UAE corporate tax: Maximise benefits by enjoying exemptions and opting reliefs

The UAE corporate law exempts certain businesses from the obligation to register for corporate tax, while others are liable to register. However, the registered businesses can benefit from reliefs while calculating their taxable income. This article provides a summary of the key reliefs and exemptions available to businesses in the UAE.

Certain resident juridical persons, such as government entities, government-controlled entities, businesses engaged in natural resource extraction, those involved in non-extractive natural resource businesses, and natural persons with business revenue below Dh1 million in a Gregorian calendar year, are exempt from corporate tax. Other entities and funds, such as pension funds, social security funds, qualifying public benefits entities, qualifying investment funds etc. established for public welfare, are obligated to register but can apply for exemption from corporate tax after registration.

Small business relief is available to resident taxable persons except the qualifying free zone person (QFZP) and member of multinational enterprise (MNE), whose business revenue in the current tax period and any prior periods does not exceed Dh3 million. Businesses meeting these criteria and availing for small business relief are exempt from corporate tax for the tax period ending on or before December 31, 2026.

The QFZPs who earn income from transactions with other free zone persons and from qualifying activities involving non-free zone persons are taxed at a rate of zero per cent, as long as these activities do not fall under excluded activities; and meeting additional criteria such as de-minimum requirement, transfer pricing compliance, adequate substance etc.

The interest capping rules do not apply to banks, insurance companies, firms engaged in qualifying infrastructure projects, sole proprietorships, loans acquired before December 9, 2022, with unchanged terms and situations where net interest is up to Dh12 million per annum. Except above, for cases where the net interest exceeds Dh12 million, the taxpayer can claim the higher of Dh12 million or 30 per cent of earnings before interest, taxes, depreciation and amortisation (Ebitda), with any excess amount eligible for carryforward for up to ten years.

When certain conditions are met, business restructuring relief can be availed upon transferring the entire business or an independent part of the business to another taxable or potentially taxable person because of this transfer which is under the common ownership of 75 per cent, and at least 90 per cent of the consideration is in the form of equity or equitable interest.

Subject to specific terms and conditions, a taxable person can transfer its tax losses to another taxable person even not part of the tax group or transfer its assets and liabilities held in the capital account to another taxable person at book value. These reliefs are accessible under the assumption that the businesses are under the common ownership of at least 75 per cent.

Upon fulfilment of conditions, resident juridical taxable persons except the QFZP, have the option to establish a tax group if there is at least 95 per cent common ownership, voting rights; and share in profits and net assets. Members of the group can offset each other’s tax losses, and assets and liabilities can be transferred among them at book value without recognising any gains or losses on the transfers. The group is responsible for filing a single tax return, and under a unified tax registration number, the group is treated as a single taxable entity.

The writer, Mahar Afzal, is a managing partner at Kress Cooper Management Consultants. The above is not an official opinion of Khaleej Times but an opinion of the writer. For any queries/clarifications, please feel free to contact him at mahar@kresscooper.com.