UAE: Implementation of new federal corporate income tax system, related transfer pricing rules

Federal Decree released on taxation of corporations and businesses

Federal Decree released on taxation of corporations and businesses

The UAE Ministry of Finance released on 9 December 2022, the Federal Decree-Law No. 47 of 2022 [PDF 441 KB] on the taxation of corporations and businesses and updated related “frequently asked questions” (FAQs) section.


  • The law confirmed that businesses will become subject to UAE corporate tax from the beginning of their first financial year that starts on or after 1 June 2023—therefore, for a 31 December year end, the first corporate income tax year is expected to be from 1 January 2024 to 31 December 2024.  
  • The law defines taxable persons and confirms that a UAE branch of a UAE taxable person should be treated as one taxable person (i.e., a single tax registration and return).
  • Certain businesses may be exempt from corporate tax. Exemptions will be granted either on the nature of the business activity or the type of entity. Similarly, certain types of income may also be exempt.
  • Businesses engaged in extraction (and in certain non-extractive activities) of natural resources are out of scope of corporate tax and will continue to be subject to separate Emirates corporate tax legislations. However, such businesses will also need to consider their income from non-extractive activities and if these are subject to corporate tax. UAE branches of foreign banks will be taxed under the UAE corporate tax regime and not as per emirates decrees once the corporate tax law becomes effective.
  • The law prescribes two rates of corporate tax:
    • 0% for income below certain threshold (likely to be AED 375,000 as provided under the FAQs and to be confirmed by the Cabinet Decision)
    • 9% above this taxable threshold
    • 0% on qualifying income of free zone entities

KPMG observation

Tax professionals have observed that the law does not prescribe a special rate for UAE entities belonging to multinational groups in scope of BEPS Pillar 2 aligned with the OECD global minimum tax rate of 15%. Hence, such entities will need to wait for further guidance on how the UAE corporate tax law will interact with the global minimum tax framework to be published by the OECD. They will be however subject to the regular corporate tax regime (9%) until Pillar 2 rules is adopted in the UAE.

With respect to free zone exemption, the law has specified the conditions for a qualifying free zone entity but not the definition of qualifying income, which will be further elaborated by the UAE Cabinet.

  • The law has defined the concept of permanent establishment (PE) that is in line with global tax principles (fixed place of business PE and dependent agent PE). Similar to international principles, the law also introduces the investment manager exemption to prevent the inadvertent creation of permanent establishment for foreign funds.
  • The law did not provide explicitly all tax adjustments/deductions and other details on the basis that they will be specified at a later stage by a Cabinet decision.
  • The law provides for a small business relief, but the conditions of such relief will be specified at a later stage by a Cabinet decision.
  • Participation exemption conditions in relation to dividends and capital gains have been extended to consider a shareholding period and additional anti-avoidance provisions.
  • The law provides for a 0% rate of withholding tax (or any other rate to be decided by the Cabinet) in relation to certain sources of income defined in the law.
  • Conditions for tax grouping remains generally the same as in the Public Consultation Document.
  • Transfer pricing provisions have been included in the law with an indication of further details to be released through a Cabinet decision. A transfer pricing disclosure form might be required to be submitted along with the tax return containing information regarding the taxable person’s transactions and arrangements with its related parties and connected persons. The conditions for maintaining a transfer pricing Local file and/or a transfer pricing Master file will further be provided under a Cabinet decision. Transactions between members of a tax group generally do not need to comply with transfer pricing rules.
  • The tax registration procedures and timeline have not yet been prescribed and further guidance is yet to be provided.
  • The law provides for a possibility to apply to the Federal Tax Authority for any clarification needed regarding the application of the law including advance pricing agreements related to transfer pricing provisions.

Read a December 2022 report prepared by the KPMG member firm in the United Arab Emirates


The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.