MoF issues Explanatory Guide for corporate tax purposes

The Guide provides an article-by-article explanation of the meaning and intended effect of the provisions of the Corporate Tax Law and its implementing decisions (issued as of 30 April 2023). The Guide may be used to interpret the Corporate Tax Law and how particular provisions must be applied.

Younis Haji Al Khouri, Undersecretary of the Ministry of Finance, said, “The Ministry of Finance is working to provide clarity and guidance to those who are or may be subject to UAE's Corporate Tax, so they can understand the provisions of the law and why it is enacted. The Explanatory Guide reflects our continued commitment to ensuring that taxable persons are supported and provided with information before the law's entry into effect."

The Guide explains the various features of the UAE's Corporate Tax regime, which would encourage business activity and minimise the compliance burden for taxable persons. Foremost, applying a 0% Corporate Tax rate for taxable income up to AED375,000, and a 0% Corporate Tax rate for qualifying Free Zone persons, in recognition of the importance of Free Zones to the development of the UAE historically.

In addition, the Corporate Tax regime provides financial and administrative relief to support start-ups and small businesses. Businesses qualifying for such relief will not pay any tax and avail of simplified filing requirements where their turnover is up to AED3,000,000.

The Guide describes other features, including a 0% withholding tax on cross-border and domestic payments; exemptions from Corporate Tax for foreign branch profits, dividends and capital gains earned from domestic and foreign shareholdings where the relevant conditions are met; and foreign tax credits for foreign-sourced income that is not exempt to avoid double taxation.

In addition, it highlights targeted exemptions for certain entities subject to Emirate-level corporate taxation or considered essential to the social fabric of the UAE. These include government entities, investment funds, pension and social security funds, public benefit organisations and natural resource businesses.

The Guide also includes a detailed explanation of internationally benchmarked Transfer Pricing documentation requirements and thresholds to ensure a minimal compliance burden on small and medium enterprises. It clarifies the ability to utilise Tax Losses in future tax periods without a time limitation and the ability to transfer Tax Losses between tax group companies, where the relevant conditions are met. This means UAE groups can file and pay their Corporate Tax on a consolidated basis as a single taxable entity to ensure administrative efficiencies and simplicity.

Other features include Relief from Corporate Tax for intra-group transfers and business restructuring transactions, where the relevant conditions are met; the ability for family foundations and trusts to be treated as tax transparent to prevent personal wealth and investment income from being subject to Corporate Tax; and the alignment of the calculation of taxable income to accounting profits, with limited adjustments to determine the Corporate Tax payable.

The UAE will apply a 9% headline Corporate Tax rate for taxable income above AED375,000, one of the lowest competitive Corporate Tax rates globally and is aligned with the UAE’s objective of continuing to be a leading destination for business and investment.

Copies of the Corporate Tax Law, its implementing decisions and more information relating to Corporate Tax can be viewed on the Ministry of Finance's website.