All tax laws define what is subject to tax, known as the tax base. For Corporate Tax purposes, the tax base is a Taxable Person’s Taxable Income. The Taxable income is determined as follows:

 

• Resident Persons are subject to Corporate Tax on their income from both inside and outside the UAE.

• Non-Resident Persons with a Permanent Establishment or a nexus in the UAE are subject to Corporate Tax on income attributable to that Permanent Establishment or nexus. If the Non-Resident does not have a Permanent Establishment or a nexus in the UAE but derives income from the UAE, that income would be subject to withholding tax at the rate of 0%.

• Natural persons are only subject to Corporate Tax on the Taxable Income of their Business or Business Activity derived from the UAE, or from outside the UAE if it is connected to the Business or Business Activity being carried out in the UAE.

 

Taxable Income is determined by applying the adjustments set out in Section 6.2.2 to a Taxable Person’s annual Accounting Income, which should be taken from the Financial Statements that are produced in accordance with accepted accounting standards. Accounting standards that are accepted in the UAE for Corporate Tax purposes are the International Financial Reporting Standards (IFRS), or IFRS for small and medium-sized entities (IFRS for SMEs) for a Taxable Person with Revenue of AED 50,000,000 or less in the relevant Tax Period.113

 

For those that already maintain accepted Financial Statements, these can be used in calculating Taxable Income and, provided evidence is maintained regarding any

 

adjustments made, generally, there is no need to maintain two sets of records. This limits administrative burdens and ensures consistency in reporting.

 

For some businesses, becoming subject to Corporate Tax may involve new requirements to maintain Financial Statements, although there are certain administrative simplifications to support these businesses and manage such burdens. For example, eligible businesses may benefit from small business relief, meaning they do not need to calculate their Taxable Income and have reduced record keeping requirements (see Section 7.2).114

 

Taxable Persons can prepare Financial Statements using the Cash Basis of Accounting rather than the Accrual Basis of Accounting if their Revenue does not exceed AED 3,000,000 for the relevant Tax Period.115 Businesses may also be able to apply to the FTA to make use of the Cash Basis of Accounting rather than the Accrual Basis of Accounting in exceptional circumstances.116

 

Tax Period

 

A Taxable Person’s (other than a natural person) Tax Period is their Financial Year, or part thereof, for which a Tax Return is required to be filed.117 This is usually the 12 month period for which they prepare their Financial Statements. If the Taxable Person does not prepare Financial Statements, their Financial Year will be the Gregorian calendar year (i.e. 1 January – 31 December).118 The Tax Period of a Taxable Person which is a natural person is always the Gregorian calendar year.

 

If a Taxable Person wishes to change their Tax Period, they can make an application to the FTA to change the start and end date of their Tax Period. 119 This can be particularly relevant for Taxable Persons (whether incorporated in the UAE or elsewhere) that form part of a multinational group to avoid having to prepare two sets of accounts based on different periods.

 

For further details on change in Tax Period, readers are advised to consult FTA Decision No. 5 of 2023 on Conditions for Change in Tax Period.

 

Adjustments

 

The following adjustments should be considered in relation to a Taxable Person’s Accounting Income to determine their Taxable Income:

 

• Unrealised gains or losses;120

• Exempt Income;121

• Deductions;122

• Reliefs for specific transaction types;123

• Transfer pricing adjustments relating to transactions between Related Parties or Connected Persons;124 and

• Tax Losses.125

 

Further detail on each of these adjustments is provided below.

 

Other adjustments may be required in other specific cases, such as when determining the Taxable Income in relation to:

 

• Transfers within a Qualifying Group,

• Claiming business restructuring relief, and

• A partner in an Unincorporated Partnership.126