In a groundbreaking move, UAE’s Ministry of Finance introduced a corporate tax regime, featuring a standard rate of 9%. This landmark development underscores the Emirates’ proactive stance in aligning with international tax norms and enhancing its attractiveness as a global hub for business and investment.

Taxation under the new regime encompass a diverse range of entities: UAE-incorporated companies, foreign legal entities with a permanent establishment in the UAE, branches of foreign and domestic companies, including LLCs, PSCs, PJSCs, along with foreign and taxable natural persons.

Emphasizing its commitment to global tax standards, the UAE government’s consultation document underscores the alignment with the OECD’s BEPS project, which advocates for a global minimum effective tax rate.

By establishing a clear and predictable tax framework, the UAE aims to maintain its attractiveness as a business destination. The corporate tax rate is set at 9%, which is the lowest in the Gulf Cooperation Council (GCC) region, thus still providing a competitive edge over other jurisdictions. The new regime works on a simplified tax calculation mechanism, primarily based on accounting net profit, with provisions for minimal adjustments. Additionally, provisions for carrying forward tax losses, up to 75% of taxable income in subsequent periods, offers a measure of flexibility for businesses.

Several entities are exempt from the UAE’s newly incorporated tax regime:

Automatically Exempt Entities

The following entities are automatically exempted from UAE corporate tax:

The UAE federal and emirate governments and their departments, authorities, and other public institutions

Companies wholly owned and controlled by a government entity that carry out a mandated activity, and that are listed in a Cabinet Decision

Businesses engaged in the extraction of UAE natural resources or related non-extractive activities subject to emirate-level taxation, subject to certain conditions

Qualifying public benefit entities that are listed in Cabinet Decision No. 37 of 2023 or any subsequent relevant decisions.

Exempt Upon Application Approval

The following entities are exempted from UAE corporate tax upon approval of an application submitted to the Federal Tax Authority:

Qualifying investment funds that meet the prescribed conditions

Public or private pension or social security funds that meet the conditions specified in Ministerial Decision No. 115 of 2023

UAE juridical persons that are wholly-owned and controlled by certain exempted entities and undertaking specified activities.

The new corporate tax regime in the UAE, effective from June 1, 2023, introduces specific transfer pricing (TP) rules that significantly impact how businesses manage intercompany transactions. The UAE’s TP rules are largely aligned with the OECD Transfer Pricing Guidelines, emphasizing the arm’s length principle. This principle requires that transactions between related parties be priced as if they were conducted between unrelated parties, ensuring fair market value is applied to intercompany transactions.

Companies are now required to maintain comprehensive TP documentation, including a master file and local file, to substantiate the pricing of their intercompany transactions. This documentation must be submitted to the Federal Tax Authority (FTA) upon request, and failure to comply can lead to penalties and adjustments to taxable income.

With the Federal Tax Authority poised to spearhead administration and enforcement, collaboration between businesses and regulatory authorities will be instrumental in ensuring a seamless transition to the new tax landscape.

At MNV Associates, we understand the complexities of new tax regulations and the impact of emerging trends. Our experienced team is dedicated to helping your business stay compliant and expertly positioned for success in the ever-evolving fields of the financial world. Contact us today to learn how we can assist you with tailored tax solutions and expert guidance.

The introduction of corporate tax is part of a broader strategy to enhance fiscal stability and ensure long-term economic growth. By creating a more structured tax environment, the UAE government aims to attract foreign investment while also ensuring that domestic businesses contribute to the economy more meaningfully.