UAE Law and Practice Contributed by: Amir Alkhaja, Gerry Rogers, Daria Selivanova and Danila Kriuchkov, Habib Al Mulla & Partners
Withholding Tax The current withholding tax on outbound pay - ments (dividends, interest, royalties) under the UAE tax regime is 0%. Excise Tax Applies to specific goods harmful to health or environment: 50% on sugary drinks, 100% on tobacco products and energy drinks. Pillar Two and Domestic Minimum Top-Up Tax The UAE is aligning with the OECD’s global mini - mum tax (Pillar Two). As of the latest legislative updates, the UAE introduced a domestic top-up tax that will apply to large multinational enter - prises (with global revenues of EUR750 million or more) via Cabinet Decision No 142 of 2024 on the Imposition of Top-up Tax on Multinational Enterprises to Implement a Domestic Minimum Top-up Tax in the UAE. The domestic top-up tax is expected to align with the GloBE (Global Anti-Base Erosion) rules and may benefit from safe harbour status, though final implementation details are pending. 5.3 Available Tax Credits/Incentives The UAE has historically attracted investment through a tax-free environment and specific incentives rather than classical tax credits. Key tax incentives and reliefs in the UAE include the following. 0% Corporate Tax for Free Zone Entities Qualifying income earned by qualifying free zone persons may be subject to a 0% CT rate, provided they meet relevant substance, activity, compliance and other legally prescribed criteria. Double Tax Treaties The UAE has signed over 140 double tax trea - ties, which can provide relief from double taxa -
tion and reduce withholding taxes on cross-bor - der payments. Relief Schemes The UAE taxation framework provides for several taxation reliefs, especially under the corporate tax regime, such as natural person relief, small business relief, business restructuring relief, etc. 5.4 Tax Consolidation Two of the UAE’s tax regimes permit tax group - ing, which are the VAT and corporate tax regimes. Tax groups generally result in member entities being collectively treated as a single tax - able entity, provided that the relevant legislative requirements are met. For tax grouping provi - sions to apply, an application must be made to the UAE Federal Tax Authority requesting its approval on grouping. 5.5 Thin Capitalisation Rules and Other Limitations Under its corporate tax regime, the UAE has implemented interest deduction limitation rules, consistent with OECD recommendations. Net interest expense is deductible up to 30% of the entity’s EBITDA (earnings before interest, taxes, depreciation and amortisation), subject to a de minimis threshold (currently AED12 million). These rules apply in addition to general deduct - ibility requirements and are intended to prevent excessive debt-financing of UAE entities. 5.6 Transfer Pricing Transfer pricing rules apply in the UAE under the new corporate tax law. The UAE is aligning with OECD Transfer Pricing (TP) guidelines to ensure that transactions between related parties are conducted at arm’s length (fair market value). Companies in UAE must price intercompany transactions at arm’s length and maintain docu -
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