Tax Impact Assessment
Who this Assessment Serves and What You Get
Who
Mainland LLCs, Free Zone Persons, branches, groups under common control, and foreign firms with UAE presence.
Goals
Confirm status, compute taxable income, protect free zone position, set transfer pricing files, map ERP tax logic, plan cash.
Deliverables
Risk register, calculation pack, cash plan, ERP and chart‑of‑accounts map, transfer pricing document list, filing calendar, template (PDF), report sample.
Examples with Numbers
- Mainland Case: Profit AED 2,400,000. Taxable band above AED 375,000 = AED 2,025,000. Tax = AED 182,250. Set aside AED 15,188 each month to cover the year.
- Free Zone Test: Revenue AED 40,000,000. Non‑qualifying share AED 2,600,000 (6.5%). You breach the 5% or AED 5,000,000 de minimis test and lose the 0% rate for that period.
- Group Relief: Company A profit AED 900,000. Company B tax loss AED 500,000. Group relief shifts AED 500,000 to A. Taxable band above AED 375,000 drops from AED 525,000 to AED 25,000. Tax falls from AED 47,250 to AED 2,250.
Legal Scope and Thresholds in UAE Corporate Tax
| Rate And Threshold |
|---|
| You pay 0% on the first AED 375,000 of taxable income and 9% on the excess. Example: taxable income AED 2,000,000. Taxable band above AED 375,000 = AED 1,625,000. Tax = AED 146,250. |
| Registration Trigger |
|---|
| A juridical person resident in the UAE registers and files. A non‑resident with a permanent establishment or nexus in the UAE registers and files. Branches file through the head office. |
| Free Zone Regime (QFZP) |
|---|
| You keep 0% on qualifying income if you meet substance, keep audited accounts, comply with transfer pricing, avoid excluded activities, and pass the de minimis test. De minimis: non‑qualifying income ≤ 5% of total revenue or AED 5,000,000, whichever is lower. Example: revenue AED 80,000,000; non‑qualifying AED 3,000,000 (3.75%). You pass de minimis and keep status for that period. |
| Small Business Relief |
|---|
| If revenue ≤ AED 3,000,000 in the current and prior periods (within relief years), you can elect SBR and pay 0% for that period. Example: revenue AED 2,800,000; taxable income AED 600,000; SBR election sets tax to zero for the period. |
| Tax Losses and Carryforward |
|---|
| You can carry losses forward and offset up to a limit against future taxable income if ownership and business continuity hold. Example: Year 1 loss AED 900,000; Year 2 taxable income AED 1,200,000. You offset AED 900,000 and pay 9% on AED 825,000 above the AED 375,000 band. |
| Group Relief and No‑Gain/No‑Loss |
|---|
| Common ownership allows loss transfer within limits and relief for asset and liability transfers and restructurings if tests hold. Example: Company A taxable income AED 1,000,000; Company B loss AED 900,000. A uses loss up to allowed cap; taxable base drops and cash tax falls. |
| Transfer Pricing and Documentation |
|---|
| Apply arm’s length pricing on related‑party and connected‑person deals. File a disclosure with the return. Prepare a master file and local file if revenue crosses the set threshold or you sit in a large MNE group. Example: revenue AED 240,000,000; you prepare master and local files and keep them ready. |
| Withholding and Participation |
|---|
| No domestic withholding on most payments. A participation exemption can apply to qualifying dividends and gains if holding, ownership, and subject‑to‑tax tests hold. |
| Record‑Keeping |
|---|
| Keep records and working papers for at least 7 years. Keep contracts, intercompany agreements, and free zone letters on file. |
Official Sources: UAE Ministry of Finance — Federal Decree‑Law No. 47 of 2022 and amendments
Tax Impact Assessment Framework and Phases
Phase 1: Diagnose
Map legal entities, branches, and PEs. List activities, revenue streams, and contracts. Identify related and connected parties. Flag free zone tests and excluded activities. Set scope, owners, and a day‑by‑day work plan.
Phase 2: Quantify
Convert accounting profit to taxable income. Post add‑backs and deductions. Model AED 375,000 band and 9% overage. Build a cash provision plan per month. Produce a calculation pack with audit trails.
Phase 3: Structure
Test Qualifying Free Zone Person status. Check de minimis and substance. Assess group relief, loss use, and no‑gain/no‑loss transfers. Set transfer pricing methods and margins. Issue draft intercompany terms.
Phase 4: Enable
Update chart of accounts and ERP tax codes. Assign control owners and checklists. Lock SOPs for billing, accruals, intercompany, and record retention. Set a document index and access rights. Train finance and operations.
Phase 5: File and Monitor
Confirm registrations. Build return and payment workflow. Prepare disclosure, master file, and local file if in scope. Set a filing calendar and reminders. Track KPIs, changes in activities, and free zone status each period.
Data, Documents, and Systems You Need
Financials
Trial balance for 24 months, general ledger, segment P&L, fixed asset register, depreciation schedule, inventory aging, AR/AP aging.
Contracts and corporate records
Intercompany agreements, service level terms, loan notes, distributor or reseller contracts, lease, trade license, board resolutions, audited accounts.
Operational proof of substance
Office lease, utility bills, payroll summary, visa list, organogram, time sheets, delivery logs.
Free zone status pack
Activity map, revenue split by qualifying and non‑qualifying lines, charge‑out policy to connected persons, audited accounts note.
Transfer pricing evidence
Transaction inventory, tested party, method candidates, markup policy, comparable list, intercompany invoices, TP disclosure draft.
ERP and chart of accounts
Tax GLs, posting rules, tax codes, custom dimension for related‑party flags, document numbering, month‑end checklist.
Reporting views
Assessment workbook with tabs for TB, adjustments, taxable income bridge, free zone test, loss roll‑forward, cash plan, filing calendar.
Document control
Master index, file naming (“YYYY‑MM Entity DocName v1.0”), access list, review sign‑offs, retention for 7 years.
| Day | Task |
|---|---|
| Day 1 | Finance exports TB, GL, FA register. |
| Day 2 | Legal uploads contracts and board papers. |
| Day 3 | HR/Operations posts substance pack. |
| Day 4 | Tax lead completes TP inventory and free zone test. |
| Day 5 | CFO signs the data room and locks version 1.0. |
Tax Impact Assessment Calculations and Scenario Models
Baseline case
Set profit and compute tax above the threshold. You set profit at AED 2,400,000. You compute the taxable band and tax.
2,400,000 − 375,000 = 2,025,000;
2,025,000 × 9% = 182,250;
182,250 ÷ 12 = 15,188
Free zone mixed income test
Check the de minimis rule and protect status for the period. You set revenue at AED 40,000,000 and non‑qualifying at AED 2,600,000. You fail the test and lose the 0% rate for that period.
5% of 40,000,000 = 2,000,000;
2,600,000 > 2,000,000
Small Business Relief check
Test revenue against the cap and set tax to zero if you elect. You set revenue at AED 2,800,000 and taxable income at AED 600,000. You meet the cap and file with SBR.
2,800,000 ≤ 3,000,000;
Tax = 0
Group relief effect
Shift losses and cut tax for the profit entity. Company A shows profit AED 900,000. Company B shows loss AED 500,000. You transfer the loss to A.
(900,000 − 500,000) − 375,000 = 25,000;
25,000 × 9% = 2,250
Transfer pricing mark‑up gap
Raise the mark‑up to arm’s length and compute extra tax. You set related‑party services revenue at AED 10,000,000. Current mark‑up 8%; target mark‑up 12%.
(12% − 8%) × 10,000,000 = 400,000;
400,000 × 9% = 36,000
Cash plan
Provision each month and avoid a year‑end squeeze. You forecast tax at AED 280,800.
280,800 ÷ 12 = 23,400
Official Sources: Federal Tax Authority corporate tax and transfer pricing guides
Expanded Scenario Models
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Change of Year-End Impact
Shift from 31 Dec to 30 Jun and allocate profits for the short period. Profit for full 12 months = AED 4,800,000. Short period = 6 months.
4,800,000 × 6 / 12 = 2,400,000
Taxable Amount: 2,400,000 − 375,000 = 2,025,000; × 9% = 182,250
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Asset Disposal Gain
Sell fixed asset at a gain and compute extra tax for that year. Sale proceeds AED 3,000,000; Net book value AED 2,200,000.
Gain = 800,000; (800,000 + 1,000,000 other profit) − 375,000 = 1,425,000 × 9% = 128,250
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Provision Disallowance
Provision for doubtful debts over 30% recovery risk disallowed. Provision recorded = AED 600,000; Disallowance 40% = 240,000. Added back to taxable income:
(Base taxable + 240,000 − 375,000) × 9%
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Related-Party Loan Interest Cap
Thin capitalization rules limit interest deduction to 30% of EBITDA. EBITDA = AED 5,000,000; Interest paid = 2,000,000. Allowable = 1,500,000; Excess = 500,000 added back to taxable base.
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Charity Donations
Deductible only if to approved bodies and within taxable income cap. Taxable income before donation = AED 2,000,000; Donation = 400,000. Cap:
2,000,000 × 10% = 200,000
Excess 200,000 disallowed.
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Foreign Tax Credit
Overseas tax paid AED 90,000; UAE tax on same income AED 120,000.
Credit = min (90,000, 120,000) = AED 90,000; UAE liability reduced accordingly.
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Corporate Tax Compliance & Optimisation Checklist [UAE]
FAQs — Tax Impact Assessment UAE
Who must carry out a tax impact assessment in the UAE
Any mainland company, free zone person, branch, or non‑resident with a permanent establishment in the UAE will benefit from a tax impact review before their first corporate tax return. Even if you qualify for 0 % on part of your income, modelling the tax base and confirming free zone eligibility prevents surprises.
What is included in a UAE tax impact assessment
A proper assessment covers:
- Legal status and registration review
- Free zone tests (substance, de minimis, excluded activities)
- Adjustments from accounting profit to taxable income
- Reliefs and elections modelling
- Transfer pricing transaction checks
- ERP and chart‑of‑accounts mapping
- Filing and payment calendar
How does a free zone business keep its 0 % rate
By conducting only qualifying activities, keeping non‑qualifying income within 5% or AED 5 million, maintaining UAE substance, keeping audited accounts, and filing any required transfer pricing disclosure. Breach any rule and the 0 % rate is lost for that tax period.
What reliefs can reduce the tax impact
Options include Small Business Relief (≤ AED 3 m revenue), group loss transfers, loss carry‑forward, and participation exemption for qualifying dividends and gains — all subject to eligibility and timely election.
When should the assessment be done
Complete it at least three months before the first filing to allow ERP updates, process changes, and tax provisioning.
What official guidance supports the process
Federal Decree‑Law No. 47 of 2022, Cabinet Decision on Qualifying Income for Free Zones, relevant Ministerial Decisions, and FTA corporate tax and transfer pricing guides.
What are the penalties if issues are found late
Late registration, filing, payment, or missing transfer pricing documents can trigger FTA fines from AED 500 to AED 20,000+, depending on the breach.
