UAE Corporate Tax Law — Implementation and Control Framework
UAE Federal Decree-Law No. 47 of 2022 establishes a 9% corporate tax regime from June 2023, requiring entity impact assessments, transfer-pricing evidence, and controls aligned with OECD standards and free-zone incentives.
Executive briefing: On the United Arab Emirates published Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, introducing a federal corporate income tax effective for financial years starting on or after . The law imposes a 9 percent tax on taxable income exceeding AED 375,000, with a 0 percent rate below that threshold to support small businesses. It aligns with OECD Base Erosion and Profit Shifting (BEPS) standards, mandates transfer pricing documentation, and lays groundwork for Pillar Two implementation for large multinational groups.
Scope and taxable persons
The law applies to all juridical persons incorporated in the UAE (including free zone entities) and foreign entities with a permanent establishment or effectively managed from the UAE. Natural persons engaged in business activities may also be subject if thresholds are met. Exempt persons include government entities, qualifying public benefit entities, qualifying investment funds, pension funds, and wholly owned UAE subsidiaries of exempt entities, subject to conditions. Free zone entities can benefit from a 0 percent rate on qualifying income if they meet substance requirements, comply with transfer pricing, and avoid electing into normal tax treatment.
Tax base and adjustments
Taxable income is based on accounting profit prepared under IFRS, adjusted for specific items. Exempt income includes dividends and capital gains from qualifying shareholdings (10 percent or more, held for at least 12 months) and income from foreign permanent establishments where exemption is elected. Non-deductible expenses include fines, bribes, and dividends; entertainment expenses are subject to a 50 percent limitation. Net interest deductibility is capped at 30 percent of EBITDA, aligned with BEPS Action 4. Losses can be carried forward indefinitely, subject to 75 percent offset in a given period and ownership continuity conditions.
Transfer pricing and documentation
The law incorporates OECD transfer pricing principles, requiring related-party transactions to meet the arm’s-length standard. Taxpayers must submit disclosure forms with their tax returns and maintain master file and local file documentation when meeting revenue or multinational group thresholds to be specified by Cabinet decision. Related-party definitions include common ownership of 50 percent or control relationships. Advance pricing agreements are anticipated via future guidance. Controlled transactions must use acceptable methods (comparable uncontrolled price, resale price, cost plus, transactional net margin, or transactional profit split) with appropriate functional analyses.
Compliance obligations
Taxpayers must register with the Federal Tax Authority (FTA), file annual corporate tax returns within nine months of the end of the relevant tax period, and pay tax by the same deadline. Financial statements may need to be audited for certain categories (for example, free zone companies claiming 0 percent). Tax groups may be formed if parent and subsidiaries are UAE resident and meet 95 percent ownership thresholds; groups file consolidated returns with eliminations for intra-group transactions.
Free zone entities seeking the 0 percent incentive must meet qualifying income criteria (to be defined in Cabinet Decision No. 55 of 2023) and maintain adequate substance, including board meetings and qualified employees in the zone. They must also avoid earning excluded income (for example, transactions with mainland UAE customers not qualifying under designated criteria).
Pillar Two and multinational enterprises
The law references the OECD Global Anti-Base Erosion (GloBE) rules. While the standard 9 percent rate is below the 15 percent global minimum, the UAE signaled adoption of a top-up tax for large multinational groups exceeding €750 million in consolidated revenue. Organizations in scope must prepare for additional reporting, including country-by-country reports (already required) and potential income inclusion rules or qualified domestic minimum top-up taxes. Groups should model Pillar Two impacts, assess data availability, and coordinate with global tax teams.
Governance and control design
Companies should establish corporate tax implementation programs led by tax directors and CFOs. Key actions include:
- Entity impact analysis: Map group entities, assess residency, free zone status, and permanent establishment exposures.
- Systems readiness: Update ERP and finance systems to capture adjustments (interest limitation, exempt income), calculate deferred tax, and produce reporting data.
- Policy updates: Draft corporate tax manuals, set approval thresholds for related-party transactions, and align with economic substance regulations (ESR).
- Training and communication: Educate finance, legal, procurement, and business leaders on new obligations, timelines, and penalties.
Internal controls should cover data collection, return preparation, review, and sign-off. Segregate duties between data preparers, reviewers, and authorized signatories. Establish checklists for documentation, including audited financial statements, related-party registers, and supporting schedules for deductions.
Outcome testing and metrics
Tax and internal audit teams should design testing plans to verify readiness:
- Review sample transactions for correct tax adjustments and documentation.
- Test transfer pricing files for completeness, benchmarking quality, and consistency with intercompany agreements.
- Validate ERP tax configurations and reconciliations between accounting and tax ledgers.
- Assess compliance with ESR and Ultimate Beneficial Ownership (UBO) reporting to ensure alignment.
- Monitor key metrics such as timeliness of tax return filing, number of unresolved tax queries from FTA, and status of advance rulings.
Outcome metrics should feed executive dashboards: effective tax rate forecasts, variance analyses, and progress toward Pillar Two readiness. Document remedial actions for control deficiencies.
Penalties and dispute management
The law imposes administrative penalties for late filing, late payment, and inaccurate returns, referencing existing UAE Tax Procedures Law penalties. Companies should implement escalation procedures for potential errors and consider voluntary disclosure where necessary. Prepare dispute resolution strategies, including maintaining contemporaneous evidence, understanding FTA audit processes, and exploring mutual agreement procedures for cross-border disputes.
Interaction with other UAE regulations
Corporate tax interacts with existing regimes: Value Added Tax (VAT), excise tax, ESR, and UBO reporting. Ensure consistency across filings, particularly for revenue recognition and related-party disclosures. Free zone entities must balance corporate tax incentives with ESR substance requirements and zone-specific licensing obligations. Banking and insurance sectors should monitor forthcoming sector guidance from the UAE Central Bank and Insurance Authority.
Zeph Tech’s tax transformation team is building a UAE corporate tax compliance playbook, aligning ERP configurations, transfer pricing documentation, and Pillar Two analytics to ensure seamless filings for periods beginning 1 June 2023.
Implementation controls and continuous monitoring
Organisations should establish a UAE tax steering committee that includes finance, legal, and business-unit leadership. The committee must oversee registration with the Federal Tax Authority, entity classification (including qualifying free zone status), and readiness for the first financial periods beginning on or after 1 June 2023. Build a control matrix that maps decree-law articles to owners, documented procedures, and evidence repositories.
Transfer pricing documentation requires particular attention. The law references OECD Transfer Pricing Guidelines and mandates contemporaneous master and local files when turnover or related-party thresholds are met. Companies should implement data pipelines that reconcile intercompany transactions with ERP ledgers, ensure arm’s-length methodologies are consistent, and capture benchmarking studies. Outcome testing can include sampling intragroup service agreements, re-performing cost-sharing allocations, and validating that profit split outcomes remain within target ranges.
Finally, integrate corporate tax compliance with broader economic substance, Pillar Two, and free-zone incentive strategies. Dashboards should track effective tax rates, incentive elections, relief claims (such as small business relief), and any potential disqualifying activities in free zones. Internal audit should perform walkthroughs of tax provisioning and filing processes, ensuring segregation of duties, IT general controls for tax calculation systems, and evidence retention that satisfies both the UAE law and OECD peer review expectations.
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