Exempt persons
The CTL (Art. 4) provides for several categories of entities exempt from corporate tax (subject to certain conditions): governmental entities and/or government-controlled entities; entities engaged in the extractive business; entities engaged in the non-extractive business of natural resources; qualifying public benefit entities; qualifying investment funds; pension and social security funds; entities controlled by other exempt entities; other entities that may be determined in a decision issued by the Cabinet at the suggestion of the Minister.
Taxable persons
The CTL (Art. 11) concerns the following resident taxpayers, who will be subject to the CT on all income earned by them, both in the UAE and abroad:
- Companies and other legal entities having their seat and/or effective control and administration in the UAE, including Free Zones;
- Individuals conducting a business or commercial activity in the UAE (commercial activities subject to corporate tax will be specified in a Cabinet Decision to be published in due course).
The CTL also concerns the following non-residents, only for income earned by them in the UAE:
- Non-resident persons having a permanent establishment in the UAE;
- Non-resident persons obtaining income whose source is in the UAE. Article 13 (para. 1) of the CTL first of all identifies the following cases as UAE source income: income from a resident person; from a permanent establishment in the UAE of a non-resident person; from activities carried out, property located, capital invested, rights used or services rendered in the UAE. Article 13 (paragraph 2) also lists further cases, subject to possible limitation by the Minister, including income from the sale of goods, provision of services, exploitation of rights, income of a financial and insurance nature in the UAE;
- Non-residents with a nexus in the UAE (the concept of nexus will be specified in a Cabinet Decision to be published in the future).
Companies based in the Free Zones of the UAE will be subject to Corporate Tax but, if they meet the conditions to be considered 'Qualifying Free Zone Person' (Art. 18 of the CTL), they will benefit from a tax rate of 0% on their 'qualifying income'. In order to qualify for Qualifying Free Zone Person status they will have to:
- have adequate economic substance in the UAE;
- generate qualified income ('qualifying income'), which will be specified in a Cabinet Decision to be published in the coming months;
- not have chosen to be subject to the standard rate;
- comply with the transfer pricing rules introduced by the CTL.
Taxable base
The taxable base of the CT will be the net profit resulting from the financial statements, prepared in accordance with international accounting standards and the adjustments provided for in Article 20 of the CTL.
Rate of taxation
The CT will have a rate of 9% that will apply to taxable profits exceeding the threshold of AED 375,000. For profits below this minimum threshold, the rate will be 0% (the rates and minimum tax threshold were confirmed by Cabinet Decision 116 of 2022).
Qualifying Free Zone Persons, on the other hand, will be taxed at a rate of 0% on qualified income and 9% on other types of income.
Participation Exemption Regime (PEX)
The CTL (Art. 22 and 23) introduces a tax exemption regime on dividends and capital gains. In particular, in order to benefit from the Participation Exemption, the UAE company must fulfil the following requirements:
- hold at least 5% of the investee company;
- respect a minimum holding period of 12 months;
- the investee company must be subject to a corporate tax at a rate of at least 9%;
- and other requirements that may be established by the Minister.
- Dividends received from other UAE residents will always be exempt from the CT.
Withholding Tax
The CTL (Art. 45) introduces a withholding tax on UAE source income received by a non-resident. The rate of the withholding tax will be 0% (but may be changed in the future by a Cabinet Decision).
The modalities of registration, declaration and payment of taxes
Every taxable person (including Free Zone Persons) must register with the Federal Tax Authority Portal and obtain their Corporate Tax Registration Number (some Exempt Persons may also be required to register for CT purposes). Each taxable person will be required to file an annual tax return and pay the relevant taxes within 9 months of the end of the tax year.
Conclusions
The introduction of the CT represents a turning point and confirms the willingness of the UAE to no longer be regarded as an offshore jurisdiction in international relations. All those potentially affected by the CT will have to assess their situation as soon as possible, also with the help of the Cabinet Decisions, soon to be published, which should clarify those aspects of the CTL that are still not well defined.
