The corporate tax rates for taxable income will be as follows:

• 0% for income up to AED375,000
• 9% for income above AED375,000
• A different rate will soon be implemented for large multinationals that meet specific criteria set by the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project. A ‘large’ multinational corporation is defined as one that has consolidated global revenues of more than €750m (c. AED3.15bn).

The taxable income subject to UAE corporate tax will be the accounting net profit of a business, as reported in financial statements prepared in accordance with internationally accepted accounting standards, after adjustments for certain items specified under the UAE Corporate Tax Law (unrealised gains/losses, entertainment, interest, donations, and other items specified in the Law).

Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from UAE corporate tax, as will qualifying intra-group transactions and reorganisations that meet certain conditions.

Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from UAE corporate tax.

Qualifying intra-group transfers will not be subject to UAE corporate tax provided the necessary conditions are met.

Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from UAE corporate tax, as will qualifying intra-group transactions and reorganisations that meet certain conditions.

UAE corporate tax will apply to UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE. This includes natural persons (individuals) who conduct business or business activities in the UAE, as specified in a Cabinet decision to be issued in due course, and non-resident juridical persons (foreign legal entities) that have a permanent establishment in the UAE

To determine this, reference will be made to whether they have, or are required to obtain, a business licence or permit to carry out commercial, industrial and/or professional activities in the UAE.

Under the new regime, businesses will be categorised as ‘Taxable’, ‘Exempt’ or ‘Qualifying Free Zone Persons’ (QFZP) and must assess if they fall under these categories and register accordingly. Certain exempt entities must still apply and receive approval.

A taxable person shall be either a resident or non-resident person:

Resident person:

• A resident person is a juridical person incorporated/established/recognised in the state, including a free zone person, or of a foreign jurisdiction that is effectively managed and controlled in the state
• A natural person who conducts a business or business activity in the state.

Non-resident person:

• A non-resident person that either has a permanent establishment in the state, derives state-sourced income or has a nexus in the state as per Cabinet Decision.

A branch in the state of a resident person shall be treated as one and the same taxable person.

Certain exemptions are made automatically, via cabinet decision or upon application, as follows:

Automatically exempt:

• Government entities and government-controlled entities to be specified in a cabinet decision (yet to be published)
• Exempt upon notification to the UAE Ministry of Finance – extractive and non-extractive natural resource businesses
• Exempt, if listed in a cabinet decision (yet to be published) – Qualifying Public Benefit entities.

Exempt, if applied to and approved by the Federal Tax Authority:

• Public or private pension and social security funds
• Qualifying investment funds
• Wholly owned and controlled UAE subsidiaries of exempt persons.

Free zone (FZ) entities will be subject to UAE corporate tax, but will continue to have corporate tax incentives as long as they comply with all applicable regulatory requirements.

Free zone entities that meet conditions to benefit from the free zone corporate tax regime – qualifying free zone persons (QFZPs) – will have to pay tax at the following rates:

• 0% on qualifying income
• 9% on taxable income that does not meet the qualifying income definition.

A QFZP should meet the following conditions to benefit from the 0% corporate tax rate:

• Maintain adequate substance in the UAE
• Derives qualifying income (as to be specified in a cabinet decision yet to be made)
• Has not elected to be subject to 9% CT
• Complies with transfer pricing provisions (as applicable).

Foreign corporate tax paid on UAE taxable income will be allowed as a tax credit against the UAE corporate tax liability. The UAE corporate tax regime will allow a business to use losses incurred from the effective date of the regime to offset taxable income in subsequent financial periods.

UAE will also have transfer pricing rules to ensure that the price of a transaction is not influenced by the relationship between the parties involved. Businesses will be required to apply the internationally recognized ‘arm’s length’ principle to transactions and arrangements between related parties and connected persons.

If relevant, businesses will also need to submit a disclosure containing information regarding their transactions with related parties and connected persons and maintain a master and local file (with format and content consistent with the requirements prescribed under OECD BEPS Action 13) where the arm’s length value of their related party transactions exceeds a certain threshold in the relevant tax period.

The UAE cabinet decision on penalties for late submission of corporate tax information is yet to be published. They are expected to include significant fines and may include the risk of imprisonment for non-compliance.