Essential updates on UAE corporate tax law for businesses
Manan Chadha, Managing Director, TRC Pamco Middle East, shares the top insights
The UAE combines tradition and innovation to create a thriving business environment which is now supported by a tax-efficient structure that promotes growth, investment, and innovation. Consistently ranked high in global ease of doing business indices, the UAE’s business-friendly policies and streamlined regulations foster a dynamic and competitive economy. Some of the key elements of corporate tax law along with the recent updates provided by the FTA are herein below:
Determination of the taxable person and its tax base for CT compliance
Resident persons in the UAE are taxed on worldwide income, which include UAE-incorporated entities, foreign entities controlled in the UAE, and individuals conducting business in UAE.
Non-residents are taxed only on UAE-sourced income along with income from a permanent establishment or nexus in the UAE.
Allowable expenses and capped expenses
Allowable Expenses
Employee entertainment including team-building activities and marketing, advertising, and trade show costs are fully deductible when directly related to business activities. Commercial hospitality expenses, such as travel and accommodation for business, are fully deductible for employees, though they may be restricted if personal enjoyment is involved.
Pre-incorporation expenses, like incorporation fees and market research, are deductible as long as they are business-related and not capital in nature.
For related party transactions, costs must reflect market value or arm’s length pricing. Overpayments above market rates are non-deductible and must be added back to taxable income. Only amounts at arm’s length are deductible.
Capped expenses
Entertainment expenditures provided to shareholders and/or clients, such as meals, events or complimentary stays, are deductible to the extent of 50 per cent.
Compliance driven corporate tax return form
Any business claiming the benefit of small business relief (SBR) will be able to opt for filing the simplified corporate tax return with limited information requirements. For entities other than claiming SBR are required to submit necessary documents along with CT return as prescribed by the FTA.
Economic substance requirements
The UAE government made significant amendments to the ESR through Cabinet Decision No. 98 of 2024 whereby businesses with accounting periods starting on or after January 1, 2023, are no longer required to file the ESR notification or return.
Although, in turn the authorities have expanded the compliance requirements of ESR in the corporate tax returns for entities that are claiming to qualify as a qualifying free zone person.