UAE Corporate Tax — FDL 47/2022, QFZP, transfer pricing, Pillar Two

Under FDL 47 of 2022, Taxable Income up to AED 375,000 is taxed at 0%; income above AED 375,000 at 9%. From 1 January 2025, the Domestic Minimum Top-up Tax (DMTT) at 15% applies to in-scope MNE groups with consolidated revenue EUR 750m+ in at least two of the last four years. Effective from financial years starting on or after 1 June 2023.

Article 11 defines two categories. Resident Person: any juridical person incorporated in the UAE (mainland or Free Zone), or a foreign juridical person effectively managed and controlled in the UAE; plus natural persons conducting Business in the UAE with annual Turnover above AED 1m. Non-Resident Person: any foreign juridical person with a Permanent Establishment in the UAE, deriving UAE-sourced income, or having a nexus to UAE real estate.

Taxable Income is the Accounting Income (per IFRS or, for SMEs, IFRS for SMEs) adjusted by the additions and deductions in Articles 20-30. Key adjustments: unrealised gains/losses on capital items (election under Ministerial Decision 134/2023); related-party arm's-length adjustment; non-deductible items (fines, recoverable VAT, dividends already participation-exempt); interest cap (Article 30); 50% disallowance on entertainment expenses; deduction of the Small Business Relief threshold; loss utilisation up to 75% of current-year Taxable Income.

Cabinet Decision 100 of 2023 defines a QFZP as a Free Zone Person that: (i) maintains adequate substance; (ii) derives Qualifying Income; (iii) has not elected to be subject to standard 9%; (iv) complies with TP rules and Ministerial Decision 97/2023 documentation; (v) maintains audited financial statements; (vi) does not exceed the de minimis threshold for non-qualifying income (5% of total revenue or AED 5m, whichever is lower). Loss of QFZP status applies for the current and subsequent four tax periods.

Ministerial Decision 265 of 2023 defines Qualifying Income as: (i) income from transactions with other Free Zone Persons (excluding Excluded Activities); (ii) income from Qualifying Activities with non-Free-Zone Persons; (iii) any other income, provided the de-minimis test is met. Qualifying Activities include manufacturing, fund management, holding shares and other securities, treasury and financing services to Related Parties, and certain shipping. Excluded Activities include income from natural-person transactions, banking (with limited exceptions), insurance, finance and leasing, and ownership of UAE real estate (with carve-outs for commercial property in a Free Zone).

Adequate substance is required: core income-generating activities must be conducted in the Free Zone, with adequate qualified employees and adequate physical assets (office space, equipment, OPEX). Outsourcing to a Free Zone-resident party is permitted, with adequate supervision. Substance is tested on the facts of each business — there is no fixed minimum employee or asset threshold under Cabinet Decision 100/2023, but the FTA can challenge "letterbox" structures.

Ministerial Decision 73 of 2023 introduces Small Business Relief: a Resident Person with annual revenue not exceeding AED 3m may elect to be treated as having no Taxable Income (effectively 0% CT) for tax periods ending on or before 31 December 2026. Available only to Resident Persons, not Free Zone Persons, not constituent entities of MNE groups within DMTT scope. Election made on the CT return; revocable.

FDL 47/2022 Article 23 + Ministerial Decision 116 of 2023 exempt income from a Participating Interest: dividends and capital gains. Conditions: (i) at least 5% ownership in the participation; (ii) held for at least 12 months; (iii) the participation must be subject to CT (or a similar tax) at not less than 9% (the "subject-to-tax" test), or be a Qualifying Free Zone Person, or be a real-estate or natural-resource holding subject to a separate test; (iv) no more than 50% of the participation's assets are non-qualifying. Excluded: income from certain "Excluded" Participating Interests.

FDL 47/2022 Article 24 lets a Resident Person elect to exempt income (and losses) attributable to a Foreign Permanent Establishment, subject to: (i) the foreign PE being subject to tax at not less than 9% in its jurisdiction; (ii) the election being made on the CT return; (iii) the election applying to all the taxpayer's foreign PEs (no cherry-picking). Once elected, foreign-PE losses are not deductible against UAE income.

FDL 47/2022 Articles 40-42: a UAE-resident parent and its UAE-resident 95%+ subsidiaries may form a Tax Group, provided all entities use the same accounting period, financial year and accounting standards. The Tax Group files a single consolidated CT return; intra-group transactions are eliminated. Both parent and subsidiary must consent. A subsidiary cannot be a QFZP. Effective from the first day of the tax period in which application is made.

FDL 47/2022 Articles 34-36 require all related-party and connected-person transactions to be at arm's length under OECD-aligned methods (CUP, Resale Price, Cost Plus, TNMM, Profit Split). Definitions: Related Party includes any 50%+ ownership or direct/indirect control link; Connected Person includes owners, directors, officers and their relatives. The FTA may make compensating adjustments where transactions are not at arm's length.

Ministerial Decision 97/2023 sets thresholds: Master File + Local File required where consolidated MNE-group revenue is AED 3.15bn+ or the UAE taxpayer's revenue is AED 200m+. Both files must be prepared by the CT return due date and produced within 30 days of FTA request. CbCR obligations under Cabinet Decision 44/2020 apply to UAE-headquartered MNE groups with consolidated revenue EUR 750m+. Plus: a related-party-transactions disclosure form accompanies every CT return where related-party transactions exceed the de-minimis (AED 40m aggregate or AED 4m per category).

FDL 47/2022 Article 30 + Ministerial Decision 126 of 2023 cap deductible Net Interest Expense at the higher of: (i) 30% of EBITDA; or (ii) AED 12m. Disallowed interest carries forward up to 10 tax periods. The cap does not apply to: banks, insurance companies, natural persons, or interest on debt arising before 9 December 2022 (grandfathered). Article 31 separately disallows interest paid on related-party loans where the principal use is tax avoidance.

FDL 47/2022 Article 37: tax losses may be carried forward indefinitely, subject to (i) the 75% utilisation cap (loss can offset up to 75% of current-year Taxable Income); (ii) the same-business-and-ownership continuity test — losses are forfeited where 50%+ ownership change combined with substantial business change; (iii) intra-group transferability under Article 38 (subject to 75%+ continuous ownership). Pre-CT losses are not utilisable.

Cabinet Decision 142 of 2024 implements a 15% Domestic Minimum Top-up Tax effective 1 January 2025. Aligned with OECD GloBE Rules (Pillar Two). Scope: UAE constituent entities of MNE groups with consolidated annual revenue EUR 750m+ in at least two of the last four fiscal years. Mechanics: the GloBE Effective Tax Rate is computed on a jurisdictional basis; where ETR < 15%, a top-up tax is imposed in the UAE rather than abroad (avoiding the Income Inclusion Rule applying overseas). This is a Qualified Domestic Minimum Top-up Tax (QDMTT) under OECD criteria.

Article 53: a Taxable Person files a CT return within 9 months of the end of the relevant Tax Period. CT due is paid by the same deadline. Returns are filed electronically through the FTA's EmaraTax portal. Provisional payments are not required during the year. A late-filing administrative penalty applies under FDL 28/2022 + Cabinet Decision 75/2023.

UAE imposes 0% withholding tax on UAE-source payments to non-residents (dividends, interest, royalties) under FDL 47/2022 Article 45. Foreign tax suffered on income brought into UAE Taxable Income may be claimed as a Foreign Tax Credit under Article 47 — credit is capped at the UAE CT that would have been payable on that income. Excess foreign credits cannot be carried forward.

FDL 28/2022 (Tax Procedures Law) governs FTA audits. The FTA may examine returns and underlying records within 5 years of the relevant tax period — extended to 15 years where evasion is suspected. The audit cycle: notice; document production (typically 10 business days); on-site inspection where required; draft assessment; taxpayer response window; final Tax Assessment. Records must be kept for at least 7 years (10 years for real-estate entities; 15 years for evasion cases).

Three-stage appeal under FDL 28/2022. Stage 1 — Reconsideration: file with FTA within 40 business days of the assessment; FTA must decide within 20 business days. Stage 2 — Tax Disputes Resolution Committee (TDRC): appeal Reconsideration outcome within 40 business days; TDRC decides within 20 business days (extendable). Stage 3 — Federal Court: appeal TDRC decision within 40 business days. The Federal Court hearing is the final fact-finding instance; further appeal to the Federal Court of Cassation is on points of law only.

Cabinet Decision 75 of 2023 sets the CT-specific penalty schedule. Selected: failure to register AED 10,000; failure to deregister within 3 months AED 1,000/month, capped at AED 10,000; late return filing AED 500/month for 12 months, then AED 1,000/month; late tax payment 14% per annum (monthly accrual); incorrect return AED 500-1,000 first occurrence; failure to maintain records AED 10,000-20,000; wilful tax evasion up to 300% of tax due plus criminal referral under FDL 28/2022 Article 25.