Currently in the UAE, no federal law in relation to corporate income tax exists. However, all Emirates have published their own income tax decrees, such as the Income Tax Decrees of Abu Dhabi (1965), Dubai (1969) and Sharjah (1968).
As per these decrees, all companies carrying on trade or business in the UAE are subject to pay income taxes on their earnings less any allowable deductions. In practice, however, only oil and gas producing companies and branches of foreign banks pay income taxes. Branches of foreign banks are subject to separate laws.
The income tax rates mentioned in the decree on earnings of businesses are established on a sliding scale from 10% up to a maximum of 55% minus any tax credit received from the government.
However, through concession agreements a taxable person producing oil and gas can negotiate with the government with regard to the rate of tax and royalty payment expected of them. These concession agreements are determined on a case by case basis by the relevant Supreme Petroleum Council of the Emirate. The contents of concession agreements can include different tax rates, royalty rates, taxable income, tax credits etc. after considering various laws and double tax treaties.
UAE businesses can obtain a tax domicile certificate from the Federal Tax Authority to demonstrate their residency in the UAE, and to potentially avail benefits under Double Tax Treaties entered into with the UAE.
Branches of foreign banks
Several banking decrees have been issued by certain Emirates such as Abu Dhabi Regulation No. 2/2007 on the Assessment of Fees on the Branches of Foreign Banks Operating in the Emirate of Abu Dhabi, Dubai Regulation No. 2/1996 on the Collection of the Tax from the Branches of Foreign Banks in the Emirate of Dubai, and Sharjah Decree 1/1996 for branches of foreign banks in Sharjah. Since these banking decrees have similar characteristics, each branch conducting a banking activity in the respective Emirate will have a corporate income tax rate of 20% on its taxable income for the fiscal year. Distribution rules exist in these decree for banks operating in multiple Emirates in the UAE.
The taxable income will be the net income less allowable deductions in the fiscal year. The income tax must be paid on the last day of the third month following the end of the fiscal year, i.e. 31 March.
Free zone exemptions
Many businesses in the free zones in the UAE enjoy tax exemptions, with tax holidays sometimes up to 50 years. Mainland companies are not shielded by such a tax exemption. However, mainland businesses can conduct business throughout the country.
Other corporate taxes
Currently in the UAE, there are no withholding taxes on income generated in the UAE and there are no taxes on capital gains.
With effect from 2019 however, the UAE has introduced Economic Substance Regulations, which are targeted towards specific activities which are considered highly mobile. Businesses in scope are required to submit a notification, and likely a report in regards to their substance in the UAE. If the businesses do not have substance, they are subject to a penalty.