With the corporate tax law (“CT Law”) having become effective for many businesses in the UAE from 1 January 2024, we list below some of the critical actions that require review and implementation under the CT Law:

1.     Free zone corporate tax (“CT”) regime

Businesses in the free zones should review their profile to ensure that they meet all the conditions required to achieve “qualifying free zone person” status to avail the 0% CT rate. If a free zone entity fails to meet any of the specified conditions during a tax period, it will cease to be a “qualifying free zone person” from the beginning of the relevant tax period and for the subsequent four tax periods.

2.     Tax group

Forming a tax group reduces administrative burden through the filing of a single annual CT return by the parent company. The entities in the tax group are not subject to transfer pricing (TP) rules with respect to the intragroup transactions, and the TP documentation will only be maintained and filed by the parent company.

For a tax group to be formed, the conditions specified in the CT Law are required to be continuously met throughout the relevant tax period.

3.     Foreign entities

A juridical person incorporated under the legislation of a foreign jurisdiction is classified as a “UAE resident person” if it is effectively managed and controlled in the UAE. Businesses with foreign subsidiaries should thoroughly evaluate procedures relating to the taking of key management and commercial decisions for such subsidiaries, to have clarity on related CT application.

4.     Transfer pricing rules

Compliance with the transfer pricing rules is a key requirement of the UAE CT Law. Transactions and arrangements between related parties and connected persons must meet the arm’s length standard. Businesses must take required steps to ensure compliance with the detailed transfer pricing rules, including meeting of transfer pricing documentation requirements.

5.     Transitional rules

The balance sheet at 1 January 2024 should be prepared taking into consideration the arm’s length principle. Businesses should review the transitional rules to mitigate taxation on gains arising on immovable properties, intangible assets, financial assets and financial liabilities owned prior to their first tax period.