Corporate Tax (CT)

The UAE remains committed to upholding its tax incentives for businesses registered in Free Trade Zones (FTZs). Businesses operating exclusively within these zones and refraining from conducting business with Mainland UAE are eligible for a 0% tax rate (or exemption, as applicable) until the expiration of their tax holiday period. However, all Free Zone entities are required to file an annual Corporate Tax (CT) return to maintain compliance. Dual Operations Consideration: Businesses with activities in both Mainland UAE and Free Trade Zones—particularly those under a dual license scheme—should assess how the CT regime may impact their operating model and tax planning strategies. A careful review can help identify any adjustments needed to optimize operations while benefiting from the FTZ tax incentives.

The OECD Transfer Pricing (TP) Rules are now applicable in the United Arab Emirates (UAE), requiring all companies to adhere to mandatory TP compliance and documentation requirements. These rules may apply not only to cross-border but also to domestic transactions, ensuring that all intercompany dealings are conducted at arm’s length. Historically, intercompany sales and financing arrangements within UAE-based groups may not have focused on arm’s length pricing, as financial consolidation would often eliminate the need for internal transaction remuneration. This shift means that all intercompany transactions must now meet arm’s length standards and be supported by appropriate TP documentation. For businesses, this represents a significant regulatory change, as all current intercompany arrangements—including both cross-border and domestic transactions—must be evaluated and adjusted to meet compliance. Proper documentation is essential to substantiate pricing methods, mitigate risks, and avoid potential disputes with tax authorities.

Under the UAE Corporate Tax (CT) regime, accumulated taxable losses can be carried forward to offset future taxable profits. This provision allows businesses to utilize past losses to reduce taxable income in profitable years, effectively enhancing cash flow and supporting long-term growth. The specifics of loss carry-forward periods and any conditions will be outlined in the UAE CT regulations.

The UAE Corporate Tax (CT) regime provides for tax grouping and group relief provisions, allowing UAE-based groups to benefit from consolidated tax filing and shared tax relief. Eligible UAE groups may:

1. File Consolidated Tax Returns: Groups with qualifying entities should be able to submit a single, consolidated tax return, simplifying compliance and administration.
2. Offset Tax Losses Within the Group: Tax losses from one group entity may be offset against the taxable profits of another, optimizing tax efficiency across the group.

These provisions enhance tax efficiency and enable group entities to leverage combined resources effectively, fostering a supportive framework for UAE-based businesses to manage corporate tax liabilities strategically. Specific conditions and eligibility criteria for grouping will be outlined in the detailed UAE CT regulations.

Under the UAE Corporate Tax (CT) regime, taxable entities will be eligible to claim a foreign tax credit for corporate taxes paid abroad on income that is also taxable in the UAE. This credit can be applied against the entity’s annual UAE tax liability, helping to prevent double taxation on foreign-sourced income and ensuring a more favorable tax environment for UAE businesses with international operations. The details and limitations for claiming foreign tax credits will be specified in the UAE CT regulations.