In brief

Key highlights

The issuance of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“Corporate Tax law”) on 9th December 2022, provides businesses operating in the UAE with a framework for understanding how the corporate tax regime will impact their business model.

The Corporate Tax law is broadly in line with the public consultation document that was issued in April 2022, however, one of the notable changes is the release of the conditions to be satisfied by UAE Free Zone entities to be eligible for the 0% rate (rather than being taxed at the headline 9% rate).

It is expected that the Corporate Tax law will be supplemented by further cabinet decisions and implementing decisions that would aim to provide further detail on the application of various provisions as well as expand upon definitions that are contained within the Corporate Tax law.

In detail

UAE Free Zones

Article 18 of the Corporate Tax Law states that a Free Zone company should be viewed as a Qualifying Free Zone Person (that is eligible for the 0% tax rate) if it has adequate substance in the UAE, derives Qualifying Income and complies with the UAE transfer pricing requirements.

Qualifying Income is generically defined as any income received by the Free Zone entity. Therefore, it remains to be seen the definition that would be provided in the supplementary cabinet decision and if this provides any restrictions on the income that is eligible for the 0% tax rate.

In addition to this, it would appear that a mainland entity should be allowed to take a deduction for payments made to a UAE Free Zone entity (which in some instances was not permitted).

Pre-implementation structuring

Whilst businesses should be actively considering how best to structure their business operations in light of the Corporate Tax law, there is the inclusion of a general anti-avoidance rule (Article 50) that aims to capture transactions that are entered into which do not reflect economic reality and the main purpose is to gain a tax advantage.

This rule applies with effect from the issuance of the Corporate Tax law and is, therefore, already effective. Where businesses are already performing restructuring projects, they should take notice of these provisions.

Transfer pricing

The Corporate Tax law will also introduce the need for taxpayers to adhere to the arm’s length principle for all transactions and arrangements with related parties, meaning that appropriate transfer prices must be charged between related parties for all arrangements. The transfer pricing methods that are specified in the law are generally consistent with the OECD Transfer Pricing Guidelines.

Taxpayers will also need to document and report how the arm’s length principle is applied to related-party transactions. The reporting will be done in two ways: through a disclosure form that should be filed together with the tax return, and for certain taxpayers, through transfer pricing documentation in the form of a master file and a local file, which should be submitted upon request. The (financial) threshold for preparing documentation in the form of the master file and local file is not specified, and neither are the requirements for the contents of the transfer pricing documentation. It is likely that this will be consistent with the OECD Transfer Pricing Guidelines.

Other features of the Corporate Tax law

Some other key features that are confirmed in the Corporate Tax law include the ability to create a tax group, group relief provisions, the ability to carry tax losses forward, no gain, no loss transfers and business restructuring relief.

Pillar II

As expected, the Corporate Tax law does not address the potential adoption/ implementation of the global minimum tax regime, otherwise known as the GloBE Model Rules. Therefore all businesses should be preparing for the impact of UAE Corporate Tax until such a time it is announced that the global minimum tax rules are adopted.

Immediate considerations for businesses

Where businesses have already performed an initial impact assessment based on the public consultation, a top-up review of this assessment should be performed to assess the impact of the Corporate Tax law.

If an impact assessment has not been performed (due to the potential application of global minimum tax or awaiting the legislation), now is the key time for businesses to take action and perform an impact assessment.

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Reggie Mezu is a Senior Counsel in Baker McKenzie's Tax Practice Group based in Dubai. He specialises in corporate tax and has practiced tax for nearly 30 years, including in the UAE for 15 years. Reggie advises on corporate direct and indirect tax matters, with particular focus on cross-border and transactional work across the Middle East and Africa. He concentrates on tax aspects of corporate and business structures and also regularly participates in various initiatives aimed at enhancing the tax regimes of developing countries.


Ben Phillips is a senior associate in Baker McKenzie and has a general focus on international tax and mergers & acquisition matters. Ben has over 10 years' experience in the UAE and UK and has advised on matters across the UAE, GCC and globally across this period. More recently, Ben has had a specific focus on the introduction of the Pillar One and Pillar Two initiatives announced by the OECD.


Tina Hsieh is a partner in Baker McKenzie's Dubai office. She advises leading corporations and public entities on indirect tax aspects of mergers and acquisitions, corporate reconstructions, company floats, business acquisitions, inbound and outbound investment and infrastructure transactions. Tina has deep experience in advising on indirect taxes relating to financial services, property and construction, energy and government sectors. In addition to advisory work, Tina assists clients with tax authority audits, disputes and applications for clarifications, and represents industry associations before the central banks and tax authorities.


Folkert Mulder is a legal director with Baker McKenzie's Transfer Pricing teams in Amsterdam and Brussels. His practice focuses on transfer pricing, valuation and financial modeling, with particular focus on corporate valuations, valuation of intangible assets, financial transactions and quantitative modeling for general tax planning purposes as well as patent box work. Folkert has been involved with several major transfer pricing dispute resolution procedures both in the Netherlands and internationally.

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