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December 12, 2022

UAE Ministry of Finance releases Corporate Tax Law: Detailed review

  • The Corporate Tax Law will be effective from 1 June 2023 with a headline rate of 9%.

  • The regime includes features that represent best practices in international taxation.

  • Several exemptions are available for businesses operating across strategic sectors.

  • Free zone persons can continue to maintain their 0% tax position subject to meeting certain conditions.

  • General anti-avoidance and transitional rules apply from the date the law is published in the Official Gazette.

Executive summary

On 9 December 2022, the United Arab Emirates (UAE) Ministry of Finance (MoF) released Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Corporate Tax Law or the Law) to enact a new corporate tax (CT) regime in the UAE. The Law been supplemented with 158 Frequently Asked Questions, also released on the same date.

The new CT regime will become effective for accounting periods beginning on or after 1 June 2023. For groups with a December year end, this provides for a 12-month period to prepare and assess the impact ahead of the effective date. However, general anti-avoidance and transitional rules do apply from the date the law is published in the Official Gazette.

Detailed discussion


On 9 December 2022, the UAE MoF published the Corporate Tax Law, which will be effective from financial years starting on or after 1 June 2023. This follows the public consultation document released on 28 April 2022, which describes the main features of the planned CT regime, as well as the principles applied in the design of such regime.

The key elements of the Corporate Tax Law are summarized below.

Taxable person

Generally, CT will apply to both resident and nonresident persons.

A resident person will include:

  • A juridical person incorporated otherwise established or recognized in the UAE (including free zones)

  • A juridical person incorporated otherwise established or recognized outside of the UAE, that is effectively managed and controlled in the UAE

  • A natural person that conducts business activity in the UAE

A nonresident person can be subject to CT if it has a permanent establishment (PE) in the UAE, derives UAE-sourced income or has a nexus in the UAE (nexus rules are still to be specified through a Ministerial Decision).

Applicable CT rates

Generally, UAE businesses will be subject to a 9% CT rate. A rate of 0% will apply to taxable income not exceeding a particular threshold to be prescribed by a Ministerial Decision (expected to be AED375,000 based on the FAQs). While the MoF had previously indicated that a higher rate may apply to large multinationals subject to Pillar Two, the Corporate Tax Law is silent in this respect. Nevertheless, the FAQs reiterate the UAE’s commitment to introduce these rules in due course and further developments are expected.


Under certain conditions, the following persons will be exempt from CT:

  • A person engaged in the exploitation of UAE natural resources (both extractive and non-extractive)

  • Government and Government-controlled entities

  • Qualifying public benefit entities

  • Charities and public benefit organizations

  • Pension or social security funds

  • Qualifying investment funds

The exemption may extend to an entity incorporated in the UAE that is wholly owned and controlled by an exempt person, if it:

  • Undertakes part or whole of the activity of the exempt person

  • Holds assets or invests funds for the benefit of the exempt person

  • Carries on activities ancillary to those of the exempt person

Certain exemptions (including for qualify investment funds) will be subject to an application process to the Federal Tax Authority (FTA).

Tax base

UAE businesses will be subject to CT on their worldwide income. However, dividend income and capital gains will be exempt, subject to meeting the conditions of the participation exemption. The Law also provides for a foreign branch profits exemption where those profits have been subject to tax overseas at a rate of at least 9%. Foreign tax credit will be available for taxes paid overseas on forms of income that are not exempt from UAE CT.

Natural persons that are UAE residents and subject to CT will be taxable only on the income earned from business activities undertaken in the UAE.

Nonresidents will be subject to CT on any taxable income attributable to a PE or nexus in the UAE or any income that is considered UAE-sourced income.

Permanent Establishment

Nonresidents will be considered to have a PE in the UAE if they have a fixed place of business or a dependent agent in the country. The language used in the Law to describe these tests seem broadly aligned with Organisation for Economic Co-operation and Development (OECD) standards. The Corporate Tax Law states that other forms of nexus in the UAE that could create a PE will be determined through a Ministerial Decision.

UAE-sourced income

The Corporate Tax Law provides several examples of income that will be considered as UAE-sourced income. Generally, income earned by a UAE resident person will qualify as UAE-sourced income. Similarly, UAE-sourced income will also include any income derived from activities performed, assets located, or rights used for economic purposes in the UAE.

Free zones

The Corporate Tax Law introduces the concept of a “Qualifying Free Zone Person” (QFZP), which is broadly defined as a company or branch registered in a free zone that:

  • Maintains adequate substance in the UAE

  • Derives qualifying income (to be specified through a Ministerial Decision)

  • Satisfies transfer pricing requirements

  • Meets any other conditions to be prescribed through a Ministerial Decision

A QFZP will still be subject to CT but may benefit from a 0% rate on its qualifying income. A QFZP can elect to forego this preferential regime and be subject to the standard CT rate.

Taxable income

The accounting income as reported in the standalone financial statements will be the basis to determine the taxable income. This will be subject to adjustments, which include:

  • Unrealized gains or losses which arise in connection to capital items

  • Income and associated expenses derived by an exempt person with respect to its exempt activity

  • Dividend income and other profit distributions from a resident person

  • Dividend income and capital gains under the participation exemption

  • Income from a PE not located in the UAE that has been subject to CT at a rate of at least 9%

  • Income derived by a nonresident from the operation or leasing of aircrafts and ships in international transportation

  • Gains or losses from reorganizations or intragroup transfer of assets and/or liabilities subject to certain conditions

  • Net interest expenditure will be capped at 30% of the EBITDA (earnings before interest, taxes, depreciation, and amortization)

  • Entertainment-related expenses will be deductible up to 50% of the amount incurred

With respect to the interest deduction limitation, the Corporate Tax Law indicates that the amount of disallowed expenditure can be carried forward for a period of 10 years. Additional restrictions can apply to related-party debt.

The Corporate Tax Law also provides an additional list of non-deductible expenses which includes donations, administrative penalties, recoverable value-added tax (VAT), dividends or similar benefits paid to an owner of a taxable person, among others.

Tax loss relief

Businesses will be able to carry forward tax losses indefinitely, subject to certain conditions. These losses can be used to offset up to 75% of the taxable income of future tax periods. Losses incurred before the effective date of CT will not be eligible for relief.

Tax groups

A parent entity of a group can make an application to the FTA to form a tax group with its UAE subsidiaries, subject to meeting certain conditions. These conditions include a 95% ownership requirement and neither the parent nor subsidiary can be an exempt person. Losses can also be transferred between entities outside of a group where a 75% ownership relationship exists, other conditions being met.

Withholding tax

Payments made by UAE businesses to a nonresident earning UAE-sourced income will be subject to withholding tax at a 0% rate, unless the income is attributable to a branch, or a PE located in the UAE. The Law further states that any other rate may apply as would be specified in a decision to be issued by the Cabinet.


UAE businesses subject to CT are required to register and obtain a Tax Registration Number. Generally, the registration application must be submitted to the FTA before the Law becomes effective. Further guidance is expected in this respect.

UAE businesses subject to CT, including QFZPs, will be required to file a tax return and pay any tax due no later than nine months after the end of the financial year. The parent companies of tax groups need to submit only one tax return.

Additionally, UAE business may be requested to submit financial statements to the FTA. Taxpayers may also be requested to maintain audited or certified financial statements.

Transfer pricing (TP)

Transactions with related parties and connected persons are required to comply with the arm’s-length principle. The language used in the Corporate Tax Law to define the arm’s-length principle and other TP-related aspects is generally similar to OECD standards. However, the definitions of related parties and connected persons are broad, relative to international standards. For instance, under certain conditions, kinship up to the fourth degree may trigger a related party or connected person relationship.

The Corporate Tax Law requires UAE businesses to maintain TP documentation (i.e., master file and local file), subject to certain conditions which will be prescribed under a Ministerial Decision. TP documentation must be submitted to the FTA within 30 days of a request.

Further, taxpayers may be required to submit a TP disclosure form along with the CT return. More details in this respect are expected to follow in a Ministerial Decision.

Businesses will be able to apply for advanced pricing agreements and more details are also expected to follow in this respect.

A more detailed alert regarding the features of the UAE TP regime will follow soon.

General anti-abuse and transitional rules

The Corporate Tax Law includes general anti-abuse rules (GAAR) intended to disregard transactions or arrangements undertaken with the main purpose of obtaining a CT advantage. These rules apply from the date the Law is published in the Official Gazette.

As part of its transitional rules, the Corporate Tax Law also indicates that the opening balance sheet for CT purposes will be the closing accounting balance sheet for the financial year immediately before the first tax year.


The implications of the new CT regime are far-reaching for all businesses operating in the UAE, and natural persons undertaking a business activity. Businesses and natural persons should begin to assess the implications of the new rules. This includes assessing the application of the rules, modelling the cash flow implications, considering the exemption regimes, and developing the processes and procedures to manage compliance. As further details are released over the coming months through a series of Ministerial Decisions, businesses should continue to monitor these developments and prepare for compliance ahead of the effective date.


For additional information with respect to this Alert, please contact the following:

EY Consulting LLC, Dubai

Ernst & Young LLP (United States), Middle East Tax Desk, New York


The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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