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You’re probably wondering what types of things are exempt from corporate tax in UAE. This article will go over the things that are exempt in Free-trade zones, Oil companies, foreign banks, and Capital gains. The UAE has many different types of free-trade zones, and these zones are not subject to corporate tax. But some things are not regulated under Dubai corporate tax.
Free-trade zones in the UAE are exempt from corporate tax:
There is no requirement to report profits or losses for companies incorporated in a UAE free-trade zone. Alternatively, they can elect to form a tax group and be treated as a single taxable entity. To be considered a group, the parent company must hold 95% of all group members’ voting rights and share capital. However, the parent company cannot be a free zone entity benefitting from 0% CT. Group members must use the same financial year. The new corporate tax regime can transfer profits and losses among group companies. This is especially beneficial for companies with more than 75% common ownership.
Foreign banks:
There are no rules that prevent foreign banks from operating in the UAE. Those operating in the Emirate of Dubai are subject to income tax of 20 per cent of their net profits. Foreign banks may deduct up to 2.5 per cent of their gross revenue as head office expenses in a single year. Any other expenses incurred in the business are deductible on a pro-rata basis. While foreign banks are not required to pay corporate tax in the UAE, they may be eligible for finance cost deductions.
Capital gains:
The UAE government recently announced a new exemption from corporate tax for capital gains and dividends. This exemption applies to UAE-based businesses. In addition, the foreign corporate tax paid on taxable income in the UAE will be recognized as a tax credit against the UAE CIT liability. Groups of UAE-based companies can apply for group relief. These rules have been subject to changes and are likely to be supplemented with more detailed guidance.
Dividends from qualifying shareholdings:
UAE CT applies only to taxable income derived from a group of companies. Dividends from qualifying shareholdings are exempt from the tax. Certain activities may be exempt, such as a qualifying intra-group reorganization or arms-length transaction. A transfer pricing policy will help ensure that all transactions within a group are tax-efficient for a company.
