The UAE corporate tax regime will ensure the compliance burden is kept to a minimum.  Businesses will only need to file one corporate tax return each
financial year and will not be required to make advance tax payments or prepare provisional tax returns.

Tax planning is a concept which allow companies to reduce their tax liability by claiming all the rebates, exemptions and deductions as per the law. This is what tax experts / professionals are trained to help with. However, we do not recommend tax avoidance / tax evasion.

Boardly, following persons will be liable for taxes and called as Taxable Person.

●UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE;
●Natural persons (individuals) who conduct a Business or Business Activity in the UAE as specified in a Cabinet Decision to be issued in due course; and
●Non-resident juridical persons (foreign legal entities) that have a Permanent Establishment in the UAE

Juridical persons established in a UAE Free Zone or UAE based Offshore are also within the scope of Corporate Tax as “Taxable Persons” and will need to comply with the requirements set out in the Corporate Tax Law. However, a Free Zone Person that meets the conditions to be considered a Qualifying Free Zone Person can benefit from a Corporate Tax rate of 0% on their Qualifying Income.

Non-resident persons that do not have a Permanent Establishment in the UAE or that earn UAE sourced income that is not related to their Permanent Establishment may be subject to Withholding Tax (at the rate of 0%)

In line with the tax regimes of most countries, the Corporate Tax Law taxes income on both a residence and source basis. The applicable basis of taxation depends on the classification of the Taxable Person.

●A “Resident Person” is taxed on income derived from both domestic and foreign sources (i.e. a residence basis). 
●A “Non-Resident Person” will be taxed only on income derived from sources within the UAE (i.e. a source basis). 

The Corporate Tax Law also exempts certain types of income from Corporate Tax. This means that a Taxable Persons will not be subject to Corporate Tax on such income and cannot claim a deduction for any related expenditure. Taxable Persons who earn exempt income will remain subject to Corporate Tax on their Taxable Income.
The main purpose of certain income being exempt from Corporate Tax is to prevent double taxation on certain types of income. Specifically, dividends and capital gains earned from domestic and foreign shareholdings will generally be exempt from Corporate Tax. Furthermore, a Resident Person can elect, subject to certain conditions, to not take into account income from a foreign Permanent Establishment for UAE Corporate Tax purposes.

In principle, all legitimate business expenses incurred wholly and exclusively for the purposes of deriving Taxable Income will be deductible, although the timing of the deduction may vary for different types of expenses and the accounting method applied. For capital assets, expenditure would generally be recognized by way of depreciation or amortization deductions over the economic life of the asset or benefit.  

Expenditure that has a dual purpose, such as expenses incurred for both personal and business purposes, will need to be apportioned with the relevant portion of the expenditure treated as deductible if incurred wholly and exclusively for the purpose of the taxable person’s business. 

Certain expenses which are deductible under general accounting rules may not be fully deductible for Corporate Tax purposes. These will need to be added back to the Accounting Income for the purposes of determining the Taxable Income. Examples of expenditure that are not deductible (partially or in full) include: 

• Bribe
• Fine & Penalties (other than amounts awarded as compensation for damges or breach of contract)
• Donantions, grants or gifts made to an entity that is not a Qualifying Public Benefit Entity
• Dividends and other profits distributions
• Corporate Tax imposed under Corporate Tax Decree Law.
• Expenditure not incurred wholly and exclusively for the purposes of the Taxable person's Business
• Expenditure incurred in deriving income that is exempt from Corporate Tax

Below expenses can not be claimed in full even though made exclusively for business or for making taxable supply.

1. Client Enetertainment Expenditure - Partial Deduction of 50% of the amount of the expenditure 
2. Interest Expenditure - Deduction of net interest expenditure is limited to a threshold up to 30% of the amount of EBITDA (Earnings before the deduction of interest, tax, depreciation and amortisation) (except for certain categories).

Not all Freezone persons can benefit from a 0% tax benefit. A Freezone Person that complies with all the below-mentioned conditions will be considered a "Qualifying Free Zone Person" and will be able to benefit from a Corporate Tax rate of 0% on their “Qualifying Income” only.

●maintain adequate substance in the UAE;
●derive ‘Qualifying Income’;
●Opted out from standard rated corporate tax rates.
●comply with the transfer pricing requirements under the Corporate Tax Law.

Corporate Tax is levied on the income for the Tax period starting after 01st June 2023. Given that CT is imposed annually, it is necessary to specify the “Tax Period”.

The Tax period is generally the financial year of the company. In absence of that the Tax Period will be the Gregorian calendar year.

Hence, a company whose financial year is from January to December is liable to pay taxes on its income earned after January 2024.