The UAE corporate tax law shall apply to tax periods commencing on or after 1st June 2023. While the regulations have already come into effect, for many businesses the first tax period would commence on 1st January 2024. While most businesses would have done the evaluation of the impact on their businesses, it would be prudent to have a look at the various thresholds and reliefs available under the UAE corporate tax regime in order to maximise the benefits.
The UAE corporate tax law and its implementing decisions have spelt out various compliance obligations on taxpayers when these thresholds are crossed. Hence it is very crucial for businesses to keep in mind the thresholds and how they work in order to accurately determine their tax status under the corporate tax regime.
Below are some of the key thresholds under the UAE corporate tax regime which would help businesses determine their tax status accurately and comply with the regulations and maximise benefits.
| SL No | Sections | Threshold/limits | Remarks |
| 1 | Applicability of UAE CT law | 1st June 2023 | The UAE corporate tax law shall apply to tax periods commencing on or after 1st June 2023. |
| 2 | Corporate tax rates | 0%, 9% & 15% | Standard corporate tax rates |
| a) 0% on taxable income not exceeding AED 375,000/- | |||
| b) 9% on taxable income that exceeds AED 375,000/- | |||
| Qualifying Free Zone Persons | |||
| a) 0% on qualifying income | |||
| b) 9% on taxable Income that is not Qualifying Income | |||
| Top-up tax | |||
| 15% Domestic Minimum Top-Up Tax on large multinationals with global revenues exceeding €750 million from January 2025 (proposed) | |||
| 3 | Accounting standards | AED 50 million | The Accounting Standards accepted in the UAE for Corporate Tax purposes are the International Financial Reporting Standards (“IFRS”). A Taxable Person deriving revenue that does not exceed AED 50 million, may apply International Financial Reporting Standards for small and medium-sized entities (“IFRS for SMEs”). |
| 4 | Audited Financial statements | AED 50 million | A Taxable Person deriving revenue exceeding AED 50 million during the relevant Tax Period and Qualifying Free Zone Persons are mandatorily required to prepare and maintain audited financial statements. |
| 5 | Small Business Relief | AED 3 million | The corporate tax law provides relief to small businesses where the Taxable Person’s revenue threshold for the relevant Tax Period and previous Tax Periods shall be AED 3,000,000 for each Tax Period, but this relief is not available to a constituent company of a Multinational Enterprises Group. |
| 6 | Participation exemption | 5% or AED 4 million | Participating interest means, 5% (five percent) or greater ownership interest in the shares or capital of a juridical person or an amount equal to or exceeding AED 4 million |
| 7 | Qualifying Group relief | 75% | To avail this relief, either Taxable Person has to have a direct or indirect ownership interest of at least 75% in the other Taxable Person, or a third Person has to have a direct or indirect ownership interest of at least 75% (seventy-five percent) in each of the Taxable Persons. |
| 8 | General Interest Deduction Limitation Rule | AED 12 million | A Taxable Person’s Net Interest Expenditure shall be deductible up to 30% of the Taxable Person’s accounting earnings before the deduction of interest, tax, depreciation and amortisation (EBITDA) for the relevant Tax Period, excluding any Exempt Income. The limitation on the deductible Net Interest Expenditure provided above shall not apply where the Net Interest Expenditure for the relevant Tax Period does not exceed AED 12,000,000/-. The amount of Net Interest Expenditure disallowed as per above may be carried forward and deducted in the subsequent (10) ten Tax Periods. When the Net Interest Expenditure exceeds AED 12,000,000 in a Tax Period, the amount of deductible Net Interest Expenditure is the greater of: • 30% of adjusted EBITDA, and • the de minimis threshold of AED 12,000,000. |
| 9 | Entertainment expenditure | 50% | A Taxable Person shall be allowed to deduct 50% (fifty percent) of any entertainment, amusement, or recreation expenditure incurred during a Tax Period. |
| 10 | Cash basis of accounting | AED 3 million | Taxpayers whose revenue does not exceed AED3 million within the relevant Tax Period may prepare financial statements using the cash basis of accounting. |
| 11 | Tax Loss Relief | 75% | A Tax Loss can be offset against the Taxable Income of subsequent Tax Periods. The amount of Tax Loss used to reduce the Taxable Income for any subsequent Tax Period cannot exceed 75% of the Taxable Income for that Tax Period before any Tax Loss relief. |
| 12 | Transfer of Tax Loss | 75% | A Tax Loss or a portion thereof may be offset against the Taxable Income of another Taxable Person, where either Taxable Person has a direct or indirect ownership interest of at least 75% (seventy-five percent) in the other Taxable Person. |
| 13 | De Minimis requirements | 5% or AED 5 million | The de minimis requirements shall be considered satisfied where the non-qualifying Revenue derived by a qualifying Free Zone Person (QFZP) in a Tax Period does not exceed 5% percentage of the total revenue of the QFZP in that Tax Period or AED 5 million whichever is lower. |
| 14 | Natural person | AED 1 million | Revenue threshold for business or business activities conducted by a natural person subject to CIT – AED1 million |
| 15 | Tax Group | 95% | The Parent Company owns at least 95% of the share capital / holds at least 95% of the voting rights /entitled to at least 95% of the Subsidiary’s profits and net assets, either directly or indirectly through one or more Subsidiaries. |
| 16 | Withholding Tax | 0% | 0 percent |
| 17 | Corporate Tax Payment | 9 months | A Taxable Person must settle the Corporate Tax Payable within (9) nine months from the end of the relevant Tax Period. |
| 18 | Transfer Pricing documentation | AED 3.15 billion & AED 200 million | A Taxable Person that meets either of the following conditions shall maintain both a master file and a local file in the relevant Tax Period: |
| a) Where the Taxable Person, for any time during the relevant Tax Period, is a constituent company of a Multinational Enterprises Group as defined in the Cabinet Decision No. 44 of 2020 that has a total consolidated group revenue of AED 3.15 billion or more in the relevant Tax Period. | |||
| b) Where a Taxable Person’s Revenue in the relevant Tax Period is AED 200,000,000/- or more. | |||
| 19 | Disclosure of High value transactions with Related Parties | AED 40 million -AED 4 million | The schedule should be completed by all Taxable Persons who have transactions with Related Parties in the Tax Period where the aggregate value of all transactions with all Related Parties recorded in the Financial Statements or at Market Value exceeds AED 40 million. Once you exceed the above threshold, transactions with Related Parties where the aggregate transaction value per category (with all Related Parties) exceeds AED 4 million, must be disclosed. |
| 20 | Disclosure of high value transactions with connected Persons | AED 500,000/- | The Schedule is to be completed only if the aggregate value of transactions with Connected Persons (including their Related Parties) exceeds AED 500,000. Not all Connected Person transactions are required to be disclosed here. This schedule should be completed for each Connected Person where the aggregate payment or benefit exceeds AED 500,000 per Connected Person (together with its Related Parties). |
| 21 | Record Keeping | 7 years | A Taxable Person shall maintain all records and documents for a period of (7) seven years following the end of the Tax Period to which they relate. |
| 22 | Penalties | AED10,000 | AED 10,000/- Penalty for late registration of Corporate Tax on businesses that do not submit their Corporate Tax registration applications within the timelines specified by the Federal Tax Authority. |
all thresholds are subject to other conditions
Conclusion:
The UAE corporate tax regime comprises of various thresholds. These thresholds play a very decisive role while determining the taxpayers tax obligations and overall tax position. For businesses and investors, proper understanding of these thresholds is crucial for tax planning and compliance and ensuring that one’s business operates within the law while maximising the benefits.
Disclaimer:
This content is not a legally binding document but is intended to provide assistance in understanding the corporate tax law. While we have made every effort to ensure the accuracy and reliability of the information presented, tax laws and regulations are subject to change and interpretation. This content is written in general terms and does not constitute any form of advice or recommendation by M&M and therefore cannot be relied upon to cover specific situations. We recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. We do not assume any liability for actions taken /not taken based on the information provided in this update. Our update is not binding on any regulators and there can be no assurance that the regulators will not take a position contrary to our comments. We do not take any responsibility with regard to any different view/approach taken by the UAE Federal Tax Authority.