UAE corporate tax is highly competitive and easy to comply with

While consistent with the Public Consultation Document (PCD), the CT Act also takes into account suggestions from various stakeholders. As proposed in the PCD, accounting results remain the starting point for calculating tax liability.

PCD rules do not allow interest costs to exceed 30% of EBITDA. However, there is no mention of the carry forward of interest that is not allowed.

The CT Act, while continuing to limit the interest deduction to 30% of EBITDA, allows the carry forward and offset of disallowed interest for up to 10 tax periods. That’s a welcome development and takes some pressure off a highly leveraged, capital-intensive industry.

Additionally, the PCD stated that revaluation gains/losses on assets and liabilities will be subject to corporate tax. This provision has severely affected many holding companies that hold investments in assets that do not qualify for participation in the regime.

The CT Act now gives taxpayers the option of whether the gain should be taxed on a realized basis or an unrealized basis. Taxpayers may exercise the option on gains/losses arising from capital assets/liabilities or income and gains/losses arising from capital assets/liabilities.

Another issue to consider is the taxability of gains arising before the CT Act came into force. The CT Act provides for a transitional provision whereby the value of assets and liabilities according to the closing balance sheet (i.e. the last balance sheet before the tax law comes into effect) will be deemed to be the value of such assets and liabilities for tax purposes .

In the free zone, transactions between free zone persons and mainland related entities are allowed under the premise of complying with the principle of “fair transaction”. Pending the rules and conditions for a free zone entity to qualify for the zero duty rate.

In addition to the above, provisions on anti-abuse, advance pricing agreements, permanent establishments and transfer pricing have been introduced.

For the UAE, the CT Law is comprehensive tax legislation with competitive taxation and ease of compliance.