UAE Law and Practice Contributed by: Amir Alkhaja, Areen Jayousi, Gulsun Ozmen and Alia AlMarzooqi, Habib Al Mulla & Partners
through the General Pension and Social Security Authority (GPSSA): employers contribute 12.5% of insurable salary (15% in the Emirate of Abu Dhabi), and employees contribute 5%. There are no other payroll taxes or levies applicable to the employment relationship. 5.2 Taxes Applicable to Businesses Corporate Tax The UAE introduced a federal corporate tax regime under Federal Decree-Law No 47 of 2022 on the Taxa - tion of Corporations and Businesses, applicable to financial years commencing on or after 1 June 2023. The standard rate is 9% on taxable income exceed - ing AED375,000; income up to that threshold is taxed at 0%, providing effective relief for smaller business - es. Businesses qualifying as “Qualifying Free Zone Persons” may benefit from a 0% rate on “Qualifying Income” derived from activities conducted within or between free zones, subject to substance require - ments, a de minimis threshold for non-qualifying revenue and other prescribed conditions. Extractive businesses and non-extractive natural resource busi - nesses remain subject to emirate-level taxation and fall outside the federal corporate tax regime. VAT and Excise Tax VAT applies at a standard rate of 5% under Feder - al Decree-Law No 8 of 2017 on VAT. An excise tax applies to tobacco products and energy drinks at 100%, and to carbonated beverages at 50%. There is no withholding tax on dividends, interest or royal - ties paid to non-residents, and no standalone capital gains tax, although capital gains form part of taxable income under the corporate tax regime. Pillar Two - QDMTT The UAE enacted a qualifying domestic minimum top- up tax (QDMTT) by Cabinet Decision No 142 of 2024, effective for financial years commencing on or after 1 January 2025. The QDMTT applies to large multi - national enterprise groups with consolidated global revenues of EUR750 million or more and ensures that such entities are subject to a minimum effective tax rate of 15% in the UAE. The UAE’s QDMTT has been granted safe harbour status on the OECD’s central record, meaning that in-scope groups satisfying the
QDMTT will not be exposed to a top-up tax in other jurisdictions in respect of their UAE profits. 5.3 Available Tax Credits/Incentives One of the principal tax incentives available in the UAE is the 0% corporate tax rate for qualifying free zone persons on qualifying income, where the statu - tory conditions are satisfied. More than 40 free zones operate across the UAE, each offering varying ben - efits including 100% foreign ownership, full repatria - tion of profits and capital, customs duty exemptions and, where the qualifying conditions are met, the 0% corporate tax rate. Small business relief is available to businesses with annual revenues not exceeding AED3 million, allowing eligible taxpayers to elect to be treated as having no taxable income for corporate tax purposes for a speci - fied period. Certain sectors and activities also benefit from specific exemptions or reduced-rate treatment under the corporate tax law and its implementing decisions. 5.4 Tax Consolidation Tax grouping is available under the corporate tax regime. A UAE resident parent company and one or more UAE resident subsidiaries may elect to form a tax group, provided the parent holds at least 95% of the share capital and voting rights of each subsidiary, directly or indirectly, and all members apply the same financial year and accounting standards. A tax group is treated as a single taxable entity, enabling profits and losses to be consolidated and offset across group members, and the group must apply to the Federal Tax Authority for approval to form or modify a tax group. 5.5 Thin Capitalisation Rules and Other Limitations The UAE corporate tax regime adopts an interest limi - tation rule rather than a traditional thin capitalisation test. Net interest expenditure is deductible up to the higher of 30% of earnings before interest, tax, depre - ciation and amortisation (EBITDA), or AED12 million per tax period. Interest expenditure disallowed in a given period may be carried forward and deducted in up to ten subsequent tax periods, subject to the same limitation. Specific exemptions apply to banks, insur -
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