UAE Corporate Tax Reform: main topics for multinational company having a local presence in the UAE

Edited by Flavia Barone, Valeria Ventura


On 9 December 2022 the United Arab Emirates (“UAE”) issued the Federal Decree-Law no. 47 of 2022 on the taxation of corporations and businesses (“CIT”), which is a form of direct tax levied on the net income or profit of corporations and other entities from their business.

By introducing the CIT Law, the UAE aims to reaffirm its commitment to meeting international standards for tax transparency and preventing harmful tax practices.

In order to provide more clarity on the application of the UAE CIT Law, FAQs have been published on the MoF (Ministry of Finance) website and several implementing Ministerial, and Cabinet Decisions were issued in the last few months.

Effective date

The new CIT are applicable:

  • For business that has a financial year from 1 July 2023 to 30 June 2024, starting from 1 July 2023.
  • For business that has a financial year from 1 January 2023 to 31 December 2023, starting from 1 January 2024.

Taxable Persons

  • Natural Persons will be subject to tax to the extent they are engaged in a business or commercial activity in the UAE, or with UAE sourced income.
  • Legal Persons will be subject to tax to the extent they are incorporated or otherwise established in the UAE (including Free Zone, “FZ”) or effectively managed and controlled in the UAE, as well as foreign juridical persons that have a PE in the UAE or having a nexus in the UAE or deriving UAE sourced income.

The UAE CIT Law provides that certain categories of persons or activities are exempt from the CIT.

General tax rates

  • 0% for taxable income up to and including AED 375K.
  • 9% for taxable income exceeding AED 375K.
  • 0% WHT tax rate may apply to certain types of UAE sourced income paid to non-residents. WHT does not apply to transaction between UAE resident persons.

Artificially splitting of a business for the sole purpose of benefiting of the threshold of AED 375K, could be considered as an arrangement to obtain corporate tax advantage under the General Anti-Abuse provisions of CIT Law.

All MNEs (which have consolidated global revenues above € 750M) that fall under the scope of Pillar 2 of the BEPS Framework shall be subject to different rate as per the OECD Project (Base Erosion and Profit Shifting).

Free Zone

In order to obtain a full understanding of the proposed Corporate Tax rules for FZ, the Cabinet Decision No. 55 of 2023, determining “Qualifying Income” for the “Qualifying Free Zone Person” (“QFZP”) and Ministerial Decision No. 139 of 2023 regarding “Qualifying Activities” and “Excluded Activities” should be read jointly.


To be treated as a QFZP, the Free Zone Entity must:

  • Maintain adequate substance in the UAE.
  • Derive “Qualifying Income” as specified in the Cabinet Decision no. 55 of 2023.
  • Comply with transfer pricing (“TP”) rules and maintain the relevant TP documentation.
  • Not have made an election to be subject to CIT in full.

Income from Free Zone businesses:

  • 0% in most cases.
  • 9% On “Excluded Activities”

(e.g., Transaction with Natural Persons; Regulated banking and finance activities; Ownership or exploitation of intellectual property assets; Income from immovable property except commercial property in the FZ).  

Income from Mainland businesses:

  • 0% on “Qualifying Activities” only

(e.g., Manufacturing and processing of goods or materials; Holding of shares; Headquarter and financing services to related parties; Distribution of goods or materials in or from a Designated zone to reseller; Logistic services; Any ancillary activities).

  • 9% Any other income.

Income from Foreign businesses:

  • 0% on “Qualifying Activities” only.
  • 9% Any other income.

It is also to be considered that income from Domestic or Foreign PE and from ownership or exploitation of immovable property is subject to 9% UAE CIT, in any case.

“De Minimis” regime

The “De minimis” requirements will be satisfied where “non-qualifying Revenue” derived by the QFZP in a tax period does not exceed:

  • 5% of total revenue or
  • AED 5M, whichever is lower.

Therefore, if “De Minimis” threshold is not met, FZP will be fully taxable; whilst, if “De minimis” threshold is met, FZP will be fully subject to a 0%.

The only exceptions to the “De Minimis” regime, resulting in the application of 9% rate, are:

  • Revenue attributable to non-commercial property or revenue from immovable property located in a FZ with NFZP.
  • Revenue attributable to a Domestic PE or a Foreign PE.

The “De Minimis” provisions, also, state that where a FZP fails to meet any of the qualifying conditions set out in UAE CIT Law and in Cabinet and Ministerial Decisions, they will be treated as a Taxable Person subject to 9% CIT rate for a minimum of five years.

Other relevant topics

Participation exemption (“PEX”)

PEX will apply to dividends and capital gains earned by UAE entities.

Ownership interest should be classified as an equity interest under the accounting standards.

Expenses incurred for acquisition, sale, transfer, or disposal of a participating interest will not be deductible as they will be related to an exempt income.

Dividends earned from foreign companies and capital gains earned from disposals in UAE and foreign companies will be exempt from UAE CIT, provided that: i) subject to a 5% ownership threshold and right to dividend; ii) to the extent the foreign company are subject to at least 9% effective tax rate; iii) 12 months minimum holding period is satisfied.

Deducibility of interest expense

The CIT Law provides that deducibility of net interest expense is linked to 30% of Tax adjusted EBITDA.

Businesses may be allowed a deduction up to a safe harbor / “De Minimis” amount equal to AED 12M irrespective of the 30% EBITDA limitation.

In case the net interest expenditure exceeds the threshold of AED 12M, a taxable person may deduct the higher of AED 12M or 30% of the Tax adjusted EBITDA for the relevant tax period.

Excess of net interest expenses can be carried forward and deducted in the next 10 years.

In case of “Small Business Relief”, any net interest expenditure incurred in such tax period cannot be carried forward to any subsequent tax periods.

These rules will not apply to financial services entities.

Tax Losses

Tax losses can be carried forward indefinitely (with offset limited to up to 75% of each year’s taxable income) provided no change in ownership of more than 50% occurs.

In such case, tax losses can still be carried forward only if the same or similar business is carried out by the new owner.

Losses incurred before the effective date for CIT or before a person becomes a taxpayer in the UAE will not be available for future periods. Where an election to apply the “Small Business Relief” is made, any tax losses incurred in such tax period cannot be carried forward to any subsequent tax periods.

Transfer Pricing

The CIT Law introduces TP regulations which means that intercompany transactions located in the UAE mainland, in a Free Zone or in a foreign jurisdiction will need to comply with the applicable TP requirements, according to the arm’s length principle.

The arm’s length nature of the intercompany transactions will need to be supported using one of the internationally recognized TP methods, or a different method where the business can demonstrate that the specified methods cannot be reasonably applied.

A Taxable Person must maintain both a Master file and a Local file in the relevant tax period if either of the following conditions is met:

  • The Taxable Person is a Constituent Company of a Multinational Enterprises Group with a total consolidated group revenue of AED 3,15B or more in the relevant tax period.
  • The Taxable Person’s revenue in the relevant tax period is AED 200M or more on stand-alone basis.

Let’s Talk

For a deeper discussion, please contact:

Alessandro Di Stefano

PwC TLS Avvocati e Commercialisti

Tax Partner

Flavia Barone

PwC TLS Avvocati e Commercialisti

Tax Director