Tax Reliefs for UAE Companies
With the introduction of corporate tax in the UAE, it is time to envisage possible tax implications and start thinking about tax structuring of your company. Proper tax structuring can help businesses in the UAE receive attractive incentives. Therefore, it is advisable to first do tax structuring of the company and only after launch the incorporation process in one of the UAE jurisdictions.
From 1 June 2023, the following tax regimes and corporate tax exemptions have entered into force in the UAE:
| Tax Regime / Relief | Requirements | Tax Rate |
|---|---|---|
| Common taxation | None, obligatory for all taxpayers in the UAE | 9% if the revenue is over AED 375,000 (~USD 100,000) |
| QFZP | Benefit for qualifying Free Zone residents: some conditions must be met, otherwise this benefit will not be available for 5 subsequent tax periods | 0% for “qualifiying” income, 9% for certain types of income |
| SBR | Small business benefit: no tax on revenue up to AED 3,000,000 (~USD 810,000), if this threshold is exceeded the company should switch to the common taxation | No tax if revenue does not exceed AED 3,000,000 (~ USD 810,000) |
| PE | Participation Exemption: only for UAE holding companies, meeting certain conditions | Dividends and certain other income from subsidiaries are not taxable in the UAE |
Qualifying Free Zone Person (QFZP)
Conditions for the application of the Qualifying Free Zone Person regime:
- Having an adequate economic presence in the UAE
- Deriving “qualifying” income
- The amount of “non-qualifying” income does not exceed the set thresholds
- No common taxation system selected
- Keeping Transfer Pricing Documentation (TPD)
- Entering into transactions with associated entities under TPD rules
- Preparing audited financial statements
- Ensuring compliance with other criteria determined by the UAE Minister of Finance
The application of 0% tax rate for Free Zone companies depends on compliance with the above conditions, failure to fulfill any of which results in the loss of the right to benefit from the incentives within 5 tax periods.
In this regard, it is advisable to assess the tax implications of your Free Zone company (existing or planned to be established) in advance in order to choose an appropriate taxation regime
Small Business Relief
Small Business Relief cannot apply to QFZPs and members of international groups of companies.
Moreover, this benefit requires revenue to be determined under IFRS, does not give the right to carry forward losses and gives the tax authorities the right to apply tax reconstruction (in order to counteract a business split-up).
The main condition for the application of the exemption is that revenue must not exceed AED 3,000,000 in each tax period. The specified maximum amount of revenue is set until 31.12.2026 and may be revised thereafter.
Participation Exemption
Applicable only to holding companies in the UAE and only in respect of dividends, capital gains and other investment income subject to Participation Exemption.
It is also obligatory to meet conditions relating to the size of shares and the duration of ownership, the minimum tax rate for the subsidiary (9%), the requirements for the composition of assets and the accounting of the subsidiary expenses, as well as some other conditions.
Who will now be able to claim zero-rate corporate tax in the UAE? Read in our Alert and contact our experts on any UAE tax issues.
How can we help?
Since applying even basic tax regimes and incentives requires compliance with a large number of different conditions, we are ready to:
- Suggest the most advantageous organization form for your company (Free Zone, Mainland, etc.).;
- Analyze whether your company meets the Qualified Free Zone Person criteria, including “minimum requirements”;
- Determine whether your company’s activities and income are “qualifying” and whether the company is entitled to use the 0% corporate tax rate;
- Assess whether your company’s income from subsidiaries qualifies for Participation Exemption and is exempt from taxation in the UAE;
- Select the most optimal tax incentive for your company;
- Assess the need to restructure your company (group of companies);
- Evaluate the benefits of using common taxation, taking into account the requirements and limitations of special tax regimes and incentives;
- Assist with audit, bookkeeping and tax accounting in the UAE;
- Assess the tax implications and risks of your activities, including the risk of rejected expense report, the risk of related-party transaction, etc.;
- Determine the required level of economic substance of your company in the UAE;
- Advise on the requirements for preparation of transfer pricing documentation applicable to the company’s activities.
Smart Advisors Group experts will analyze any issue related to corporate taxation in the UAE and offer solutions for your business situation:
- Analysis of tax benefits for a UAE company – from AED 5 509 (A written report analyzing the availability and options of tax incentives for a company in the UAE)
- Consultation on corporate tax incentives in the UAE – from AED 734 per hour (Personal consultation on the possibility of obtaining tax benefits in the UAE)
