Introduction:
In the UAE, corporate taxation is governed by Federal Decree-Law No. 47/2022 on the Taxation of Corporations and Businesses, providing a comprehensive legal framework outlining tax imposition, rates, and criteria for tax obligations.
Understanding corporate taxation is crucial for businesses operating within the UAE, whether they are Resident Persons, Non-Resident Persons with Permanent Establishments, Joint Ventures, Family Foundations, or engaged in specified business activities.
This article provides insights into corporate tax imposition, criteria for identifying taxable persons, determining the corporate tax base, and various exemptions available under UAE corporate tax law.
Imposition of Corporate Tax:
According to Article 3, specific rates apply to distinct categories such as Qualifying Free Zone Persons or Small Businesses availing relief mechanisms. The provisions of a new Clause were added by Federal Decree-Law No. 60/2023 dated 02/10/2023.
Criteria for Identifying Taxable Persons and Determining the Corporate Tax Base (Articles 11-14):
Taxable Person categories include Resident Persons and Non-Resident Persons. The Corporate Tax Base includes income generated within or outside the UAE for Resident Persons and certain criteria for Non-Resident Persons.
State-sourced income includes revenue generated within the UAE by both resident and non-resident entities, covering various activities such as the sale of goods, provision of services, contracts, property, and intellectual property rights.
Criteria for the existence of permanent establishments are outlined, with exclusions for places used solely for preparatory or supplementary purposes.
Investment Manager Exemption and Treatment of Partners in Joint Ventures (Articles 15-16):
Investment managers acting on behalf of non-resident persons are exempted from certain tax obligations, subject to specific conditions. Joint ventures are treated as individual taxable persons unless an application is made for joint venture status.
Family Foundation Treatment and Qualifying Free Zone Person (Articles 17-18):
Family foundations meeting specified criteria may apply for joint venture status, subject to compliance with tax regulations. A Qualifying Free Zone Person is defined as a Free Zone Person meeting specific criteria, with tax incentives potentially extendable up to 50 years.
Choosing to be Subject to Corporate Tax and General Rules for Determining Taxable Income (Articles 19-21):
Qualifying Free Zone Persons have the option to opt into Corporate Tax at specified rates, providing flexibility for transition into Corporate Tax obligations. Taxable Income is determined separately for each entity based on financial statements prepared according to UAE-accepted accounting standards.
Resident Persons meeting specific revenue thresholds can opt not to realize Taxable Income for a period, with provisions exempting certain income, reliefs, deductions, and tax loss reliefs.
Exempt Income and Exemption from Participation (Articles 22-23):
Taxable Income calculation excludes various income sources, including dividends, profit distributions, and certain income from Participating Interests, Foreign Permanent Establishments, and international transportation operations.
Conditions are outlined for exemption from Corporate Tax on income from Participating Interests, with various exemptions and conditions detailed for different scenarios involving Participating Interests.
Exemption of a Foreign Permanent Establishment and Non-Resident Person Operating Aircraft or Ships in International Transportation (Articles 24-25):
Resident Persons may opt to exclude income and associated expenditure of Foreign Permanent Establishments from Taxable Income, with separate treatment of Resident Persons and their Foreign Permanent Establishments.
Income from international transportation activities is exempt from Corporate Tax if specific conditions are met regarding the nature of the business and tax treatment in the Non-Resident Person's jurisdiction.
Conclusion:
Understanding the UAE's corporate tax law structure is crucial for businesses operating within the UAE, providing clarity on their tax obligations based on various criteria such as residency status, business activities, and revenue thresholds.
Understanding and adhering to these regulations is paramount for businesses to ensure compliance with UAE tax laws while optimizing their tax positions within the legal framework.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.