How Does UAE Corporate Tax Apply on Legal Entities?

Will UAE Corporate Tax apply to Legal Entities or its branches in UAE?

UAE Corporate Tax will apply to UAE companies and other legal persons incorporated in the UAE and to foreign legal entities that have a permanent establishment in the UAE or that earn UAE-sourced income.

• Legal persons include
  • Limited Liability Companies,
  • Private Shareholding Companies,
  • Public Joint Stock Companies,
  • and other entities established under the laws of the UAE that have separate legal personality.

For the application of UAE Corporate Tax, legal persons incorporated in a foreign jurisdiction that is effectively managed and controlled in the UAE will be treated as if they were UAE incorporated entities.

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Limited and general partnerships and other unincorporated joint ventures and associations of persons will be treated as ‘transparent’ for UAE Corporate Tax purposes. This means that they will not be taxpayers in their own right, but their income will instead ‘flow through’ and be taxed in the hands of the partners or members only. This flow-through treatment is widely recognized and accepted internationally, and also ensures tax neutrality for investors in collective investment funds that are often structured as limited partnerships.

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Investing in and through unincorporated partnerships in a cross-border context can create difficulties and unintended tax consequences where one country treats the partnership as a transparent entity, and the other country taxes the partnership as if it were a company.

To align the tax treatment of partnerships in a cross-border context, the UAE Corporate Tax treatment of foreign unincorporated partnerships would generally follow the tax treatment of the partnership in the respective foreign jurisdiction.

Limited liability partnerships, partnerships limited by shares, and other types of partnerships where none of the partners have unlimited liability for the partnership’s obligations or other partners’ actions will be subject to UAE Corporate Tax in the same manner as a UAE company.

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The tax treatment of all UAE branches of foreign entities needs to be determined based on the tax laws applicable in the head office jurisdiction. To prevent double taxation, foreign branch profits are either exempt (exemption method) or foreign taxes paid on branch profits may be credited against the head office tax liability (credit method).

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Note: The information in this article is meant to provide an initial introduction to the proposed UAE Corporate Tax regime and not be used for individual or business decisions as it does not represent the final legislation by the Government. More information o the UAE Corporate Tax regime will be made available in due course.

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