In principle, all legitimate business expenses incurred wholly and exclusively for the purposes of deriving Taxable Income will be deductible, although the timing of the deduction may vary for different types of expenses and the accounting method applied. For capital assets, expenditure would generally be recognised by way of depreciation or amortisation deductions over the economic life of the asset or benefit.

Expenditure that has a dual purpose, such as expenses incurred for both personal and business purposes, will need to be apportioned with the relevant portion of the expenditure treated as deductible if incurred wholly and exclusively for the purpose of the taxable person’s business.

Certain expenses which are deductible under general accounting rules may not be fully deductible for Corporate Tax purposes. These will need to be added back to the Accounting Income for the purposes of determining the Taxable Income. Examples of expenditure that is or may not be deductible (partially or in full) include:

be deductible (partially or in full) include:

No deduction

• Bribes
• Fines and penalties (other than amounts awarded as compensation for damages or breach of contract)
• Donations, grants or gifts made to an entity that is not a Qualifying Public Benefit Entity
• Dividends and other profits distributions
• Corporate Tax imposed under the Corporate Tax Law
• Expenditure not incurred wholly and exclusively for the purposes of the Taxable person’s Business
• Expenditure incurred in deriving income that is exempt from Corporate Tax

Partial deduction of 50% of the amount of the expenditure

Client entertainment expenditure

Deduction of net interest expenditure exceeding a certain de minimis threshold
up to 30% of the amount of earnings before the deduction of interest, tax, depreciation and amortisation (except for certain activities)

Interest expenditure

Corporate Tax will be levied at a headline rate of 9% on Taxable Income exceeding AED 375,000. Taxable Income below this threshold will be subject to a 0% rate of Corporate Tax.

Corporate Tax will be charged on Taxable Income as follows:

Resident Taxable Persons

Taxable Income not exceeding AED 375,000 (this amount is to be confirmed in a Cabinet Decision) 0%

Taxable Income exceeding AED 375,000 9%

Qualifying Free Zone Persons

Qualifying Income 0%

Taxable Income that does not meet the Qualifying Income definition 9%

A Free Zone Person that is a Qualifying Free Zone Person can benefit from a preferential Corporate Tax rate of 0% on their “Qualifying Income” only.

In order to be considered a Qualifying Free Zone Person, the Free Zone Person must:

• maintain adequate substance in the UAE;
• derive ‘Qualifying Income’;not have made an election to be subject to Corporate Tax at the standard rates; and
• comply with the transfer pricing requirements under the Corporate Tax Law.

The Minister may prescribe additional conditions that a Qualifying Free Zone Person must meet.

If a Qualifying Free Zone Person fails to meet any of the conditions, or makes an election to be subject to the regular Corporate Tax regime, they will be subject to the standard rates of Corporate Tax from the beginning of the Tax Period where they failed to meet the conditions.

Two or more Taxable Persons who meet certain conditions (see below) can apply to form a “Tax Group” and be treated as a single Taxable Person for Corporate Tax purposes.

To form a Tax Group, both the parent company and its subsidiaries must be resident juridical persons, have the same Financial Year and prepare their financial statements using the same accounting standards.

Additionally, to form a Tax Group, the parent company must:

• own at least 95% of the share capital of the subsidiary;
• hold at least 95% of the voting rights in the subsidiary; and
• is entitled to at least 95% of the subsidiary’s profits and net assets.

The ownership, rights and entitlement can be held either directly or indirectly through subsidiaries, but a Tax Group cannot include an Exempt Person or Qualifying Free Zone Person.

To determine the Taxable Income of a Tax Group, the parent company must prepare consolidated financial accounts covering each subsidiary that is a member of the Tax Group for the relevant Tax Period. Transactions between the parent company and each group member and transactions between the group members would be eliminated for the purposes of calculating the Taxable Income of the Tax Group.

All Taxable Persons (including Free Zone Persons) will be required to register for Corporate Tax and obtain a Corporate Tax Registration Number. The Federal Tax Authority may also request certain Exempt Persons to register for Corporate Tax.

Taxable Persons are required to file a Corporate Tax return for each Tax Period within 9 months from the end of the relevant period. The same deadline would generally apply for the payment of any Corporate Tax due in respect of the Tax Period for which a return is filed.

Illustrated below are examples of the registration, filing and payment deadlines associated for Taxable Persons with a Tax Period (Financial Year) ending on 31 May or 31 December (respectively).

1. Read the Corporate Tax Law and the supporting information available on the websites of the Ministry of Finance and the Federal Tax Authority.
2. Use the available information to determine whether your business will be subject to Corporate Tax and if so, from what date.
3. Understand the requirements for your business under the Corporate Tax Law, including, for example:
   1. Whether and by when your business needs to register for Corporate Tax;
   2. What is the accounting / Tax Period for your business;
   3. By when your business would need to file a Corporate Tax return;
   4. What elections or applications your business may or should make for Corporate Tax purposes;
   5. What financial information and records your business will need to keep for Corporate Tax purposes;

Regularly check the websites of the Ministry of Finance and the Federal Tax Authority for further information and guidance on the Corporate Tax regime.