UAE CT: Exemptions and Reliefs

The UAE corporate law (the law) exempt 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 Dhs 1 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 Dhs 3 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.

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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 percent, 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 Dhs 12 million per annum. Except above, for cases where the net interest exceeds Dhs 12 million, the taxpayer can claim the higher of Dhs 12 million or 30% of 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 are under the common ownership of 75%, and at least 90% 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%.

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% 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 recognizing 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.

Where the resident taxable person has foreign Permanent Establishment (PE), the taxable person has an option not to consider its income and related expenses after taking approval from Federal Tax Authority provided the tax rate in the PE’s jurisdiction is at least nine percent.

Dividends and other profit distributions received from resident juridical persons are exempt from corporate tax. Similarly, dividends and other profit distributions received from non-resident persons, along with gains and losses of on the transfer, sale, or disposition of a participating Interest, exchange gain and losses, impairment gain and loss etc., are exempt from taxation if the conditions of participation exemptions are satisfied.

When assets are held at historical cost, the taxpayer can choose not to pay tax on gains from the pre-tax era. Additionally, the taxpayer has the option to follow the realization or realization basis, which is only applicable when the taxpayer prepares its financial statements on an accrual basis.

Businesses with taxable revenue below Dhs 50 million are not mandated to have the signed financial statements, nor they are obliged to adhere to full IFRS standards. Furthermore, any tax losses incurred can be carried forward indefinitely provided there is a at least 50% continuity of ownership or continuity of the business.

These provisions offer substantial relief to businesses in the UAE, contingent upon meeting various conditions that must be adhered to diligently before opting for any relief or exemption.

The writer, Mahar Afzal, is a managing partner at Kress Cooper Management Consultants. The above is not his official but personal opinion. For any queries/clarifications, please feel free to contact him at?[email protected] .