The UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) introduced a federal corporate tax on the net income of businesses operating in the UAE. The regime came into effect for financial years beginning on or after 1 June 2023 and represents the most significant change to the UAE's tax landscape in the country's history.
This guide explains how the UAE Corporate Tax regime applies to DIFC-registered companies and what businesses need to do to comply.
Overview of UAE Corporate Tax
The UAE Corporate Tax applies a standard rate of nine per cent on the taxable income of businesses exceeding AED 375,000 per year. A zero per cent rate applies to taxable income up to AED 375,000 (the small business relief threshold).
Qualifying Free Zone Persons (QFZPs), including eligible DIFC entities, may benefit from a zero per cent rate on qualifying income, subject to meeting specific conditions.
Who Is Subject to UAE Corporate Tax?
UAE Corporate Tax applies to:
- UAE resident persons: Legal entities incorporated in the UAE (including in free zones such as the DIFC) and foreign entities that are effectively managed and controlled in the UAE
- Non-resident persons: Foreign entities with a permanent establishment in the UAE or deriving UAE-sourced income
Most DIFC-registered companies will be treated as UAE resident persons and subject to UAE Corporate Tax from their first financial year beginning on or after 1 June 2023.
The Qualifying Free Zone Person Regime
One of the most important features of the UAE Corporate Tax Law for DIFC companies is the Qualifying Free Zone Person (QFZP) regime. A QFZP is subject to a zero per cent corporate tax rate on qualifying income and a nine per cent rate on non-qualifying income.
To qualify as a QFZP, a DIFC entity must:
- Maintain adequate substance in the DIFC or another free zone
- Derive income from qualifying activities (as defined in Ministerial Decision No. 139 of 2023)
- Not elect to be subject to the standard corporate tax rate
- Comply with transfer pricing rules where transactions with related parties exist
- Not derive income exceeding the de minimis threshold from non-qualifying activities or non-qualifying income sources
- Prepare audited financial statements
Qualifying Activities include:
- Manufacturing of goods
- Processing of goods
- Holding of shares and other securities
- Ownership, management and operation of ships
- Reinsurance services
- Fund management services regulated by the DFSA or another competent authority
- Wealth and investment management services regulated by the DFSA
- Headquarters services to related parties
- Treasury and financing services to related parties
- Financing and leasing of aircraft
- Distribution in or from a designated zone
- Logistic services in or from a designated zone
- Any activities ancillary to the above
Key Compliance Obligations
Registration
All UAE businesses subject to corporate tax must register with the Federal Tax Authority (FTA) through the EmaraTax portal and obtain a Tax Registration Number (TRN). Registration must be completed within the timeframes specified by the FTA.
Financial Statements
Taxable persons must prepare financial statements in accordance with International Financial Reporting Standards (IFRS) or another accounting standard approved by the UAE Ministry of Finance. QFZPs are required to prepare audited financial statements.
Tax Return Filing
UAE Corporate Tax returns must be filed within nine months of the end of the relevant tax period. For a company with a financial year ending 31 December, the return must be filed by 30 September of the following year.
Transfer Pricing
Transactions between related parties must be conducted on an arm's length basis. Transfer pricing documentation (master file and local file) is required for businesses meeting the relevant thresholds.
Advance Pricing Agreements
The FTA has introduced an Advance Pricing Agreement (APA) programme, allowing businesses to agree the transfer pricing treatment of related party transactions in advance.
Exempt Income and Reliefs
Certain categories of income are exempt from UAE Corporate Tax:
- Dividends: Dividends received by a UAE resident company from a UAE or foreign subsidiary are generally exempt, subject to the participation exemption conditions
- Capital gains: Gains on the disposal of qualifying shareholdings may be exempt under the participation exemption
- Foreign permanent establishment income: A UAE company may elect to exempt income derived through a foreign permanent establishment
- Intra-group transactions: Qualifying intra-group transfers and business restructurings may be carried out on a tax-neutral basis
Practical Steps for DIFC Companies
- Confirm UAE Corporate Tax registration status with the FTA
- Assess eligibility for the QFZP regime and qualifying income classification
- Prepare audited financial statements for the relevant tax period
- Review related party transactions and ensure transfer pricing documentation is in place
- File the annual corporate tax return by the applicable deadline
- Review VAT compliance, as VAT obligations continue alongside corporate tax
How Atlas Can Help
Atlas Corporate Services provides accounting, tax registration and compliance support for DIFC-registered companies navigating the UAE Corporate Tax regime. Our team assists with FTA registration, QFZP eligibility assessments, financial statement preparation, corporate tax return filing and transfer pricing documentation. Contact the Atlas team to discuss your corporate tax obligations.