An In-depth Analysis of Federal Decree-Law No. 47 of 2022 on Corporate Taxation in the UAE

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Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses is designed to encourage economic activities while ensuring tax compliance and fairness in UAE. With this aim in mind, Articles 21, 26 & 27 provide specific reliefs (to small businesses, transfer of assets/liabilities among related parties, business restructuring & reorganization relief) from corporate tax with deemed ‘no gain-no loss’ provision. All reliefs are on ‘elective basis and not automatic; Articles 22-25 enumerate certain categories of income (dividend & other profit distribution on long term investment, related capital-impairment-foreign exchange gains/losses, foreign permanent establishment and Non-Resident Person Operating Aircraft or Ships in International Transportation) to be exempt from corporate tax, to adhere to the principles of international taxation of avoiding double taxation and reciprocity. These are automatic applicable provisions if conditions are met. Articles 37-39 deal with tax losses per se and the treatment of losses within a corporate group.

These articles collectively aim to provide a comprehensive framework for the taxation of companies in the UAE, offering clarity on taxable income calculations, exemptions, reliefs, and the treatment of losses within a corporate group.

Articles 21 to 27 Overview:

• Article 21 - Small Business Relief: Offers relief to resident businesses with revenues under AED 3 million threshold, exempting them from tax liability and specific tax provisions, if they meet conditions as specified​​. This is available up to December 2026.

• Article 22 - Exempt Income: Specifies income types that are exempt from being considered in the taxable income calculation, including dividends from resident companies, and from participating interests (Investee companies) under certain crisscross conditions​​.

• Article 23 - Participation Exemption: Details the conditions under which income from a participating interest is exempt from corporate tax, emphasizing the ownership interest threshold, the duration of holding​​, legal & beneficial ownership and composition of assets of investee company.

• Article 24 - Foreign Permanent Establishment Exemption: Allows resident companies to exclude income from foreign permanent establishments if certain conditions are met, aiming to avoid double taxation on foreign income​​. This is on an elective basis.

• Article 25 - Non-Resident Person Operating Aircraft or Ships in International Transportation: Exempts from corporate tax the income derived by non-resident entities from operating aircraft or ships in international transport, under specified condition of ‘reciprocity’​​.

• Article 26 - Transfers Within a Qualifying Group: Facilitates tax-neutral asset or liability transfers within a group of companies (may be taken as related parties) meeting specific criteria, promoting internal group restructurings without immediate tax consequences​​.

• Article 27 - Business Restructuring Relief: Provides tax relief for business restructurings, such as transfers of part of a business in exchange for shares, under certain conditions, encouraging business reorganizations for economic or commercial reasons​​.

Articles 37 to 39 Overview:

• Article 37 - Tax Loss Relief: Describes how businesses can carry forward tax losses indefinitely to offset against future taxable income, with limitations (75% of Taxable Income) on the usage of such losses to ensure fiscal balance​​.

• Article 38 - Transfer of Tax Loss: Allows the transfer of tax losses within a group of companies (may be taken as related parties) under common control, subject to conditions, to optimize the group's overall tax position​​.

• Article 39 - Limitation on Tax Losses Carried Forward: Sets forth additional restrictions on carrying forward tax losses, including continuity of ownership and business activity criteria, to prevent abuse of tax loss carryforward provisions​​.

The Federal Decree-Law No. 47 of 2022 on Corporate Tax in the UAE has been framed in a way to balance economic stimulation with equitable tax compliance. It introduces specific reliefs and exemptions to foster growth, support small businesses, and facilitate group restructurings, while also addressing the treatment of losses within corporate groups to maintain fiscal balance. This comprehensive framework aims to clarify tax obligations and encourage economic and commercial reorganizations, reflecting a sophisticated approach to corporate taxation in the UAE.

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