09 DECEMBER 2022

Highlights

TAXATION OF CORPORATIONS AND BUSINESSES

UAE FEDERAL DECREE LAW NO. 47 OF 2022

Coverage
THE LAW APPLIES
An Executive Summary of UAE Federal Decree-Law FROM PERIODS
No. 47 of 2022 covering.. COMMENCING ON OR
AFTER 01 JUNE 2023
Who is taxed and what is taxed?
Computing taxable income, allowances, and
disallowances 9% income tax will be charged
Taxation of free zone persons on taxable income exceeding
Tax grouping AED 375,000 in a reporting
Transfer pricing, transactions with related
period
parties, and connected persons
Compliances under the law
Tax losses, foreign tax credits

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Who is taxed and what

is taxed?
Resident Taxable Person Non-Resident Taxable Person

All incorporated persons in the UAE, A person having a

including Free Zones; or Permanent Establishment
(PE) in the UAE; or
Foreign incorporated persons
Defin A person deriving UAE
effectively controlled and managed
-ition Sourced Income; or
in UAE; or A person having nexus with
Natural persons conducting business UAE, as specified by the
in UAE Cabinet

Income derived from within and

outside UAE is taxable in the hands
of persons incorporated in the UAE.
What
For a natural person, income
is tax-
derived from within and outside
able?
UAE is taxable in UAE, so far as it
relates to the Business or Business
Activity conducted in the UAE
Taxable Income attributable
to PE or the income sourced
in the UAE is taxable in UAE
Resident persons can opt to
exclude income derived
from their foreign PE

The Law exempts Government

entities, Government controlled
entities, persons engaged in extractive
and non-extractive natural resource
businesses, public benefit entities,
investment funds, pension and social
security funds from the levy.

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Computing taxable Interest on loans, where the loan

income amount has been utilized to pay related

parties as capital contributions or
repayments or as distribution of profits
Tax compliance begins with accounting
is specifically disallowed. However, it
shall be allowed if the person can
Taxable Income to be determined on the
demonstrate the business requirement
basis of a standalone financial statement
for availing of the loan.
prepared following accounting standards
accepted in the UAE.
Other disallowances
Adjustments to the accounting profits shall
be made against unrealised gains or losses, Entertainment expenditure has been
exempt incomes, ineligible deductions, capped at 50% of the spent.
adjustments to meet Arm’s Length Pricing for Donations, grants, or gifts made to an
transactions with Related Parties and entity that is not a Qualifying Public
Connected Persons, etc. Benefit Entity
Transactions measured in the Financial Bribes, Fines, and penalties, other than
Statements using Fair Value methods, and amounts awarded as compensation for
impairment adjustments can be reported damages or breach of contract
after realization.
Cash basis of accounting may be permitted by
the Minister.
Change in accounting methods will be
permitted from the beginning of a tax year.

Interest expenses

Interest deductible up to 30% of EBITDA

every year including adjustments for interest
carried forward from the previous year.
Carry forward is permitted for 10 subsequent
years.
Banks, insurance providers, and natural
persons are specifically exempt from this
interest capping.

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Free Zone Persons

Free zone persons can avail 0% tax incentive subject to conditions
0% tax incentives available to Qualifying Free
Zone persons. Conditions to claim the tax
incentive includes maintaining adequate
substance in the UAE and income meeting the
definition of specified qualifying Income.
Free Zone persons can elect to be subject to
Corporate Tax.
Free Zone persons shall deal with related and
connected persons complying with Arm’s
Length Principle and Transfer Pricing
requirements.
If a free zone person fails to meet any
condition at any time during the tax period,
will be subject to tax at standard slab rates.
Tax groups cannot be formed between
Qualifying Free Zone Persons and other
Taxable persons.

Related Parties and

Connected Persons
Transactions with Related Parties and Connected Persons shall be at
Arm's Length
Related parties and connected persons have
been given a broad definition covering 4th
degree of kinship or affiliation, direct or
indirect ownership, control, or common
control.
Taxable persons shall be able to prove
transactions with connected persons have
been conducted at market price.

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Arm’s Length Principle

and Transfer Pricing
Mechanism for determining ALP prescribed.
Dividends

The Law prescribes that transactions with related Dividends from resident

parties must be at Arm’s length Price. Taxable persons persons and dividends out of
shall substantiate that such transactions are at Arm’s foreign participating interest
Length with unrelated persons using one or more has been specifically exempt
methods prescribed failing which adjustments to the from Taxable Income.
taxable income shall be made. Participation conditions
Authority may require a taxable person to file a include holding at least 5%
disclosure containing information regarding ownership and uninterrupted
transactions and arrangements with related parties holding for at least 12 months.
and connected persons in the form and manner
prescribed. International Agreements
The taxable person shall maintain both a master file
and a local file in the form prescribed by the authority. In case of inconsistencies

Further, the documents and information to support between the Law and an

Arm’s Length Pricing shall be submitted within 30 international agreement, the

days when called by the authority. terms of the international

agreement shall prevail.

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Unincorporated
Partnerships and Family
Any foreign tax credit
Foundations allowable to the firm will be
shared in the ratio of profit
Mechanism for taxing unincorporated partnerships share.
prescribed Partners in the unincorporated
partnership can make an
Income from unincorporated partnerships will be application to the Tax
taxed in the hands of individual partners in the ratio Authority to tax the
of their profit share. partnership as one taxable
While taxing income from the partnership in the person and in such instances
hands of individual partners, any expenses incurred all partners will be jointly and
by the partner and interest on his share of capital will severally liable for tax
be allowed. However, any interest paid by the compliance.
partnership to individual partners shall not be allowed Family foundations shall be
as expenses in the partnership and will be treated as a treated as unincorporated
distribution from the partnership. partnerships subject to
conditions.

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Compliances Tax Losses

Tax loss of a period shall be

Tax Law provides for annual compliance
allowed to set off against
taxable income of unlimited
Tax registration and de-registration shall be subsequent periods to the
necessary. extent of 75% of the profits of a
The tax period shall be the financial year of the period.
taxable person. Change of taxable period shall be Transfer of losses between
permitted. incorporated resident persons
Tax returns shall be filed and taxes shall be paid to the shall be permitted based on
Authority within 9 months from the end of the common ownership of at least
relevant tax period. 75%. However, none of the
Financial statements shall be called by the authorities persons shall be a Qualifying
in a specified format. A category of persons may be Free Zone Person or an
required to file audited financial statements. exempt person. The financial
Resident Taxable Persons can elect to be treated as year and accounting standards
not having taxable income based on not exceeding adopted by such persons
thresholds to be specified by the Authority and subject
should be aligned.
to conditions. However, the information shall be
requested by the Authority.
Foreign Tax Credit

Foreign Tax Credit for the

relevant Tax Period shall be
allowed as a credit to the
extent tax due on the relevant
income.
Unutilised Foreign Tax Credits
cannot be carried forward or
carried back.

Withholding Tax

The law specifies the income

of Non-Residents having no PE
will be subject to withholding
tax. The withholding tax rate
shall be 0% or any other rate
specified by the Minister.

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