Additional Rules:
- Entertainment expenses → 50% deductible
- Interest → subject to limitation rules
Interest Deduction Limitation
When the Net Interest Expenditure exceeds AED 12 million in a Tax Period, the amount of deductible Net Interest Expenditure is the greater of:
- 30% of EBITDA (earnings before the deduction of Interest, tax, depreciation and amortisation) for a Tax Period, calculated as the Taxable Income for the Tax Period with adjustments for (referred to as “adjusted EBITDA”):
- Net Interest Expenditure for the relevant Tax Period,
- depreciation and amortisation expenditure considered in determining the Taxable Income for the relevant Tax Period
- net Interest expenditure relating to historical financial assets or liabilities held prior to 9 December 2022,
- net Interest expenditure relating to Qualifying Infrastructure Projects.
- The de minimis threshold of AED 12 million
Tax Losses
Businesses can carry forward losses indefinitely to offset future profits, which is 75% of the taxable income (no carry-back). There are rules for tax groups, ownership changes, and restrictions on certain entities, such as QFZPs, in some cases. Proper tracking helps maximize this benefit over time.
Importantly, a continuity-of-ownership condition applies: if there is a significant change in ownership (generally 50% or more), the ability to use carried-forward losses may be restricted or lost entirely.
TRANSFER PRICING
All related-party transactions must follow the arm’s length principle.
This is applicable to:
- UAE groups
- Multinational businesses
Documentation requirements increase with company size, and each company should ensure they are fully prepared.
Local File and Master File Requirements
You don’t have to attach these with every tax return, but you must prepare and keep them ready if you cross certain thresholds. A Taxable Person needs both a Master File and a Local File if:
- You’re part of a Multinational Enterprise (MNE) group with consolidated global revenue of AED 3.15 billion or more, or
- Your own revenue in the tax period hits AED 200 million or more.
Purely domestic UAE groups (no foreign operations) skip the Master File but still do the Local File if they meet the AED 200m mark. These files follow OECD standards closely — the Master File gives a big-picture view of the whole group’s business, intangibles, financials, and overall TP policies. The Local File dives into the specific UAE entity’s transactions, functions, risks, assets, and how prices were set with benchmarking studies.
Prepare them contemporaneously (around the time of the transactions) and keep them handy. The FTA can request them, and you have 30 days to submit. There’s also a simpler Disclosure Form in the CT return for related-party transactions over AED 40 million aggregate (with category breakdowns above AED 4 million) and payments to connected persons over AED 500,000. This helps flag things early.
Country-by-Country Reporting (CbCR)
This is mainly for larger MNEs. UAE-headquartered groups with consolidated revenue of AED 3.15 billion or more in the previous fiscal year must file a CbCR. It gives a high-level snapshot per country: revenue, profits, taxes paid, employees, and assets. The Ultimate Parent Entity files it within 12 months after the year-end through the Ministry of Finance portal, and there’s a notification requirement by the end of the fiscal year.
It promotes transparency and helps tax authorities worldwide see the full picture without diving into every detail immediately.
APA Scheme (Advance Pricing Agreements)
The FTA launched a proper APA program at the end of 2025, giving businesses welcome certainty. An APA is a formal agreement with the FTA on the transfer pricing method and prices for specific related-party transactions over a future period (usually 3-5 years). It covers both domestic and cross-border deals.
Right now, it’s starting with unilateral APAs (just between you and the UAE FTA) to build experience before going bilateral or multilateral. You generally need the arm’s length value of the covered transactions to be at least AED 100 million per tax period. It’s not for everything — safe harbour transactions under CT rules are often excluded. Applying involves detailed submissions, and once approved, it binds the FTA (and you) as long as facts don’t change. This is a smart way to avoid audits, adjustments, or disputes down the line, especially for complex intra-group services, financing, or intangibles.
DOUBLE TAXATION TREATIES
The UAE has an extensive treaty network.
These treaties:
- Prevent double taxation
- Reduce withholding tax
- Support international structuring
Double Taxation Treaties (DTAs) are a big strength for the UAE. The Ministry of Finance (MoF) manages the full list and updates. As of recent counts, the UAE has signed around 137–140+ active DTAs.
These agreements help avoid double taxation on the same income, reduce or eliminate withholding taxes on dividends, interest, royalties, and service fees, allocate taxing rights clearly (especially on business profits and PE), and provide mechanisms for mutual agreement procedures (MAP) to resolve disputes. They also support foreign tax credits for UAE residents paying tax abroad. Non-residents often use them to limit UAE tax exposure or claim relief. Always look at the specific treaty because protocols and reservations vary.
Key Treaty Partners by Region
- Europe: Strong coverage with the UK, Germany, France, Netherlands, Austria, Switzerland, and many others. Great for reducing WHT on dividends and interest, useful for European investors and holding structures.
- Asia: India, China, Singapore, Japan, South Korea, Malaysia, Indonesia, and Hong Kong SAR. These are vital for trade, tech, and services flows — for instance, the India treaty helps with capital gains and business profits.
- GCC and Middle East: Saudi Arabia, Qatar (recent), Kuwait, Bahrain, Oman, Egypt, etc. Intra-Gulf treaties support regional business without extra tax layers.
- Africa: A growing network including South Africa, Nigeria, Algeria, and others to facilitate investment into the continent.
WITHHOLDING TAX CREDIT
Businesses should record the foreign tax paid as a withholding tax credit in their accounting and tax records when withholding tax is not recovered but rather utilized to lower the UAE Corporate Tax liability. The UAE Corporate Tax that is owed on the same revenue is offset by this credit. To support the credit claim, appropriate records must be kept, such as evidence of payment, tax assessments, and pertinent treaty references. Any excess foreign tax paid cannot be repaid or carried forward, and the credit is only available for the UAE Corporate Tax due on the revenue earned abroad. In addition to preventing any disputes or fines during audits, timely and precise recording guarantees that the credit is shown appropriately in the business tax return.
TAX BENEFITS FOR COMPANIES
Despite the existence of corporate tax, the UAE continues to promote investment.
R&D Incentive
From 2026, there’s a new tiered non-refundable tax credit (up to around 30-50% on qualifying expenditure, with caps) to boost innovation. It targets real research and development spending in the UAE.
Advantages of a Free Zone
Beyond the 0% for QFZPs, free zones (JAFZA and KIZAD) often offer duty exemptions, 100% foreign ownership, profit repatriation, and streamlined setups. Manufacturing gets extra perks like in zones focused on industry, helping with cost savings and export focus.
WHY BUSINESSES GET THIS WRONG
The biggest risks are not technical, and they are often practical. Below, we have summarized the main common areas where businesses get this wrong due to:
- Incorrect free zone assumptions
- No tax planning before filing
- Weak financial documentation
- Lack of ongoing monitoring
These issues often only become visible during tax and compliance audits.
WHY WORK WITH CREATION BUSINESS CONSULTANTS
Businesses engage us because:
- Corporate tax impacts structure, not just compliance
- Free zone rules require careful interpretation
- Transfer pricing carries audit risk
- Errors are costly once filed
We provide:
- Practical tax structuring
- Compliance management
- Ongoing advisory support
