FTA Corporate Tax General Guide (CTGGCT1), September 2023

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Example 1: Calculation of Corporate Tax A LLC is a company incorporated in the UAE. In the Tax Period ending March 2025, A LLC generated Revenue of AED 8 million and incurred expenses of AED 2 million, resulting in a net profit of AED 6 million per its Financial Statements. A LLC’s Taxable Income for its Tax Period will be the accounting net profit (or loss) of the business, after making tax adjustments for certain items specified in the Corporate Tax Law. For the purposes of this example, A LLC does not need to make any tax adjustments, thus its Taxable Income will be AED 6 million for the Tax Period. A LLC’s Corporate Tax liability will be calculated as follows: • The first AED 375,000 of Taxable Income will be subject to Corporate Tax at 0%: AED 375,000 x 0% = AED0 • The portion of the Taxable income exceeding AED 375,000 will be subject to Corporate Tax at 9%: (AED 6,000,000 - AED 375,000) x 9% = AED 5,625,000 x 9% = AED 506,250 A LLC’s UAE Corporate Tax liability for the Tax Period will be AED 506,250. In order to calculate its UAE Corporate Tax payable, A LLC will need to consider if there are any available tax credits to reduce its UAE Corporate Tax liability (see Section 9.3).

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Example 17: General Interest Deduction Limitation Rule C LLC has Revenue of AED 150,000,000, adjusted EBITDA of AED 130,000,000 and Profit Before Tax of AED 60,000,000 for its Financial Year ending 31 December 2025. In 2025, C LLC incurs costs including Interest expenditure of AED 80,000,000. C LLC also receives Interest income of AED 30,000,000, resulting in a Net Interest Expenditure of AED 50,000,000. C LLC may deduct its Net Interest Expenditure of AED 50,000,000 up to the greater of 30% of its adjusted EBITDA or the de minimis of AED 12,000,000. 30% of C LLC’s adjusted EBITDA of AED 130,000,000 would be AED 39,000,000, which is above the de minimis and, hence, is the maximum deductible Net Interest Expenditure in 2025. C LLC’s total Net Interest Expenditure in 2025 is AED 50,000,000 and C LLC may only deduct AED 39,000,000 of Net Interest Expenditure in this Tax Period. AED 11,000,000 of Net Interest Expenditure would be disallowed in 2025 and carried forward to the subsequent Tax Periods (up to 10 Tax Periods). In the Financial Year ending 31 December 2026, C LLC had Revenue of AED 200,000,000, adjusted EBITDA of AED 180,000,000 and Profit Before Tax of AED 140,000,000. C LLC incurs Interest expenditure of AED 80,000,000 and also receives Interest income of AED 60,000,000, resulting in a Net Interest Expenditure of AED 20,000,000 for 2026. In 2026, 30% of C LLC’s adjusted EBITDA of AED 180,000,000 would be AED 54,000,000, which is above the de minimis and, hence, is the maximum deductible Net Interest Expenditure in 2026. C LLC can deduct all of its Net Interest Expenditure in the period of AED 20,000,000, as well as an additional amount up to AED 34,000,000 of Net Interest Expenditure in the period. Hence, it may utilise its carried forward Net Interest Expenditure of AED 11,000,000 from 2025 and further reduce its Taxable Income in 2026. This would result in a Taxable Income of AED 129,000,000 for 2026.

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Example 20: Entertainment expenditure R LLC is a manufacturer of IT equipment, which recently decided to expand its operations by opening a new factory. In order to celebrate the opening of the new factory and generate sales, R LLC entertained a number of customers at the new facility. R LLC’s Accounting Income for the Tax Period was AED 7,000,000, which included AED 300,000 of business entertainment expenditure. As only 50% of business entertainment expenditure is an allowable deduction for Corporate Tax purposes, AED 150,000 must be added back to R LLC’s Accounting Income when calculating its Taxable Income. Therefore, assuming there is no other adjustment which must be made, R LLC’s Taxable Income for the Tax Period is AED 7,150,000.

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Example 22: Carried forward Tax Losses C LLC is a UAE resident company. In the Tax Period ending 31 December 2026 it makes a Tax Loss of AED 6,000,000. For the Tax Periods ending 31 December 2027 and 31 December 2028 respectively, C LLC has Taxable Income of AED 5,000,000 per year. C LLC will be subject to Corporate Tax as follows: • In the Tax Period ending on 31 December 2026, C LLC makes a Tax Loss and there are no amounts to be taxed. • In the Tax Period ending on 31 December 2027, C LLC has Taxable Income of AED 5,000,000. This means that the maximum Tax Loss that can be used to offset against its Taxable Income is AED 5,000,000 x 75% = AED 3,750,000. C LLC will have a final Taxable Income of AED 1,250,000 (AED 5,000,000 – AED 3,750,000). This means that C LLC must pay Corporate Tax of AED 78,750 (AED 375,000 x 0% + AED 875,000 x 9%). 230 Article 39 of the Corporate Tax Law. 231 Article 37(2) of the Corporate Tax Law. 232 Article 37(4) of the Corporate Tax Law. C LLC will have Tax Losses of AED 2,250,000 (AED 6,000,000 – AED 3,750,000) to carry forward. In the Tax Period ending on 31 December 2028, C LLC has Taxable Income of AED 5,000,000. The maximum Tax Loss that can be used to offset against its Taxable Income is AED 5,000,000 x 75% = AED 3,750,000. This means that the full amount of Tax Losses of AED 2,250,000 brought forward are available to be offset against the Taxable Income of AED 5,000,000 in this Tax Period. C LLC will have a final Taxable Income of AED 2,750,000 (AED 5,000,000 – AED 2,250,000). This means that C LLC must pay Corporate Tax of AED 213,750 (AED 375,000 x 0% + AED 2,375,000 x 9%). C LLC will have no Tax Losses to carry forward. (Amounts in AED)

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Example 24: Calculation of Taxable Income C LLC is a UAE resident company. At the end of its most recent Tax Period, its Financial Statements show an Accounting Income of AED 10,000,000. It has previously made an election to exempt its income from its Foreign Permanent Establishment in Country B. C LLC also has carried forward Tax Losses of AED 2,000,000. Its Accounting Income for the most recent Tax Period includes the following items: • Dividends received from UAE Resident companies: AED 1,000,000; • Income from its Foreign Permanent Establishment in Country B: AED 1,500,000; • Net Interest Expenditure: AED 7,000,000; and • Entertainment expenditure: AED 500,000. In order to determine its Taxable Income, C LLC must make the following adjustments to the Accounting Income in respect of these items: • Domestic dividends are Exempt Income for Corporate Tax purposes. As a result, the dividend income of AED 1,000,000 should be excluded from C LLC’s Accounting Income; • C LLC has made an election to exempt its income from its Foreign Permanent Establishment. As a result, the income from its Permanent Establishment in Country B of AED 1,500,000 should also be excluded from C LLC’s Accounting Income (assuming the relevant conditions have been met); • Net Interest Expenditure is deductible in full as it is less than the de minimis Net Interest Expenditure of AED 12,000,000; and • Only 50% of entertainment expenditure is an allowable expense for Corporate Tax purposes. As a result, 50% of the expenditure (AED 500,000 x 50% = AED 250,000) must be added back to C LLC’s Accounting Income. C LLC’s Taxable Income is therefore: Accounting Income 10,000,000 Less: Domestic dividends (1,000,000) Less: Foreign Permanent Establishment (1,500,000) income Add: Interest expenditure Add: Entertainment expenditure 250,000 Taxable Income 7,750,000 C LLC can use its carried forward Tax Losses to reduce its Taxable Income by up to 75% of its Taxable Income. As the amount of carried forward Tax Losses of AED 2,000,000 is less than 75% of its Taxable Income (AED 7,750,000 x 75% = AED 5,812,500), C LLC can use all of its available Tax Losses in this Tax Period. C LLC’s final Taxable Income is therefore: Taxable Income 7,750,000 Less: Tax Losses (2,000,000) Final Taxable Income 5,750,000

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Example 36: Application of Foreign Tax Credit C LLC is a UAE resident company that does business through Permanent Establishments in a number of foreign countries. During the Tax Period, C LLC paid AED 300,000 in foreign taxes on the AED 1,500,000 of income it earned in foreign countries. C LLC has not made an election to exempt the income from its Foreign Permanent Establishments. At the end of the Tax Period, C LLC’s Corporate Tax liability was AED 1,000,000. C LLC can reduce its Corporate Tax liability using available Foreign Tax Credit. However, the amount of Foreign Tax Credit is limited to the amount of Corporate Tax that would have been paid in the UAE on the foreign income (AED 1,500,000 x 9% = AED 355 Article 47(1) of the Corporate Tax Law. 356 Article 47(2) of the Corporate Tax Law. 357 Article 47(3) of the Corporate Tax Law. 358 Article 44 of the Corporate Tax Law. 359 Article 47(4) of the Corporate Tax Law. 135,000). This is less than the amount of tax C LLC paid in the foreign countries. The surplus amount (AED 300,000 – AED 135,000 = AED 165,000) cannot be carried forward or back and will not be refunded. The amount of Corporate Tax due is therefore AED 1,000,000 – AED 135,000 = AED 865,000.

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Example 5: De minimis requirements H LLC is a Free Zone Person that sells vehicles to other Free Zone Persons. During the Tax Period it has a total Revenue of AED 80,000,000. H LLC maintains adequate substance in the Free Zone, has not made an election to be subject to UAE Corporate Tax under the general rates, and complies with the transfer pricing rules and other documentation requirements set out in the Corporate Tax Law. During the Tax Period, it undertakes a small number of transactions with individuals and earns AED 4,500,000 of Revenue. The remaining AED 75,500,000 meets the requirements to be considered as Qualifying Income. As transactions with individuals are generally Excluded Activities, and Revenue from these sales exceeded the de minimis threshold of AED 4,000,000 (being the lower of 5% of AED 80,000,000 and AED 5,000,000), H LLC will not be eligible to be a Qualifying Free Zone Person.