Corporate Income Tax (CIT) in the UAE
Companies doing business in the Emirates are liable to corporate income tax in respect of tax periods commencing on or after 1 June 2023.
The taxpayers are:
- legal entities registered in the UAE, including the UAE Free Zones (FTZs);
- foreign legal entities whose place of effective management and control is located in the Emirates;
- natural persons carrying out business activities in the Emirates.
Resident companies pay CIT on all their worldwide income, while non-residents pay tax only on income derived from sources within the UAE.
The tax rates are as follows:
- 0% — for taxable income not exceeding AED 375,000 (about USD 102,100);
- 9% — for taxable income over AED 375,000.
Other rates may apply for large multinational companies (MNEs) which are not currently defined.
Some of the features:
- the net accounting profit of the company according to its financial statements is subject to taxation;
- losses can be carried forward;
- foreign tax credit using international double tax treaties (DTTs) is allowed.
Corporate income tax is not levied on the following income:
- dividends, capital gains, interest, royalties and other income of foreign investors received from the UAE; any other domestic and international payments are also exempt from withholding tax;
- dividends and capital gains received by UAE companies from qualifying interests in other legal entities;
- income from qualifying intercompany transactions and restructurings.
In addition, there are no controlled foreign company (CFC) rules in the UAE.
A 0% CIT rate applies to Qualifying Free Zone Persons. In particular, for this exemption to apply, a company must obtain a “qualifying” income, and have a sufficient level of economic presence in the Emirates, as well as fulfil some other conditions. In addition, companies in the UAE mainland and “non-qualifying” FTZ residents can apply for “small business relief”, which exempts income from CIT under certain conditions.
Value-added tax. VAT was introduced in the UAE on 1 January 2018. It applies to operations with a wide range of goods and services and the importation of goods. The standard VAT rate is 5%. The supply of specific goods and services is taxed at a 0% rate or is exempt from VAT.
Registration for VAT in the UAE is mandatory for persons whose taxable turnover for the last 12 months exceeded the threshold of AED 375,000, or such excess is expected within the following 30 days.
Excise was introduced in 2017 concerning the import and production of carbonated, energy, and sugary drinks (50% rate), tobacco, tobacco products, appliances, and liquids (100% rate).
Local taxes apply to certain hotel and leisure services and property rentals.
There is no personal income tax in the UAE.There are no inheritance or wealth taxes in the UAE.
Tax residency in the UAE
The rules for determining tax residency for juridical and natural persons are mentioned in Cabinet Decision No. 85 of 2022.
An entity is considered a UAE tax resident either:
- it was incorporated, formed or recognised in accordance with the legislation in force in the UAE, and that does not include the branch that is registered by a foreign juridical person in the UAE;
- it is considered as a resident in accordance with the Tax Law in force in the UAE (for instance, when the Emirates is the place of effective management and control of the Company).
The tax residency certificate is issued by the UAE Federal Tax Authority (FTA). The certificate is valid for 1 year from the beginning of the financial year chosen by the applicant. It may be required to confirm the UAE tax residency status for application of an international double tax treaty.
A legal entity applying for a tax residency certificate must submit:
- copy of trade licence and information on directors and shareholders;
- Establishment contract certified by competent authorities (unless it is a sole proprietorship)
- copies of passports and Emirates IDs of owners, partners, and directors of the legal entity;
- copies of residence permits for owners, partners, and directors of the legal entity;
- certified copy of financial statements audited by a certified audit firm (the financial statements must cover the year for which the certificate is requested. If the certificate is requested for the current year, the financial statements must cover the previous year);
- a bank statement issued by a local (UAE) bank covering 6 months;
- a certified copy of a lease agreement.
However, UAE offshore companies cannot obtain tax residency certificates. Unlike mainland or FTZ companies, offshore companies are not tax residents of the Emirates by definition, and therefore cannot benefit from DTTs.
A natural person is considered a UAE tax resident either:
- his/her usual or primary place of residence and the centre of his financial and personal interests are in the UAE; or
- he/she has been physically present in the UAE for a period of 183 days or more; or
- he/she has been physically present in the UAE for more than 90 days, holds a residence permit or citizenship in the UAE or another GCC country (Saudi Arabia, UAE, Kuwait, Qatar, Oman or Bahrain), and additionally:
- he/she has a permanent place of residence in the Emirates (for example, rents a furnished apartment made continuously available to the natural person); or
- he/she is employed or carries on business in the UAE.
The rules for the calculation of time periods for determining tax residency status and definitions of different terms (“primary and permanent place of residence”, “centre of financial and personal interests”) are contained in Ministerial Decision No. 27 of 2023.
Double tax treaty network of the UAE
Below is a list of countries with which the United Arab Emirates has double taxation treaties (DTT) in force as of November 2023, according to the UAE Ministry of Finance website.
The double taxation treaties may have a different scope of application. To understand the conditions for the avoidance of double taxation for a particular country or category of income, you should analyse the provisions of the DTT with the relevant country.
- Antigua and Barbuda
- Bosnia and Herzegovina
- Costa Rica
- Guinea Hong Kong
- Korea (Rep. of)
- New Zealand Niger
- Saudi Arabia
- South Africa
- United Kingdom
The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting of 2016 entered into force for the UAE on 1 January 2019. Bilateral double tax treaties concluded by the UAE will be applied subject to this Convention.
UAE and international exchange of tax information
The UAE exchanges tax information upon request under the Convention on Mutual Administrative Assistance in Tax Matters, which entered into force for the UAE on 1 September 2018, and bilateral DTTs that contain relevant commitments.
The UAE joined the automatic exchange of financial account information under the MCAA Common Reporting Standard (CRS) in 2018. According to the OECD Automatic Exchange Portal, the UAE sends financial information to 82 jurisdictions.