0.      INTRODUCTION TO THE UAE CORPORATE TAX

On the 3rd day of October 2022, His Highness Sheikh Mohamed bin Zayed Al Nahyan, President of the United Arab Emirates, issued the Federal Decree-Law No. 47 of 2022 titled as Taxation of Corporations and Businesses. The law was published in the official gazette of the UAE on the 9th day of December 2022 and constitutes the primary legislation for levy of Corporate Tax in the UAE.

1.      DEFINITIONS

StateUnited Arab Emirates.
Federal GovernmentThe government of the United Arab Emirates.
Local GovernmentAny of the governments of the Member Emirates of the Federation.
MinistryMinistry of Finance.
MinisterMinister of Finance.
AuthorityFederal Tax Authority.
Corporate TaxThe tax imposed by this Decree-Law on juridical persons and Business income.
BusinessAny activity conducted regularly, on an ongoing and independent basis by any Person and in any location, such as industrial, commercial, agricultural, vocational, professional, service or excavation activities or any other activity related to the use of tangible or intangible properties.
Qualifying IncomeAny income derived by a Qualifying Free Zone Person that is subject to Corporate Tax at the rate specified in paragraph (a) of Clause 2 of Article 3 of this Decree-Law.
Government EntityThe Federal Government, Local Governments, ministries, government departments, government agencies, authorities and public institutions of the Federal Government or Local Governments.
Government Controlled EntityAny juridical person, directly or indirectly wholly owned and controlled by a Government Entity, as specified in a decision issued by the Cabinet at the suggestion of the Minister.
PersonAny natural person or juridical person.
Business ActivityAny transaction or activity, or series of transactions or series of activities conducted by a Person in the course of its Business.
Mandated ActivityAny activity conducted by a Government Controlled Entity in accordance with the legal instrument establishing or regulating the entity, that is specified in a decision issued by the Cabinet at the suggestion of the Minister.
State’s TerritoryThe State’s lands, territorial sea and airspace above it.
Natural ResourcesWater, oil, gas, coal, naturally formed minerals, and other non-renewable, non-living natural resources that may be extracted from the State’s Territory.
Extractive BusinessThe Business or Business Activity of exploring, extracting, removing, or otherwise producing and exploiting the Natural Resources of the State or any interest therein as determined by the Minister.
Non-Extractive Natural Resource BusinessThe Business or Business Activity of separating, treating, refining, processing, storing, transporting, marketing or distributing the Natural Resources of the
State.
Qualifying Public Benefit EntityAny entity that meets the conditions set out in Article 9 of this Decree-Law and that is listed in a decision issued by the Cabinet at the suggestion of the Minister.
Qualifying Investment FundAny entity whose principal activity is the issuing of investment interests to raise funds or pool investor funds or establish a joint investment fund with the aim of enabling the holder of such an investment interest to benefit from the profits or gains from the entity’s acquisition, holding, management or disposal of investments, in accordance with the applicable legislation and when it meets the conditions set out in Article 10 of this Decree-Law.
Exempt PersonA Person exempt from Corporate Tax under Article 4 of this Decree-Law.
Taxable PersonA Person subject to Corporate Tax in the State under this Decree-Law.
Licensing AuthorityThe competent authority concerned with licensing or authorizing a Business or Business Activity in the State.
LicenseA document issued by a Licensing Authority under which a Business or Business Activity is conducted in the State.
Taxable IncomeThe income that is subject to Corporate Tax under this Decree-Law.
Financial YearThe period specified in Article 57 of this Decree-Law.
Tax ReturnInformation filed with the Authority for Corporate Tax purposes in the form and manner as prescribed by the Authority, including any schedule or attachment thereto, and any amendment thereof.
Tax PeriodThe period for which a Tax Return is required to be filed.
Related PartyAny Person associated with a Taxable Person as determined in Clause 1 of Article 35 of this Decree-Law.
RevenueThe gross amount of income derived during a Tax Period.
Recognized Stock ExchangeAny stock exchange established in the State that is licensed and regulated by the relevant competent authority, or any stock exchange established outside the State of equal standing.
Resident PersonThe Taxable Person specified in Clause 3 of Article 11 of this Decree-Law.
Non-Resident PersonThe Taxable Person specified in Clause 4 of Article 11 of this Decree-Law.
Free ZoneA designated and defined geographic area within the State that is specified in a decision issued by the Cabinet at the suggestion of the Minister.
Free Zone PersonA juridical person incorporated, established or otherwise registered in a Free Zone, including a branch of a Non-Resident Person registered in a Free Zone.
Unincorporated PartnershipA relationship established by contract between two Persons or more, such as a partnership or trust or any other similar association of Persons, in accordance with the applicable legislation of the State.
Permanent EstablishmentA place of Business or other form of presence in the State of a Non-Resident Person in accordance with Article 14 of this Decree-Law.
State Sourced IncomeIncome accruing in, or derived from, the State as specified in Article 13 of this Decree-Law.
Qualifying Free Zone PersonA Free Zone Person that meets the conditions of Article 18 of this Decree-Law and is subject to Corporate Tax under Clause 2 of Article 3 of this Decree-Law.
Investment ManagerA Person who provides brokerage or investment management services that is subject to the regulatory oversight of the competent authority in the State.
Corporate Tax PayableCorporate Tax that has or will become due for payment to the Authority in respect of one or more Tax Periods.
Foreign PartnershipA relationship established by contract between two Persons or more, such as a partnership or trust or any other similar association of Persons, in accordance with laws of a foreign jurisdiction.
Foreign Tax CreditTax paid under the laws of a foreign jurisdiction on income or profits that may be deducted from the Corporate Tax due, in accordance with the conditions of Clause 2 of Article 47 of this Decree-Law.
Family FoundationAny foundation, trust or similar entity that meets the conditions of Article 17 of this Decree-Law.
InterestAny amount accrued or paid for the use of money or credit, including discounts, premiums and profit paid in respect of an Islamic financial instrument and other payments economically equivalent to interest, and any other amounts incurred in connection with the raising of finance, excluding payments of the principal amount.
Accounting IncomeThe accounting net profit or loss for the relevant Tax Period as per the financial statements prepared in accordance with the provisions of Article 20 of this Decree-Law.
Exempt IncomeAny income exempt from Corporate Tax under this Decree-Law.
Connected PersonAny Person affiliated with a Taxable Person as determined in Clause 2 of Article36of this Decree-Law.
Tax LossAny negative Taxable Income as calculated under this Decree-Law for a given Tax Period.
Qualifying Business ActivityAny activity that is specified in a decision issued by the Cabinet at the suggestion of the Minister.
Foreign Permanent EstablishmentA place of Business or other form of presence outside the State of a Resident Person that is determined in accordance with the criteria prescribed in Article 14 of this Decree-Law.
Market ValueThe price which could be agreed in an arm’s-length free market transaction between Persons who are not Related Parties or Connected Persons in similar circumstances.
Qualifying GroupTwo or more Taxable Persons that meet the conditions of Clause 2 of Article 26 of this Decree-Law.
Net Interest ExpenditureThe Interest expenditure amount that is in excess of the Interest income amount as determined in accordance with the provisions of this Decree-Law.
BankA Person licensed in the State as a bank or finance institution or an equivalent licensed activity that allows the taking of deposits and the granting of credits as defined in the applicable legislation of the State.
Insurance ProviderA Person licensed in the State as an insurance provider that accepts risks by entering into or carrying out contracts of insurance, in both the life and non-life sectors, including contracts of reinsurance and captive insurance, as defined in the applicable legislation of the State.
ControlThe direction and influence over one Person by another Person in accordance with the conditions of Clause 2 of Article 35 of this Decree-Law.
Tax GroupTwo or more Taxable Persons treated as a single Taxable Person according to the conditions of Article 40 of this Decree-Law.
Withholding Tax CreditThe Corporate Tax amount that can be deducted from the Corporate Tax due in accordance with the conditions of Clause 2 of Article 46 of this Decree-Law.
Withholding TaxCorporate Tax to be withheld from State Sourced Income in accordance with Article 45 of this Decree-Law.
Tax RegistrationA procedure under which a Person registers for
Tax Registration NumberA unique number issued by the Authority to each Person who is registered for Corporate Tax purposes in the State.
Tax DeregistrationA procedure under which a Person is deregistered for Corporate Tax purposes with the Authority.
Tax Procedures LawThe federal law that governs tax procedures in the State.
Administrative PenaltiesAmounts imposed and collected under this Decree-Law or the Tax Procedures Law.

2.      LEVY OF CORPORATE TAX

2.1.   Taxable Persons

Those businesses in the UAE, which earn Taxable Income of AED 375,000 (“Threshold”) or more shall be subject to the UAE Corporate Tax.

2.2.   Rate of Tax

Rate of Tax for mainland companies whose Taxable Income exceeds the Threshold and those Free Zone Persons whose income do not qualify for exemption shall pay Tax at the rate of 9%. Others will be subject to 0% Corporate Tax.

3.      EXEMPT PERSONS

3.1.   Categories of Exempt persons

The Decree grants exemption to Government and Government Controlled Entities, certain Extractive Businesses, certain Non-Extractive Natural Resource Businesses, Public Benefit Entities, Qualifying Investment Funds, pension or social security funds meeting certain conditions, and entities wholly owned and controlled by an Exempt Person.

3.2.   Extractive and Non-Extractive Natural Resources

For entities carrying out (i) Extractive and other business, or (ii) Non-Extractive Natural Resource business and other business simultaneously, their exempt and taxable revenues shall be calculated separately, costs ascertained separately, and profits of other businesses taxed separately, provided that other business is more than 5% of the total revenue of that entity. Such entities will also need to maintain separate financial statements for such other business.

3.3.   Public Benefit Entities

For the exemption of public benefit entities, the Decree imposes certain conditions such as utilization of funds only for public welfare purpose, trustees not utilizing the funds of such entities, provision of information, etc.

3.4.   Investment Funds

For the exemption of Investment Funds certain conditions are imposed such as trading of component securities on a Recognized Stock Exchange, intention of such set up should not be to evade tax, etc.

4.      TAXABLE PERSON AND TAX BASE

4.1.   Categories of Taxable Person

For the purposes of this Decree, a Taxable Person is either

–          a Resident, which means Incorporate, established or recognized by the State of UAE or a foreign state; as well as a natural person doing business in the UAE, or

–          a Non-Resident (NR), which is defined as all Persons other than Residents. However, the term envisages NR to have a Permanent Establishment (PE) in the UAE, earns income from the UAE without having a PE or has a nexus in the UAE through which the NR earns UAE sourced income.

4.2.   Resident Person

A Resident juridical Person, e.g., a company, pays Tax on both UAE and foreign sourced income but a natural person pays Tax on UAE sourced income and only that part of foreign sourced income that relates to the business carried on in the UAE.

4.3.   Non-Resident Person

A NR Person pays Tax on UAE sourced income whether PE based or not, as well as UAE sourced income from his nexus of income in the UAE. The concept of a nexus addresses the amount and degree of a taxpayer’s business activity that must be present in the UAE for the Taxpayer to become subject to the UAE Corporate Tax.

4.4.   Tax Residency

The concept of Tax Residency is explained in detail in Cabinet Decision No. 85 of 2022 – Issued 2 Sept 2022 (Effective 1 Mar 2023).

4.5.   State Sourced Income

The concept of State Sourced Income comprehensively accounts for revenues earned by Persons from, in and because of UAE business. Several categories are defined to that effect.

4.6.   Permanent Establishment

The meaning of a Permanent Establishment envisages a fixed or permanent place through which a NR conducts business in the UAE. The Decree gives numerous examples of place of business in this regard.

4.7.   Unincorporated Partnership

Unincorporated Partnerships shall not be considered Taxable Persons unless an application is submitted to that effect and one Partner shall be appointed as the Responsible Person. However, each Partner shall be severally responsible for ones share of Tax liability.

4.8.   Family Foundation

Family Foundation can apply to be registered as an Unincorporate Partnership subject to conditions specified in the Decree.

5.      FREE ZONE PERSON

5.1.   Qualifying Free Zone Person

A Qualifying Free Zone Person is a Person, which is registered in a Free Zone and who maintains adequate substance in the UAE, derives Qualifying Income, has not elected to be subject to Corporate Tax, and carries out transactions with Related Parties meeting the arm’s length standard.

5.2.   Tax Holiday to Qualifying Free Zone Person

A Qualifying Free Zone Person shall be required to apply for the remainder of the tax incentive related to the Free Zone, in which that Person is registered, in which case he may be granted the remainder of the tax incentive.

5.3.   Maximum Time Allowed for the Tax Holiday to a Qualifying Free Zone Person

The maximum time allowed for such tax holiday to a Qualifying Free Zone Person shall not exceed 50 years.

6.      CALCULATING TAXABLE INCOME

6.1.   Adjustments

The Taxable Income for a Tax Period shall be the Accounting Income for that period adjusted for the following:

·         Any unrealized gain or loss

·         Exempt Income

·         Reliefs

·         Deductions

·         Transactions with Related Parties and Connected Persons

·         Tax Loss relief

·         Any incentives or special reliefs

·         Any income or expenditure that has not otherwise been taken into account

·         Any other adjustments

6.2.   Unrealized Gains and Losses of Assets and Liabilities Held on Capital Account

·         A Taxable Person that prepares financial statements on an accrual basis may elect to take into account gains and losses that are realized related to the following:

·         “Assets held on capital account”, which refers to assets that are –

·         “Liabilities held on capital account”, which refers to liabilities,

6.3.   Unrealized Gains and Losses of Assets and Liabilities Held on Revenue Account

There is an exception provided to “Assets and liabilities held on revenue account”, which refers to assets and liabilities other than those held on a capital account, in that the Taxable Person may elect to account for these unrealized gain and losses while calculating the Taxable Income.

6.4.   Unrealized Foreign Exchange Gains and Losses

An “unrealized gain or loss” includes an unrealized foreign exchange gain or loss and is not accounted for while calculating Taxable Income.

6.5.   Change From Cash Basis of Accounting to Accrual Basis

A Taxable Person can make an application to the Authority to change its method of accounting from cash basis to accrual basis from the commencement of the Tax Period in which the application is made or from the commencement of a future Tax Period.

6.6.   Small Business Relief

A Resident Taxable Person may elect to be treated as not having derived any Taxable Income for a Tax Period if the Revenue of the Taxable Person for the relevant and previous Tax Periods does not exceed a limit set by the Minister, and the Taxable Person meets all other prescribed conditions. In this case provisions of this Law related to Exempt Income, Reliefs, Deductions, Tax Loss relief, Transfer Pricing related documentation and reporting shall not apply.

7.      EXEMPT INCOME

7.1.   Categories of Exempt Income

The following Income and related expenditure, related to the following, shall be treated as Exempt:

7.2.   Exemption Conditions for Income from a Participating Interest

Income from a Participating Interest shall be exempt from Corporate Tax, if –

·         the Participating Interest is 5% (five percent) or greater ownership interest in the shares or capital of a juridical person (referred to as a “Participation” under this law).

·         The Taxable Person has held, or has the intention to hold, the Participating Interest for an uninterrupted period of at least 12 twelve months.

·         The Participation is subject to tax imposed by the country in which the juridical person is resident, which is of a similar character to Corporate Tax at a rate not less than the Tax Rate imposed under this Law.

·         The ownership interest in the Participation entitles the Taxable Person to receive not less than 5% (five percent) of

·         Not more than 50% of the direct and indirect assets of the Participation consist of ownership interests that would not have qualified for an exemption from Corporate Tax under this law if held directly by the Taxable Person.

·         This exemption shall not apply if the Participation –

7.3.   Foreign Permanent Establishment Exemption

While determining the Taxable Income, a Resident Person can elect to not take into account the income, and associated expenditure, of its Foreign Permanent Establishments, comprising and considering the following:

·         Losses or positive income and associated expenditure in any of its Foreign Permanent Establishments, calculated as if the relevant Foreign Permanent Establishments were a Resident Person under this Law.

·         any Foreign Tax Credit that would have been available if such election were not done.

·         The Resident Person and each of its Foreign Permanent Establishments shall be treated as separate and independent Persons.

·         Any transfer of assets or liabilities between a Resident Person and its Foreign Permanent Establishment shall be treated as having taken place at Market Value.

·         This exemption shall only apply to a Foreign Permanent Establishment that is subject to Corporate Tax or a tax of a similar character under the applicable legislation of the relevant foreign jurisdiction at a rate not less than the rate specified in this Law.

7.4.   Non-Resident Person Operating Aircraft or Ships in International Transportation

Income derived by a Non-Resident Person from the operation of aircraft or ships in international transportation shall not be subject to Corporate Tax where all of the following conditions are met:

·         The Non-Resident Person is in the Business of any of the following:

·         A Resident Person that performs any of the above activities would be exempt under the applicable legislation of the country or territory in which the Non-Resident Person is resident.

8.      RELIEFS

8.1.   Assets-Liabilities’ Transfers within a Qualifying Group

No gain or loss needs to be considered while ascertaining the Taxable Income from transfer of assets or liabilities between two Taxable Persons that are members of the same Qualifying Group.

·         No gain or loss needs to be considered while ascertaining the Taxable Income from transfer of assets or liabilities between two Taxable Persons that are members of the same Qualifying Group.

·         This means that such asset or liability shall be treated as being transferred at its net book value at the time of transfer so that neither a gain nor a loss arises; and

·         The NBV treatment shall not apply where, within (2) two years from the date of the transfer, any of the following occurs:

·         Instead, the transfer of such asset or liability shall be treated as having taken place at Market Value at the date of the transfer for the purposes of determining the Taxable Income of both Taxable Persons for the relevant Tax Period.

8.2.   Conditions for Treating Taxable Persons as Members of the Same Tax Group

Two Taxable Persons shall be treated as members of the same Qualifying Group, if they are –

·         Resident juridical persons,

·         Non-Resident Persons that have a Permanent Establishment

·         The Taxable Person has a direct or indirect ownership interest of at least 75% in the other Taxable Person,

·         or a third Person has a direct or indirect ownership interest of at least 75% (seventy-five percent) in each of the Taxable Persons. None of the Persons are an Exempt Person.

·         None of the Persons are a Qualifying Free Zone Person.

·         The Financial Year of each of the Taxable Persons ends on the same date.

·         Both Taxable Persons prepare their financial statements using the same accounting standards.

8.3.   The No-Gain-No-Loss Business Restructuring Relief

·         No Taxable gain or loss arises in the following situations –

·         The above relief is granted only if:

·         For such a no-gain-no-loss transfer to be valid, all the following must be observed:

·         The no-gain-no-loss transfer of assets and liabilities relief becomes void if, within 02 years from the date of the transfer, any of the following occurs:

8.4.   Treatment of Tax Losses in Course of Business Restructuring

·         Any unutilized Tax Losses incurred by the Taxable Person transferring the Net Assets (i.e., the Transferor) prior to the Tax Period in which the transfer completes may become carried forward Tax Losses of the Taxable Person that is the Transferee.

·         The doctrines of ultimate beneficial owner and recharacterization of a transaction function of the Law may come into effect in context of such a transfer, if applicable, in the following scenarios, whereby:

·         Where a Taxable Person transfers an independent part of its Business, the Tax Losses that can be carried forward will constitute only those unutilized Tax Losses that can be reasonably attributed to the independent part of the Business being transferred.

9.      DEDUCTIONS

9.1.   Deductible Expenditure

·         Subject to the provisions of the Law, any expenditure incurred wholly and exclusively for the purposes of the Taxable Person’s Business that is not capital in nature shall be deductible in the Tax Period in which it is incurred.

·         No deduction is allowed for the following:

·         If expenditure is incurred for more than one purpose, a deduction shall be allowed for

9.2.   Interest Expense

·         Interest expenditure shall be deductible in the Tax Period in which it is incurred.

·         A Taxable Person’s Net Interest Expenditure shall be deductible up to 30% of the Taxable Person’s accounting earnings before the deduction of interest, tax, depreciation and amortization (EBITDA) for the relevant Tax Period, excluding any Exempt Income. This limitation shall not apply where the Net Interest Expenditure of the Taxable Person for the relevant Tax Period does not exceed an amount specified by the Minister (to be prescribed in future).

·         A Taxable Person’s Net Interest Expenditure for a Tax Period is the amount by which the Interest expenditure incurred during the Tax Period, including the amount of any Net Interest Expenditure carried forward, exceeds the taxable Interest income derived during that same Period (i.e., Interest Expense less Interest Income).

·         The amount of Net Interest Expenditure disallowed may be carried forward and deducted in the subsequent 10 Tax Periods in the order in which the amount was incurred.

·         Interest expenditure disallowed under any other provision of this Decree-Law shall be excluded from the calculation of Net Interest Expenditure.

·         The aforesaid provision for Interest Expense shall not apply to Banks, Insurance Providers, natural persons undertaking a Business or Business Activity in the UAE, and any other Person prescribed by the Law.

·         The aforesaid 30% limit and related provisions may be applied to a Taxable Person that is related to one or more Persons through ownership or control and there is an obligation on them under applicable accounting standards for their financial statements to be consolidated.

9.3.   Specific Interest Deduction Limitation Rule

·         No deduction shall be allowed for Interest expenditure incurred on a loan obtained, directly or indirectly, from a Related Party in respect of any of the following transactions:

·         The above embargo shall not apply where the Taxable Person can demonstrate that the main purpose of obtaining the loan and carrying out the transactions referred above is not to gain a Corporate Tax advantage.

·         No Corporate Tax advantage shall be deemed to arise where the Related Party is subject to Tax under the applicable legislation of a foreign jurisdiction on the Interest at a rate not less than the Tax Rate imposed under this Decree-Law.

9.4.   Entertainment Expenditure

·         A Taxable Person is allowed to deduct 50% of any entertainment, amusement, or recreation expenditure incurred during a Tax Period.

·         Entertainment Expenditure refers to any expenditure incurred for the purposes of receiving and entertaining the Taxable Person’s customers, shareholders, suppliers or other business partners.

·         Examples of such expenditure include Meals, Accommodation, Transportation, Admission fees, Facilities and equipment used in connection with such entertainment, amusement or recreation, and such other expenditure as may be specified in future by the Law.

9.5.   Non-deductible Expenditure

No deduction is allowed for:

·         Donations, grants or gifts made to an entity that is not a Qualifying Public Benefit Entity.

·         Fines and penalties, other than amounts awarded as compensation for damages or breach of contract.

·         Bribes or other illicit payments.

·         Dividends, profit distributions or benefits of a similar nature paid to an owner of the Taxable Person.

·         Amounts withdrawn from the Business by a natural person who is a Taxable Person under this Law or a partner in an Unincorporated Partnership.

·         Corporate Tax imposed on a Taxable Person under this Decree-Law.

·         Input Value Added Tax incurred by a Taxable Person that is recoverable under the UAE VAT Law.

·         Tax on income imposed on the Taxable Person outside the UAE.

·         Such other expenditure as specified in a decision issued by the Cabinet at the suggestion of the Minister.

10.  TRANSACTIONS WITH RELATED PARTIES AND CONNECTED PERSONS

10.1.                    The Concept of Related Parties

“Related Parties” means any of the following:

·         Two or more natural persons who are related within the fourth degree of kinship or affiliation, including by way of adoption or guardianship.

·         A natural person and a juridical person where:

·         Two or more juridical persons where:

·         A Person and its Permanent Establishment or Foreign Permanent Establishment.

·         Two or more Persons that are partners in the same Unincorporated Partnership.

·         A Person who is the trustee, founder, settlor or beneficiary of a trust or foundation, and its Related Parties.

10.2.                    Arm’s Length Principle

·         In determining Taxable Income, transactions and arrangements between Related Parties must meet the arm’s length standard as specified in this Law.

·         A transaction or arrangement between Related Parties meets the arm’s length standard if the results of the transaction or arrangement are consistent with the results that would have been realized if Persons who were not Related Parties had engaged in a similar transaction or arrangement under similar circumstances.

·         The arm’s length result of a transaction or arrangement between Related Parties must be determined by applying one or a combination of the following transfer pricing methods:

10.3.                    Choice of Transfer Pricing Method

·         The Taxable Person may apply any transfer pricing method other than the methods listed above, where the Taxable Person can demonstrate that –

·         The choice and application of a transfer pricing method or combination of transfer pricing methods must be made having regard to the most reliable transfer pricing method and considering following factors:

10.4.                    The Authority’s Prerogative on Arm’s Length Criterion

·         The Authority’s examination as to whether income and expenditures resulting from the Taxable Person’s relevant transactions or arrangements meet the arm’s length standard shall be based on the transfer pricing method used by the Taxable Person under this Law, provided such transfer pricing method is appropriate having regard to the factors mentioned above.

·         Application of the selected transfer pricing method or combination of transfer pricing methods may result in an arm’s length range of financial results or indicators acceptable for establishing the arm’s length result of a transaction or arrangement between Related Parties, subject to any conditions specified in a decision issued by the Authority.

·         Where the result of the transaction or arrangement between Related Parties does not fall within the arm’s length range, the Authority shall adjust the Taxable Income to achieve the arm’s length result that best reflects the facts and circumstances of the transaction or arrangement.

·         Where the Authority makes an above referred adjustment to the Taxable Income, the Authority shall rely on information that can or will be made available to the Taxable Person.

·         Where the Authority or a Taxable Person adjusts the Taxable Income for a transaction or arrangement to meet the arm’s length standard, the Authority shall make a corresponding adjustment to the Taxable Income of the Related Party that is party to the relevant transaction or arrangement.

·         Where a foreign competent authority makes an adjustment to a transaction or arrangement involving a Taxable Person to meet the arm’s length standard, such Taxable Person can make an application to the Authority to make a corresponding adjustment to its Taxable Income.

10.5.                    The Concept of Control in Context of Related Parties

“Control” means the ability of a Person, whether in their own right or by agreement or otherwise to influence another Person, including:

·         The ability to exercise 50% or more of the voting rights of another Person.

·         The ability to determine the composition of 50% or more of the Board of Directors of another Person.

·         The ability to receive 50% or more of the profits of another Person.

·         The ability to determine, or exercise significant influence over, the conduct of the Business and affairs of another Person.

10.6.                    The Concept of Connected Persons

·         A Person shall be considered a Connected Person of a Taxable Person if that Person is:

·         An owner of the Taxable Person is any natural person who directly or indirectly owns an ownership interest in the Taxable Person or Controls such Taxable Person.

·         Where the Taxable Person is a partner in an Unincorporated Partnership, a Connected Person is any other partner in that same Unincorporated Partnership, and any Person that is a Related Party of that partner.

10.7.                    Deductibility of Payments to Connected Persons

·         A payment or benefit provided by a Taxable Person to its Connected Person shall be deductible only if, and to the extent the payment or benefit corresponds with the Market Value of the service, benefit or otherwise provided by the Connected Person is incurred wholly and exclusively for the purposes of the Taxable Person’s Business.

·         To determine that a payment or benefit provided by the Taxable Person corresponds with the Market Value of the service or otherwise provided by the Connected Person in exchange, the relevant provisions of Arm’s Length principles of this Law shall apply as the context requires.

·         The above referred condition of Market Value based deductibility shall not apply to any of the following:

·         Any other Person as may be determined in a decision issued by the Cabinet.

11.  TAX LOSS PROVISIONS

11.1.                    Tax Loss Relief

·         A Tax Loss can be offset against the Taxable Income of subsequent Tax Periods to arrive at the Taxable Income for those subsequent Tax Periods.

·         The amount of Tax Loss used to reduce the Taxable Income for any subsequent Tax Period cannot exceed 75% or any other specified percentage of the Taxable Income for that Tax Period before any Tax Loss relief, except in circumstances that may be prescribed in the Law.

·         A Taxable Person cannot claim Tax Loss relief for:

·         A Tax Loss carried forward to a subsequent Tax Period must be set off against the Taxable Income of that subsequent Tax Period, before any remainder can be carried forward to a further subsequent Tax Period, or any Tax Loss transferred under this Law can be utilized.

11.2.                    Transfer of Tax Loss

·         A Tax Loss or a portion thereof may be offset against the Taxable Income of another Taxable Person where all of the following conditions are met:

·         Where a Taxable Person transfers its Tax Loss to another Taxable Person –

11.3.                    Limitation on Tax Losses Carried Forward

·         Tax Losses can only be carried forward and utilized in accordance with the limit specified in this Law (75% or as may be prescribed) provided that:

·         Relevant factors for determining whether a Taxable Person has continued to conduct the same or a similar Business or Business Activity following a change in the direct or indirect ownership include:

·         The offset limit of 75% of Tax Losses or another limit as may be prescribed, shall not apply to a Taxable Person whose shares are listed on a Recognized Stock Exchange.

12.  TAX GROUP PROVISIONS

12.1.                    Conditions for Formation of a Tax Group

·         A Resident Person, referred to as a “Parent Company”, can make an application to the Authority to form a Tax Group with one or more other Resident Persons, each referred to as a “Subsidiary” for the purposes of this Chapter, where all the following conditions are met:

·         One or more Subsidiaries in which a Government Entity directly or indirectly owns at least a 95% ownership interest can form a Tax Group, subject to the conditions to be prescribed by the Authority.

·         An application shall be made to the Authority by the Parent Company and each Subsidiary seeking to become members of the Tax Group.

12.2.                    Consequence of a Tax Group

·         A Tax Group formed this way is treated as a single Taxable Person for the purposes of this Law, represented by the Parent Company.

·         The Parent Company shall comply with all obligations set out in this Law on behalf of the Tax Group.

·         The Parent Company and each Subsidiary shall be jointly and severally liable for Corporate Tax Payable by the Tax Group for those Tax Periods when they are members of the Tax Group.

·         The joint and several liability for a Tax Period can be limited to one or more members of the Tax Group following approval by the Authority.

·         The Parent and each Subsidiary shall remain responsible for complying with the provisions of this Law.

12.3.                    Entry into, Exit from and Cessation of a Tax Group

·         A Subsidiary can join an existing Tax Group following submission of an application to the Authority by the Parent Company and the relevant Subsidiary.

·         A Subsidiary shall leave the Tax Group in the following circumstances:

·         A Tax Group shall cease to exist in any of the following circumstances:

·         The Parent Company of a Tax Group can make an application to the Authority to be replaced by another Parent Company without a discontinuation of the Tax Group, in any of the following circumstances.

·         The Authority may, at its discretion, dissolve a Tax Group or change the Parent Company of a Tax Group based on information available to the Authority, and notify the Parent Company of such action taken.

12.4.                    Date of Formation and Cessation of a Tax Group

·         A Tax Group shall be formed, or a new Subsidiary shall join an existing Tax Group from the beginning of the Tax Period specified in the application submitted to the Authority, or from the beginning of any other Tax Period determined by the Authority.

·         A member of a Tax Group shall be treated as leaving that Tax Group from the beginning of the Tax Period specified in the application submitted to the Authority, or from the beginning of any other Tax Period determined by the Authority.

·         A member of a Tax Group shall be treated as leaving that Tax Group from the beginning of the Tax Period in which the conditions for formation of a Tax Group are no longer met.

12.5.                    Taxable Income of a Tax Group

·         To ascertain the Taxable Income of a Tax Group, the Parent Company shall consolidate the financial results, assets and liabilities of each Subsidiary for the relevant Tax Period, eliminating transactions between the Parent Company and each Subsidiary that is a member of the Tax Group.

·         The relevant provisions of this Law shall apply as the context requires to the Tax Group.

12.6.                    Pre/Post-Grouping Tax Losses and Changes in Tax Group

·         Unutilized Tax Losses of a Subsidiary that joins a Tax Group (referred to in this Article as “pre-Grouping Tax Losses”) shall become carried forward Tax Losses of the Tax Group and can be used to offset the Taxable Income of the Tax Group insofar this income is attributable to the relevant Subsidiary.

·         Where a new Subsidiary joins an existing Tax Group, unutilized Tax Losses of the existing Tax Group cannot be used to offset the Taxable Income of the Tax Group insofar this income is attributable to the new Subsidiary.

·         Unutilized Pre-Grouping Tax Losses of Subsidiary or Tax Group are subject to general provisions for Tax Losses of this Law.

·         Where a Subsidiary leaves a Tax Group, Tax Losses of the Tax Group shall remain with the Tax Group, except for any unutilized pre-Grouping Tax Losses of the relevant Subsidiary.

·         On cessation of a Tax Group, unutilized Tax Losses of the Tax Group shall be allocated as follows:

·         The above embargo shall not apply where there is a continuation of the Tax Group by replacement of the Parent under this Law.

·         The requirement to consolidate shall not apply where an asset or liability has been transferred between members of the Tax Group and either the Transferor or Transferee leaves the Tax Group within 02 years from the date of the transfer, unless the associated income would have been exempt from Corporate Tax or not considered under any other provisions of this Law.

·         Any income that was not considered with regards to a transfer described above shall be considered on the date the Transferor or Transferee leaves the Tax Group and shall result in a corresponding adjustment of the cost base for Corporate Tax purposes of the relevant asset or liability.

·         The Tax Group must prepare consolidated financial statements in accordance with accounting standards applied in the UAE.

13.  CALCULATION OF CORPORATE TAX PAYABLE

13.1.                    Currency

All amounts must be quantified in the United Arab Emirates dirham. Any amount quantified in another currency must be converted at the applicable exchange rate set by the Central Bank of the United Arab Emirates, subject to any conditions that may be prescribed in a decision issued by the Authority.

13.2.                    Calculation and Settlement of Corporate Tax

The Corporate Tax due under this Decree-Law is settled in the following order:

·         First, by using the Taxable Person’s available Withholding Tax (WHT) Credit, as specified under this Law.

·         To the extent there is a residual amount after offsetting WHT Credit, by using the Taxable Person’s available Foreign Tax Credit as determined under this Law.

·         To the extent there is a residual amount after FT Credit, by using any credits or other forms of relief as specified in a decision issued by the Cabinet at the suggestion of the Minister.

·          To the extent there is a residual amount after WHT Credit, FT Credit and other Credits and Reliefs, this amount of Corporate Tax Payable must be settled in the manner prescribed in the Law.

13.3.                    Withholding Tax

·         The following income shall be subject to Withholding Tax at the rate of 0% (zero percent) or any other rate as specified in a decision issued by the Cabinet at the suggestion of the Minister:

·         The Withholding Tax payable shall be deducted from the gross amount of the payment and remitted to the Authority in the form and manner and within the timeline prescribed by the Authority.

13.4.                    Withholding Tax Credit

·         If a Person becomes a Taxable Person in a Tax Period, the Person’s Corporate Tax due can be reduced by the amount of Withholding Tax Credit for that Tax Period.

·         The maximum Withholding Tax Credit under this Decree-Law is the lower of:

·         Any excess Withholding Tax Credit for a Tax Period shall be refunded to the Taxable Person in accordance with this Law.

13.5.                    Foreign Tax Credit

·         Corporate Tax due can be reduced by the amount of Foreign Tax Credit for the relevant Tax Period.

·         The Foreign Tax Credit under this Law cannot exceed the amount of Corporate Tax due on the relevant income.

·         Any unutilized Foreign Tax Credit cannot be carried forward or carried back.

·         A Taxable Person shall maintain all necessary records for the purposes of claiming a Foreign Tax Credit.

14.  PAYMENT AND REFUND OF CORPORATE TAX

14.1.                    Maximum Time Allowed to Settle Corporate Tax Payable

·         A Taxable Person must settle the Corporate Tax Payable under this Decree-Law within 09 months from the end of the relevant Tax Period, or by such other date as determined by the Authority.

14.2.                    Corporate Tax Refund

·         A Taxable Person may make an application to the Authority for a Corporate Tax refund in accordance with the provisions of the Tax Procedures Law in the following circumstances:

·         The Authority shall issue the Taxable Person a notice of the Authority’s decision on an application under Clause 1 of this Article in accordance with the Tax Procedures Law.

15.  ANTI-ABUSE RULES

15.1.                    The Concept of Anti-abuse

·         These Rules apply to a transaction or an arrangement if it can be reasonably concluded that:

·         For the purposes of this Article, a Corporate Tax advantage includes, but is not limited to the following:

15.2.                    The Authority’s Prerogative for Anti-Abuse

·         Where these Rule apply to a transaction or arrangement, the Authority may decide that one or more specified Corporate Tax advantages obtained because of the transaction or arrangement are to be counteracted or adjusted.

·         If such a determination is made, the Authority must issue an assessment giving effect to the determination, which may include:

·         To determine whether these Rules apply to a transaction or arrangement, the following must be considered:

·         In any proceeding concerning the application of these Rules, the Authority must demonstrate that the determination so made is just and reasonable.

16.  TAX REGISTRATION AND DEREGISTRATION

16.1.                    Tax Registration

·         Any Taxable Person shall register for Corporate Tax with the Authority in the form and manner and within the timeline prescribed by the Authority and obtain a Tax Registration Number, except in circumstances prescribed by the Minister.

·         For an exemption from Corporate Tax under this Law or for provisions related to Tax Returns, the Authority may require the relevant Exempt Person as prescribed in this Law, or the Unincorporated Partnership to register for Corporate Tax and obtain a Tax Registration Number.

·         The Authority shall, at its discretion and based on information available to the Authority, have the ability to register a Person for Corporate Tax effective from the date the Person became a Taxable Person.

16.2.                    Tax Deregistration

·         A Person with a Tax Registration Number shall file a Tax Deregistration application with the Authority where there is a cessation of its Business or Business Activity, whether by dissolution, liquidation, or otherwise, in the form and manner and within the timeline prescribed by the Authority.

·         A Taxable Person shall not be deregistered unless it has paid all Corporate Tax and Administrative Penalties due and filed all Tax Returns due under this Law, including its Tax Return for the Tax Period up to and including the date of cessation.

·         If the Tax Deregistration application is approved, the Authority shall deregister the Person for Corporate Tax purposes with effect from the date of cessation or from such other date as may be determined by the Authority.

·         Where a Person does not comply with the Tax Deregistration requirements under this Article, the Authority may, at its discretion and based on information available to the Authority, deregister the Taxable Person effective from the later of either:

·         The date the Taxable Person ceases to exist.

17.  TAX RETURNS AND CLARIFICATIONS

17.1.                    Tax Returns

·         Subject to Article 51 of this Decree-Law, a Taxable Person must file a Tax Return, as applicable, to the Authority in the form and manner prescribed by the Authority no later than (9) nine months from the end of the relevant Tax Period, or by such other date as directed by the Authority.

·         The Tax Return shall include at least the following information, as applicable:

·         A Taxable Person shall provide the Authority with any such information, documents or records as shall be reasonably required by the Authority for the purposes of implementing the provisions of this Law.

·         The Minister may prescribe the form and the way a Tax Return and other information is to be filed with the Authority by a Taxable Person where the disclosure of information may impede national security or may be contrary to the public interest.

·         The Authority may request a Person to submit a declaration.

·         The Authority may, by notice or through a decision issued by the Authority, request the authorized partner in an Unincorporated Partnership that has not had an application approved to be treated as a Taxable Person to file a declaration on behalf of all the partners in the Unincorporated Partnership.

·         The Parent Company must file a Tax Return to the Authority on behalf of the Tax Group.

17.2.                    Financial Statements

·         The Authority may, by notice or through a decision issued by the Authority, request a Taxable Person to submit the financial statements used to determine the Taxable Income for a Tax Period in the form and manner and within the timeline prescribed by the Authority.

·         The Minister may issue a decision requiring categories of Taxable Persons to prepare and maintain audited or certified financial statements.

·         The Authority may request a partner in an Unincorporated Partnership to provide financial statements showing all of the following:

17.3.                    Transfer Pricing Documentation

·         The Authority may, by notice or through a decision issued by the Authority, require a Taxable Person to file together with their Tax Return a disclosure containing information regarding the Taxable Person’s transactions and arrangements with its Related Parties and Connected Persons in the form prescribed by the Authority.

·         If a Taxable Person’s transactions with its Related Parties and Connected Persons for a Tax Period meet the conditions prescribed by the Minister, the Taxable Person must maintain both a master file and a local file in the form prescribed by the Authority.

·         The documentation must be submitted to the Authority within 30 days following a request by the Authority, or by any such other later date as directed by the Authority.

·         Upon request by the Authority, a Taxable Person shall provide the Authority with any information to support the arm’s length nature of the Taxable Person’s transactions or arrangements with its Related Parties and Connected Persons, within 30 days following the request by the Authority, or by any such other later date as directed by the Authority.

17.4.                    Record Keeping

·         A Taxable Person shall maintain all records and documents for a period of 07 seven years following the end of the Tax Period to which they relate that:

·         An Exempt Person shall maintain all records that enable the Exempt Person’s status to be readily ascertained by the Authority for a period of 07 seven years following the end of the Tax Period to which they relate.

17.5.                    Tax Period

·         A Taxable Person’s Tax Period is the Financial Year or part thereof for which a Tax Return is required to be filed.

·         The Financial Year of a Taxable Person shall be the Gregorian calendar year, or the 12 twelve-month period for which the Taxable Person prepares financial statements.

17.6.                    Change of Tax Period

·         A Taxable Person can make an application to the Authority to change the start and end date of its Tax Period, or use a different Tax Period, subject to conditions to be set by the Authority.

17.7.                    Clarifications

·         A Person may make an application to the Authority for a clarification regarding the application of this Law or the conclusion of an advance pricing agreement with respect to a transaction or an arrangement proposed or entered by the Person.

·         The application shall be made in the form and manner prescribed by the Authority.

18.  VIOLATIONS AND PENALTIES

18.1.                    Assessment of Corporate Tax and Penalties

·         A Person may be subject to a Corporate Tax assessment in accordance with the Tax Procedures Law and the decisions issued in the implementation of its provisions.

·         Notwithstanding the provisions of the Tax Procedures Law and the decisions issued in the implementation of its provisions, the Authority may prescribe the circumstances and conditions under which a Corporate Tax assessment may be requested by a Taxable Person or issued by the Authority.

·         The Tax Procedures Law and the decisions issued in the implementation of its provisions shall determine the relevant penalties and fines relevant to the implementation of this Law.

19.  TRANSITIONAL RULES

19.1.                    Opening Balance Sheet

·         A Taxable Person’s opening balance sheet for Corporate Tax purposes shall be the closing balance sheet prepared for financial reporting purposes under accounting standards applied in the UAE on the last day of the Financial Year that ends immediately before their first Tax Period commences, subject to any conditions or adjustments that may be prescribed by the Minister.

·         The opening balance sheet shall be prepared taking into consideration the arm’s length principle in accordance with this Law.

19.2.                    Anti-Abuse Provisions to Take Effect upon Publishing of this Law

·         The Anti-Abuse provisions of this Law shall apply to transactions or arrangements entered into on or after the date this Law is published in the Official Gazette.

·         The Cabinet may, at the suggestion of the Minister, issue a decision prescribing other transitional measures related to the implementation of this Law and the application of its provisions.

20.  CLOSING PROVISIONS

20.1.                    Delegation of Power

·         The Minister may delegate his powers under this Decree-Law, in full or in part, to the Authority, where the Minister deems appropriate.

20.2.                    Administrative Policies and Procedures

·         The administrative policies, procedures and general instructions in relation to the requirements imposed on a Person under this Law shall be issued by the Authority in coordination with the Ministry.

20.3.                    Cooperating with the Authority

·         All governmental authorities in the UAE shall fully cooperate with the Authority to carry out whatever is required to implement the provisions of this Law and provide the Authority with any data, information and documentation in respect of a Taxable Person, or an Exempt Person as may be requested by the Authority.

20.4.                    Revenue Sharing

·         Corporate Tax revenues and Administrative Penalties collected under this Decree-Law shall be subject to sharing between the Federal Government and the Local Governments based on the provisions of a federal law issued in this regard.

20.5.                    International Agreements

·         To the extent the terms of an international agreement that is in force in the UAE are inconsistent with the provisions of this Decree-Law, the terms of the international agreement shall prevail.

20.6.                    Implementing Decisions

·         Subject to the powers conferred to the Cabinet under this Law, the Minister and the Authority shall issue the necessary decisions, within their respective powers, to implement the provisions of this Law.

·         The Cabinet may, at the suggestion of the Minister, issue implementing decisions for this Decree-Law.

20.7.                    Cancellation of Conflicting Provisions

·         Any text or provisions contrary to or inconsistent with the provisions of this Law shall be abrogated.

20.8.                    Application of this Decree-Law to Tax Periods

·         This Decree-Law shall apply to Tax Periods commencing on or after 1 June 2023.

20.9.                    Publication and Application of this Decree-Law

·         This Decree-Law shall be published in the Official Gazette and shall come into effect 15 days following the date of publication.

The End