UAE Corporate Tax – Taxable Persons, Taxable Rates, Exempt Persons & Free Zone Persons

The United Arab Emirates (UAE) Ministry of Finance (MoF) issued Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (pdf) (Corporate Tax Law or the Law) on December 9, 2022, to establish a new corporate tax (CT) regime in the UAE. Let’s walk through this blog to stay updated on the list of Taxable Persons, Exempt Persons, Free Zone Persons & the Taxable Rates.

Taxable Persons

Lets’s first define a taxable person. The term “taxable person” describes any individual or entity with a tax liability. A taxable person is subjected to Corporate Tax in the State under the Decree-Law.

 

The UAE Corporate Tax applies to both Residents and Non-Residents of the UAE.

A Resident Person refers to any of the following individuals:

a) A juridical person incorporated or otherwise established or recognised by the State’s applicable legislation, including a Free Zone Person.

b) A juridical person established or recognised under the applicable legislation of a foreign jurisdiction and effectively managed and controlled in the State.

c) A natural person who operates a business or engages in a business activity in the State.

d) Any other Person as determined by a Cabinet decision issued at the Minister’s suggestion.

A Non-Resident Person is a Person who is not considered a Resident Person.

UAE Corporate Tax – Taxable Persons

1. UAE – based Corporations and other Legal Entities that are based in the UAE or are effectively managed and controlled there.

2. Free Zone persons with non-qualifying income.

3. Natural people who carry out business activities in the UAE.

4. Non-Resident Corporate people (i.e., Foreign Legal Entities) that (i) have a permanent establishment in the UAE (as defined in Article 14 of the CT Law) or (ii) receive income from the UAE

Taxable Rates

In general, UAE businesses will face a 9% CT rate. A 0% rate will be applied to taxable income that does not exceed a specific threshold set by a Ministerial Decision (expected to be AED375,000 based on the FAQs).

While the MoF previously stated that large multinationals subject to Pillar Two might face a higher rate, the Corporate Tax Law is silent on the subject. Nonetheless, the FAQs reiterate the UAE’s commitment to implementing these rules as soon as possible, and further developments are expected. 

UAE Corporate Tax – Exempt Persons

1. The UAE Federal and Emirate Governments and their Departments, Authorities and other Public Institutions.
2. Wholly Government-owned Companies that carry out a mandated activity and that are listed in a Cabinet Decision.
3. Businesses engaged in the extraction of UAE natural resources and related non-extractive activities that are subject to Emirate-level taxation after meeting certain conditions.
4. Public Benefit Entities that are listed in a Cabinet Decision.
5. Investment Funds that meet the prescribed conditions.
6. Public or Private Pension or Social Security Funds that meet certain conditions.
7. UAE Juridical persons wholly owned and controlled by certain exempted entities after meeting certain conditions.

UAE Corporate Tax – Free Zone Persons

 A Free Zone Person is a juridical person incorporated, established, or otherwise registered in a Free Zone, including a branch of a NonResident Person registered in a Free Zone.

The UAE Corporate Tax Law introduces the concept of a “Qualifying Free Zone Person” (QFZP), which is broadly defined as a free zone company or branch that:

1. Maintains sufficient substance in the UAE

2. Obtains qualifying income (to be specified through a Ministerial Decision)

3. Meets transfer pricing requirements

4. Meets any other conditions imposed by a Ministerial Decision

A QFZP will still be subject to CT, but its qualifying income may be taxed at 0%. A QFZP may forego this preferential regime and pay the standard CT rate.

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