s business, while a local file offers detailed information on specific transactions with Related Parties.

These documents ensure proper consideration of transfer pricing and provide support for compliance with the arm’s length principle.

A Taxable Person must maintain these files if their revenue exceeds AED 200 million or if they are part of a Multinational Enterprise Group with significant revenue.

The arm’s length principle applies to all transactions with Related Parties or Connected Persons from the outset.

UAE resident companies meeting ownership and other conditions can form a Tax Group.

With an intermediary UAE parent company, foreign subsidiaries can form a Tax Group.

Only if effectively managed and controlled in the UAE and considered a UAE tax resident.

The threshold applies to the Tax Group collectively.

The Parent Company of the Tax Group handles administration and payment of Corporate Tax on behalf of the group.

Financial Statements must be consolidated to determine the Taxable Income of the group.

Ownership requirements must be continuously met throughout each Tax Period.

A Tax Group can only include companies resident in the UAE for Corporate Tax purposes.

They will be treated as leaving the Tax Group from the start of the Tax Period in which they become tax resident elsewhere.

Businesses engaged in the extraction of the UAE’s Natural Resources and in the non-extractive aspects of the Natural Resources value chain that are subject to Emirate-level taxation will be outside the scope of the UAE Corporate Tax regime, subject to certain conditions and safeguards as specified in Article 7 and Article 8 of the Corporate Tax Law, respectively.

UAE headquartered banks and UAE branches of foreign banks will be subject to UAE Corporate Tax.

Businesses engaged in real estate management, construction, development, agency and brokerage activities will be subject to UAE Corporate Tax.

The asset management and broader financial services sectors will be subject to UAE Corporate Tax, although investment funds that meet certain conditions can apply to be exempt from UAE Corporate Tax. Further, under the Investment Manager Exemption, UAE based and regulated fund managers and other Investment Managers can perform discretionary asset / investment management services without creating a taxable presence in the UAE for their foreign clients.

Income earned by foreign operators of aircrafts and ships will be exempt from UAE Corporate Tax in respect of:

  • providing international transportation of passengers, livestock, mail, parcels, merchandise or goods by air or by sea
  • leasing or chartering aircrafts or ships used in international transportation or
  • leasing or chartering equipment which are integral to the seaworthiness of ships or the airworthiness of aircrafts used in international transportation.

This exemption would only apply where the country of the foreign airline or shipping company would grant a similar exemption to UAE operators of aircrafts and ships.

For UAE Corporate Tax purposes, Resident Persons include entities incorporated in the UAE, such as Limited Liability Companies, Private Joint Stock Companies, Public Joint Stock Companies, and other UAE juridical persons. Additionally, natural persons engaged in Business or Business Activities within the UAE are considered Resident Persons for UAE Corporate Tax.

Under the Corporate Tax Law, Non-Resident Persons comprise juridical entities incorporated in foreign countries, effectively managed and controlled outside the UAE. Similarly, natural persons not involved in taxable Business or Business Activities within the UAE are classified as Non-Resident Persons for UAE Corporate Tax purposes.

UAE resident juridical persons are subject to UAE Corporate Tax on income derived from both local and international sources. However, certain income earned through foreign subsidiaries and foreign branches, subject to taxation elsewhere, is generally exempt from UAE Corporate Tax.

Non-Resident Persons are only liable for UAE Corporate Tax on income attributable to their Permanent Establishment in the UAE, income linked to a nexus in the UAE per Cabinet Decision No. 56 of 2023, and income sourced within the UAE, subject to a 0% Withholding Tax.

Taxable Income for a Tax Period is the accounting net profit (or loss) of the business, adjusted for specific items outlined in the Corporate Tax Law and relevant implementing decisions. This net profit (or loss) is based on financial statements prepared in accordance with International Financial Reporting Standards (IFRS). Adjustments include accounting for unrealized gains and losses, exempt income, gains or losses from transfers within a Qualifying Group, deductions disallowed for Corporate Tax purposes, transactions with Related Parties, tax incentives, and any other adjustments specified by the Minister.

Small businesses with revenues of AED 3 million or less in both the current and previous Tax Periods can opt for 'Small Business Relief' until December 31, 2026. This relief exempts them from being treated as having taxable income during the relevant Tax Period and simplifies their compliance obligations. To claim this relief, businesses must elect for it in their Corporate Tax Return for the respective Tax Period.

Small Business Relief' exempts eligible businesses from calculating and paying Corporate Tax and relieves them from standard Corporate Tax reporting requirements. Businesses with revenues of AED 3 million or below in the relevant Tax Period and prior periods, ending on or before December 31, 2026, can elect not to treat their income as taxable for that period, thus avoiding the need to calculate taxable income or file a full Corporate Tax Return.

Refer to question 66, 'Who is eligible to claim Small Business Relief for UAE Corporate Tax purposes?', for further details on eligibility.

If a business's revenue surpasses AED 3 million in any Tax Period, it becomes ineligible for Small Business Relief for that period and all future periods.

Until December 31, 2026, any of the following UAE Resident Persons with revenues not exceeding AED 3 million in both the current and previous Tax Periods can claim Small Business Relief:
Natural persons.
Legal entities that are not:
Constituent Companies of a Multinational Enterprise Group operating in multiple countries with a total consolidated group revenue exceeding AED 3.15 billion in each financial period, as defined in Cabinet Decision No. 44 of 2020.
Qualifying Free Zone Persons.
  • If an eligible entity's revenue exceeds AED 3 million in any Tax Period, it becomes ineligible for Small Business Relief for that period and all future periods.

Revenue refers to the total income generated in a Tax Period from sales of inventory and properties, provision of services, royalties, interest, premiums, dividends, and any other earnings, before deducting any expenses. In the context of income from sales of goods or services, it represents gross revenue without deducting the cost of goods sold or services provided.

For businesses with annual revenues of AED 3 million or less, they can opt for Small Business Relief until December 31, 2026, provided they meet other relevant conditions. In such cases, the business is treated as having no taxable income, and hence no Corporate Tax is payable.

If a Taxable Person with taxable income of AED 1 million is ineligible for or chooses not to opt for Small Business Relief, the Corporate Tax liability is calculated as follows:

Taxable income up to AED 375,000 is taxed at 0%: AED 375,000 x 0% = AED 0.

Taxable income exceeding AED 375,000 is taxed at 9%: (AED 1,000,000 – AED 375,000) = AED 625,000 x 9% = AED 56,250.

Hence, the UAE Corporate Tax liability for the Tax Period would be AED 0 + AED 56,250 = AED 56,250. This liability can be further reduced by available tax credits.

Eligible Taxable Persons can elect for Small Business Relief in their Corporate Tax Return.

My revenue for the current Tax Period is below AED 3 million, but it exceeded AED 3 million in the previous Tax Period – am I eligible for Small Business Relief?

No, once your revenue surpasses AED 3 million in a Tax Period, you become ineligible for Small Business Relief for both the current and future Tax Periods.

Note that the AED 3 million threshold for Small Business Relief applies to Tax Periods ending on or before December 31, 2026

Yes, you can. As long as your revenue didn't surpass AED 3 million in previous tax periods, you can elect for Small Business Relief for the current tax period, provided you fulfill all relevant conditions

Businesses opting for Small Business Relief can benefit from various compliance reliefs apart from not having taxable income.

Businesses availing Small Business Relief won't need to file transfer pricing documentation. This exemption covers both the obligation to submit a transfer pricing information disclosure form with a tax return and the necessity to maintain a master file and a local file. However, businesses must still adhere to transfer pricing regulations, ensuring transactions with related parties adhere to the arm’s length principle

The Free Zone Corporate Tax regime within the UAE offers a form of tax relief to Free Zone entities and branches meeting specific criteria, granting them a favorable 0% Corporate Tax rate on income generated from qualifying activities and transactions.

Qualifying Free Zone Persons enjoy a 0% Corporate Tax rate on their taxable income from Qualifying Activities and transactions with other Free Zone Persons, unless such income stems from an Excluded Activity. If a Qualifying Free Zone Person operates beyond the Free Zone through a Permanent Establishment in mainland UAE or abroad, the attributable profits to such Establishment are subject to the UAE Corporate Tax rate of 9%. To prevent double taxation of foreign Permanent Establishment profits, relief is provided under the UAE's extensive double tax treaty network.

Qualifying Income, eligible for the 0% Corporate Tax rate, encompasses income derived from transactions with other Free Zone Persons, as well as domestic and foreign sourced income from specified 'Qualifying Activities.' It excludes income from 'Excluded Activities' outlined in relevant Ministerial Decisions.

A Designated Zone is a Free Zone recognized for UAE VAT purposes. Qualifying Free Zone Persons can benefit from the 0% Corporate Tax rate on income from wholesale distribution activities originating from a Designated Zone to domestic and foreign businesses.

Qualifying Activities cover various sectors such as manufacturing, processing, holding of shares, ship operation, reinsurance, fund and wealth management, among others. These activities benefit from the Free Zone Corporate Tax regime irrespective of transaction parties.

The Corporate Tax Law delineates between unincorporated and incorporated partnerships.
Unincorporated Partnerships' (as defined by the Corporate Tax Law) represent a contractual bond between two or more individuals, rather than constituting a separate legal entity distinct from its partners/members. Unincorporated Partnerships are deemed 'transparent' for UAE Corporate Tax purposes. This implies that an Unincorporated Partnership is not individually subject to UAE Corporate Tax. Instead, each partner is liable for UAE Corporate Tax based on their portion of the income derived from the partnership's activities

.Incorporated partnerships encompass limited liability partnerships, partnerships limited by shares, and other partnership models where none of the partners carry unlimited liability for the partnership's obligations or the actions of other partners. Such partnerships are subject to Corporate Tax akin to corporate entities.

An Unincorporated Partnership arises through a contractual agreement between two or more individuals, such as a partnership or trust, under UAE legislation.

A written agreement is not obligatory. An Unincorporated Partnership may arise from a verbal agreement or the conduct between involved parties.

Unless an application is submitted for independent Taxable Person status, an Unincorporated Partnership will be treated as tax transparent.

Consequently, the Unincorporated Partnership itself will not be subject to Corporate Tax. Instead, individual partners will be taxed based on their share of the partnership's income.

Income and expenses of the tax-transparent Unincorporated Partnership are allocated to each partner proportionally based on their distributive share in the partnership. This distribution typically aligns with the partnership contract. When a partner's distributive share cannot be identified, allocation follows guidelines set by the Federal Tax Authority.

A minimum of two partners is required, with no maximum limit.

Partners in an Unincorporated Partnership can apply to the Federal Tax Authority for independent Taxable Person treatment. Upon approval, the partnership's profits will be directly taxed, rather than passing through to individual partners. This application is generally irreversible, except under extraordinary circumstances subject to Federal Tax Authority approval.

Individuals involved in a Business or Business Activity through an Unincorporated Partnership are individually subject to UAE Corporate Tax on their share of partnership income. Hence, partners in such partnerships must register for UAE Corporate Tax and fulfill Corporate Tax Law obligations.

Partners in an Unincorporated Partnership can petition the Federal Tax Authority to treat the partnership as a distinct Taxable Person for UAE Corporate Tax purposes. Upon approval, one partner is designated responsible for filing Corporate Tax Returns on behalf of the partnership.

Juridical persons involved as partners in Unincorporated Partnerships, already registered for Corporate Tax as Resident or Non-Resident Persons, do not require additional Corporate Tax Registration.

For UAE Corporate Tax purposes, Foreign Partnerships are typically considered Unincorporated Partnerships if they meet specific criteria, including non-tax status in their respective foreign jurisdiction.

While conceptually different—a Foreign Partnership is established in a foreign jurisdiction, while an Unincorporated Partnership is formed under UAE laws—a Foreign Partnership can be treated as an Unincorporated Partnership for UAE Corporate Tax purposes, given it satisfies certain conditions.

Entities subject to taxation should maintain financial statements to calculate Taxable Income. All documents supporting information in the Corporate Tax Return or any other filings with the Authority must be retained.

Exempt entities should also maintain records substantiating their exempt status.

Records and documents must be kept for 7 years after the relevant Tax Period ends.

No, unless the group consists solely of UAE resident entities forming a Tax Group with necessary adjustments. Otherwise, each UAE entity subject to Corporate Tax must maintain standalone financial statements.

Entities meeting any of the following criteria must prepare and maintain audited financial statements:

Taxable Persons with Revenue exceeding AED 50 million during the relevant Tax Period.

Financial statements must undergo auditing by a registered auditor in compliance with relevant legislation.

No, there's currently no such obligation.

No, audited Financial Statements cannot be replaced with 'certified' ones.

If a Tax Group's Revenue exceeds AED 50 million in a Tax Period, their financial statements must be audited.

The Authority may request Financial Statements to be submitted following prescribed guidelines.

Income, deductions, and credits are measured in UAE Dirhams. Foreign currency transactions are translated into UAE Dirhams.

All amounts are converted to UAE Dirhams based on the Central Bank of the UAE's applicable exchange rate at the time of translation, as directed by the Federal Tax Authority.

As a member of the OECD BEPS Inclusive Framework, the UAE is dedicated to addressing international tax jurisdiction challenges. Introducing a Corporate Tax regime provides the UAE with a framework to adopt Pillar Two rules.

Until the adoption of Pillar Two rules, multinationals will be subject to Corporate Tax under the regular UAE Corporate Tax regime.

A multinational corporation operates in its home country and other countries through subsidiaries, branches, or other forms of presence/registration. Merely earning foreign-sourced income without a foreign presence or registration doesn't classify a business as a multinational corporation.

Regarding the global minimum effective tax rate proposed under 'Pillar Two' of the OECD Base Erosion and Profit Shifting project, 'large' refers to a multinational corporation with consolidated global revenues exceeding the UAE Dirham equivalent of EUR 750 million.

A Family Foundation, as defined in the UAE Corporate Tax Law, is an entity like a foundation or trust employed to safeguard and manage an individual's or family's assets and wealth.

The primary role of a Family Foundation typically involves receiving, holding, investing, disbursing, or managing funds and assets associated with savings or investment for individual beneficiaries or charitable purposes. Such activities generally do not constitute a 'Business' or 'Business Activity' for UAE Corporate Tax purposes if undertaken directly by the founder, beneficiary, or any other natural person.

Family Foundations (including certain trusts) possess independent legal status and are prima facie subject to UAE Corporate Tax. However, they can apply to be treated as transparent Unincorporated Partnerships for UAE Corporate Tax purposes, thereby preventing the foundation's income from attracting UAE Corporate Tax.

Other types of trusts, such as those established in DIFC or ADGM, lack separate legal personality and are treated as transparent vehicles for UAE Corporate Tax purposes.

Yes, a Family Foundation can apply for Unincorporated Partnership treatment to enjoy tax transparency. If the Family Foundation is not treated as a separate Taxable Person, Corporate Tax liability flows to the beneficiaries, subject to specific conditions.

To be recognized as an Unincorporated Partnership, the Family Foundation must:

Meet conditions outlined in Article (17) of the Corporate Tax Law and Ministerial Decision No. 127 of 2023.
Submit an application to the Federal Tax Authority for Unincorporated Partnership treatment.

Yes, beneficiaries of a Family Foundation treated as an Unincorporated Partnership are considered partners and individual Taxable Persons for Corporate Tax purposes.

Natural person beneficiaries of a Family Foundation treated as an Unincorporated Partnership are individually subject to UAE Corporate Tax. Hence, they must register for UAE Corporate Tax if engaged in a Business or Business Activity and comply with Corporate Tax Law requirements.

Public benefit entities not designated as Qualifying Public Benefit Entities are subject to Corporate Tax under the Corporate Tax Law, even if they are beneficiaries of a Family Foundation.

Income received from the Family Foundation by Non-Resident Persons may be subject to UAE Corporate Tax in accordance with Article (12) of the Corporate Tax Law and Cabinet Decision No. 49 of 2023, particularly when beneficiaries are natural persons.

A Qualifying Investment Fund refers to an entity primarily engaged in issuing investment interests to raise capital, pooling investor funds, or establishing joint investor funds. The objective is to enable investors holding such interests to derive profits or gains from the entity's activities related to acquiring, managing, holding, or disposing of investments. These qualifications are subject to meeting conditions outlined in Article 10 of the Corporate Tax Law.

Investment funds, typically structured as limited partnerships for tax neutrality, are treated as fiscally transparent 'Unincorporated Partnerships' for UAE Corporate Tax purposes. Corporate entities or partnership funds seeking exemption from UAE Corporate Tax as Qualifying Investment Funds must apply to the Federal Tax Authority and fulfill specific requirements.

A Recognised Stock Exchange encompasses UAE-based exchanges licensed and regulated by relevant authorities (e.g., Nasdaq Dubai, Abu Dhabi Securities Exchange, Dubai Financial Market) and foreign exchanges of equivalent standing to those in the UAE.

UAE-resident investment fund managers or those operating within the UAE through a Permanent Establishment are subject to UAE Corporate Tax on their earned income.

Either the investment fund or its manager must be subject to regulatory oversight to qualify for the Corporate Tax exemption, not necessarily both.

Under the 'Investment Manager Exemption,' regulated UAE Investment Managers can provide services to foreign funds and clients without creating a taxable presence in the UAE, given specific conditions are met.

If the conditions of the Investment Manager Exemption are met, a UAE-based Investment Manager should not cause foreign investment funds or vehicles to be considered resident in the UAE for Corporate Tax purposes.

Wholly-owned UAE investment holding companies and special purpose vehicles utilized by Qualifying Investment Funds may apply for exemption from UAE Corporate Tax through the Federal Tax Authority.

Ownership conditions apply to all investment funds for Corporate Tax exemption eligibility. However, funds established for less than two financial years may be exempt from these conditions if sufficient evidence demonstrates investors' intent to meet them post the initial two financial years.

The Federal Tax Authority will determine sufficient evidence, which may include correspondence with potential investors or internal communications reflecting the strategy to attract additional investors.

Foreign entities will be subject to UAE Corporate Tax under the following circumstances:
  • If the foreign entity is effectively managed or controlled in the UAE.
  • If it maintains a Permanent Establishment in the UAE.
  • If it earns income from activities within the UAE nexus or from sources within the UAE.
  • Earning income from UAE sources alone does not mandate Corporate Tax payment or necessitate registration and filing for UAE Corporate Tax.
  • Income is typically deemed to originate from the UAE if it stems from a UAE Resident Person, a UAE Permanent Establishment, or if the income arises from activities, assets, capital, or rights utilized within the UAE.

A foreign juridical entity may be considered a UAE resident for Corporate Tax purposes, thereby liable for UAE Corporate Tax on both local and international income, if it is effectively managed and controlled within the UAE.

Foreign natural persons engaging in business activities in the UAE may be subject to UAE Corporate Tax as 'Resident Persons.' However, this designation does not automatically confer overall residency status in the UAE for other tax purposes or for the application of double tax agreements.

Foreign natural persons not engaged in taxable business activities within the UAE typically do not fall under the purview of UAE Corporate Tax.

A foreign juridical entity may possess a Permanent Establishment in the UAE under the following conditions:

  • It maintains a fixed or permanent place in the UAE for conducting its business.
  • An individual habitually exercises authority to conduct business on behalf of the foreign entity in the UAE.
  • However, a fixed place of business solely used for specific purposes such as storage or auxiliary activities wouldn't qualify as a Permanent Establishment. Additionally, if the individual conducting business in the UAE acts as an independent agent, a Permanent Establishment may not arise.
  • Relevant international agreements should be considered when assessing the existence of a Permanent Establishment.

Foreign natural persons investing in UAE real estate personally, without a License, generally remain exempt from UAE Corporate Tax and related compliance obligations.
However, income earned from UAE real estate by foreign juridical entities may be subject to Corporate Tax.

Income is deemed to originate from the UAE under the following circumstances:
  • If derived from a UAE resident.
  • If attributed to a Permanent Establishment in the UAE of a non-UAE resident.
  • If derived from activities, assets, capital, rights, or services performed or utilized within the UAE.

Income from dividends, capital gains, interest, and royalties earned by foreign entities or individuals is generally not subject to UAE Corporate Tax, unless attributable to a Permanent Establishment in the UAE.
Additionally, until a Cabinet Decision specifies State Sourced Income subject to Withholding Tax (currently at 0%), such income derived by foreign investors remains exempt from UAE Withholding Tax.

The UAE Corporate Tax exempts certain types of income:
  • Dividends and profit distributions received from UAE incorporated or resident juridical persons.
  • Dividends and profit distributions received from a Participating Interest in a foreign juridical person (refer to Question 200 for details).
  • Certain other income such as capital gains, foreign exchange gains/losses, and impairment gains or losses from a domestic or foreign Participating Interest (see Question 202 for information on the participation exemption regime).
  • Income from a foreign branch or Permanent Establishment, if an election is made to claim the 'Foreign Permanent Establishment' exemption.
  • Income earned by non-residents from operating or leasing aircraft or ships in international transportation, subject to specific conditions

Dividends and other profit distributions from a Participating Interest in a foreign juridical person are exempt from UAE Corporate Tax, subject to the Participation Exemption requirements. A Participating Interest is defined as a 5% or greater ownership interest or an acquisition value of at least AED 4,000,000 in the capital or equity of the foreign juridical person meeting the conditions of the Participation Exemption regime.

Capital gains earned from a Participating Interest in foreign and domestic juridical persons are exempt from UAE Corporate Tax under the Participation Exemption regime. Additionally, Corporate Tax relief is provided for capital gains arising from intra-group transfers, reorganization, and restructuring transactions. Other capital gains are treated as ordinary income and are subject to Corporate Tax.

The Participation Exemption regime aims to prevent double taxation within a group where a group company has already been taxed on its profits. It fully exempts dividends from UAE entities and foreign subsidiaries meeting the conditions of a 'Participation'. A Participation is defined as a juridical person in which the UAE shareholder company owns a 5% or greater ownership interest or has an acquisition value of at least AED 4,000,000 (a 'Participating Interest') for at least 12 months, and meets the conditions of the Participation Exemption regime.

In cases where a UAE business invests strategically in another company resulting in less than a 5% ownership interest or where the percentage ownership falls below 5% due to external events, ownership interests with an acquisition cost equal to or exceeding AED 4 million are deemed to meet the minimum ownership requirement under the Participation Exemption regime, provided all other conditions are met.

Dividends received from a UAE resident company are automatically exempt under Article 22 of the Corporate Tax Law, without needing to claim an exemption using the Participation Exemption.

A foreign company resident in a country with a corporate income tax system similar to the UAE Corporate Tax regime and with a headline statutory rate of 9% or higher is considered to meet the 'subject to tax' test. Additionally, a foreign company can meet this test by demonstrating an effective tax rate of 9% or more on its income or profits. This includes cases where the company is not directly taxed but operates through a Permanent Establishment in a third country that taxes the relevant income.

The minimum ownership requirements for the Participation Exemption can be met if a Taxable Person holds a 5% or greater ownership interest in the Participation, or if the acquisition cost of its ownership interest in the Participation is at least AED 4 million. Different types of ownership interests held by Taxable Persons should be aggregated together, and ownership interests held by members of a Qualifying Group can also be counted towards the ownership of the Taxable Person.

Ownership interests include various types of securities, capital contributions, and rights that entitle the owner to receive profits and liquidation proceeds. However, these interests are only treated as such if they are considered equity under International Financial Reporting Standards (IFRS).

A branch can claim the Participation Exemption provided it is a Taxable Person under the Corporate Tax Law and meets all other required conditions for exemption in respect of an ownership interest in a Participation attributed to the branch.

Option rights qualify as an ownership interest for the Participation Exemption if, under International Financial Reporting Standards (IFRS), both control and beneficial ownership of the underlying shares are held by the option holder.

Islamic financial instruments compliant with Shariah principles may benefit from the Participation Exemption if classified as equity under accounting standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions. If these instruments meet the exemption conditions, income related to them will be exempt under the Participation Exemption.