Income exempt from income tax generally includes:

1. Dividend Income from Qualifying Shareholdings: Dividends earned by a UAE company from its qualifying shareholdings, with specific criteria to be defined in the forthcoming law.

2. Capital Gains: Profits derived from the sale of assets resulting in capital gains.

3. Profits from Group Reorganization: Gains arising from corporate restructuring within a group.

4. Profits from Intra-group Transactions: Earnings generated through transactions within the corporate group.

Furthermore, no UAE withholding tax will be imposed on both domestic and cross-border payments.

In light of the exempt income framework, it is anticipated that the law may incorporate a participation exemption or similar principles in line with international norms. Businesses should evaluate their ability to fulfill any prescribed conditions to benefit from the exempt income scheme.

Free Trade Zones

The UAE is dedicated to upholding its commitment to businesses registered in Free Trade Zones, stipulating that entities refraining from conducting business with the mainland shall enjoy a zero percent tax rate or exemption, as applicable, until the conclusion of the specified holiday period. All businesses within free zones are required to submit an annual Corporate Tax (CT) return.

Companies with a presence in both Mainland UAE and Free Trade Zones, along with those operating under the dual license scheme, should meticulously assess the implications on their operational framework.

The OECD Transfer Pricing Rules are now enforceable in the UAE, necessitating compliance from all companies with the specified regulations and documentation requirements. These rules, previously not obligatory, are now mandatory and extend their applicability to domestic transactions.

Although intercompany sales and financing services have been routine practices within UAE groups, the focus on remuneration for these activities has been relatively subdued, given their likely elimination during financial consolidation.

This development signifies a paradigm shift, requiring intercompany transactions to adhere to arm’s length principles and be substantiated by appropriate documentation. Businesses are urged to reassess their existing arrangements, evaluating the impact on both cross-border and domestic transactions.

Accumulated taxable losses shall be allowed to offset future taxable profits. 
Tax grouping and group relief provisions are permissible, enabling UAE Groups to submit consolidated tax returns and potentially offset tax losses within the group.

Taxable entities will have the opportunity to credit the foreign corporate tax paid on UAE taxable income against their annual tax liability.