Scope of UAE Corporate Tax Law

Introduction

The UAE introduced Corporate Tax through Federal Decree-Law No. 47 of 2022, which came into effect for financial years beginning on or after 1 June 2023. As this tax regime is new to many businesses in the region, understanding its scope is critical.

It provides a comprehensive overview of the scope of UAE Corporate Tax Law — including who it applies to, what income is taxed, and the geographic and activity coverage of the law.

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⚖️ Legal Basis

The Corporate Tax framework is built on:

• Federal Decree-Law No. 47 of 2022

• Cabinet and Ministerial decisions

• FTA Public Clarifications and guides

The law aligns with international tax standards such as the OECD BEPS framework and introduces the concept of taxable income, transfer pricing, and exemptions within a UAE context.

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📍 Geographic Scope

Corporate Tax applies across all Emirates of the UAE. It is a federal tax, and revenues are collected by the Federal Tax Authority (FTA).

Covered Areas:

• Mainland UAE

• Free Zones (with specific provisions)

• Permanent Establishments of foreign entities

• Business activities by natural and legal persons

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👥 Who Falls Under the Scope?

The law applies to both legal persons and natural persons engaged in business activities.

1. Resident Persons

• UAE incorporated companies

• Foreign companies effectively managed and controlled in the UAE

• Natural persons conducting business in the UAE

They are subject to Corporate Tax on their worldwide income (with exceptions for exempt income).

2. Non-Resident Persons

• Foreign companies with a Permanent Establishment (PE) in the UAE

• Foreign entities deriving UAE-sourced income

They are taxed only on UAE-based income or that attributable to their UAE PE.

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🏢 Entities Covered Under the Law

Entity Type Covered?

LLCs & PSCs (mainland) ✅ Yes

Free Zone companies ✅ Yes (0% or 9% based on status)

Branches of foreign companies ✅ Yes

Freelancers & sole proprietors ✅ Yes (if licensed)

Government entities ❌ No (unless engaged in business activity)

Charities & Public Benefit Entities ❌ No (if approved and listed)

Investment funds ✅ / ❌ (depends on qualification criteria)

Natural resource companies ❌ No (taxed under Emirate-level laws)

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💰 Income Covered Under UAE Corporate Tax

Corporate Tax is imposed on Taxable Income, calculated as:

Net Profit (per IFRS) + Adjustments - Exempt Income - Allowable Deductions

✅ Taxable Income Includes:

• Business profits

• Capital gains

• Dividends from foreign entities (if not exempt)

• Interest income

• Royalties

• Income from UAE and foreign sources (for resident persons)

❌ Not Taxed:

• Personal income (salary, investment, real estate rentals by individuals)

• Dividends from UAE companies

• Qualifying intra-group transactions

• Exempt income from foreign PEs and shareholdings (subject to conditions)

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📊 Activities Covered

The law applies to any activity conducted with a business license or registration. These include:

• Manufacturing and trading

• Professional and consultancy services

• E-commerce and digital platforms

• Holding companies

• Real estate development and leasing (under commercial license)

• Financial services

• Oil and gas (if not covered by Emirate-level tax)

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🏗️ Free Zones: Special Scope Rules

Free Zone Persons are within the scope of Corporate Tax but may benefit from a 0% tax rate if they qualify as a Qualifying Free Zone Person (QFZP).

To qualify, they must:

• Earn Qualifying Income

• Maintain adequate substance in the UAE

• Prepare audited financials

• Comply with transfer pricing rules

Non-qualifying income is subject to the standard 9% tax rate.

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📉 Exemptions and Exclusions

Entities outside the scope of Corporate Tax or exempt under law include:

• Government and government-controlled entities

• Public benefit entities

• Qualifying investment funds

• Pension or social security funds

• Natural resource companies (taxed under separate Emirate-level laws)

Even these entities may be required to register and file declarations with the FTA.

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💼 Scope of Taxable Income Calculation

The law applies the following principles:

• Accrual accounting based on IFRS

• Income aggregated across group companies (with group relief and transfer pricing)

• Losses carried forward up to 75% of taxable income

• Certain deductions restricted, such as entertainment or interest above 30% of EBITDA

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📌 Summary: What’s in Scope?

Covered Not Covered

Business profits (legal/natural persons) Salaries of individuals

Mainland & Free Zone businesses Passive income of individuals

Foreign companies with PE in UAE Government entities

Professional services, consultancies Oil & gas taxed under Emirate rules

Holding companies Certain exempt funds and charities

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🧾 How We Can Help

At Sheikh Anwar Accounting and Auditing LLC, we offer:

✅ Corporate Tax registration & return filing

✅ Free Zone scope eligibility review

✅ Tax structuring & planning

✅ Permanent Establishment analysis

✅ Exemption application assistance

✅ Transfer Pricing compliance

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📞 Need Help Understanding Your Corporate Tax Scope?

🌐 www.sa-auditors.com

📩 info@sa-auditors.com | 📱 +971-XXX-XXXX

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