In the dynamic landscape of UAE corporate tax, enterprises venturing beyond the borders of the Emirates are confronted with a labyrinth of intricate tax regulations.

Within this intricate web, Article 11 of the UAE corporate tax federal decree law no. 47 of 2022 plays a pivotal role, casting its jurisdictional net over both UAE-incorporated entities and foreign entities effectively managed and controlled within the UAE, designating them as taxable entities.

Effectively managing a business for corporate tax purposes demands a meticulous scrutiny of decision-making locations, board meetings, stakeholder influence, operational decision hubs, and economic perspectives.

This exhaustive assessment aims to pinpoint the epicenter of crucial management decisions, offering a nuanced comprehension of effective management and control that transcends the mere formalities associated with the place of incorporation.

Within the framework of the UAE’s corporate tax landscape, the treatment of foreign entities registered outside the UAE as tax residents carries profound implications.

Should these entities be acknowledged as tax residents under UAE corporate tax regulations, in accordance with Article 40 of federal decree law No. 47 of 2022 and the guidelines on the taxation of foreign source income, a resident juridical person becomes subject to corporate tax on global income, spanning earnings both within and outside the UAE.

Such entities are subjected to taxation at a rate of nine percent, a mandate that even extends to entities domiciled in well-known offshore jurisdictions like the Cayman Islands, BVI, and Cyprus.

The taxability of income derived by foreign companies from business or investments in countries beyond the UAE, managed and controlled by UAE residents, is dictated by both Corporate tax law and Double Taxation Agreements (DTAs) between the UAE and the foreign jurisdiction.

The applicability of DTAs can significantly impact the taxation of foreign source income. If a DTA designates residence to another jurisdiction, that country assumes the right to tax the income unless it originates from the UAE.

Transactions among affiliated entities attract transfer pricing scrutiny, necessitating a vigilant approach for businesses operating in multiple jurisdictions. Ensuring that transactions between related entities adhere to arm’s length principles becomes imperative, preventing any potential manipulation.

This practice, aligned with international standards, mitigates the risk of tax authorities scrutinizing and adjusting profits deemed inconsistent with prevailing market conditions.

In accordance with UAE’s corporate tax law, a foreign company holding 95 percent or more shareholding/voting rights in UAE companies can be grouped for corporate tax registration.

This is contingent on the foreign company meeting the criteria of a ‘resident person’ under Article 11, effectively managed and controlled in the UAE.

If the foreign company’s directors and decision-makers are UAE residents and all conditions are met, it can form a tax group with its UAE subsidiaries.

In summation, navigating UAE corporate tax demands a strategic and meticulous approach for entities expanding their footprint globally.

The in-depth analysis of effective management, adherence to international standards in transfer pricing, and a profound understanding of tax residency implications lay the groundwork for optimized tax positions.

Entities must proactively address the place of effective management (POEM) to mitigate implications on transfer pricing and adhere to the arm’s length principle (ALP) provisions.

As businesses strategically position themselves within the regulatory framework, compliance with the provisions of corporate tax law becomes paramount.

Ultimately, a comprehensive understanding of these complexities empowers entities to not only survive but thrive in the ever-evolving global business environment.

Last updated: 29 December 2023