Corporate Tax in the UAE: Seven Points Before Filing

In July 2026, the Federal Tax Authority of UAE (FTA) published a summary of private guidance on corporate tax issued up to May 2026. The document outlines how the tax authority approaches specific practical issues, from confirming economic substance to applying incentives and transfer pricing rules.

These specific clarifications are based on specific circumstances and do not constitute universal rules for all taxpayers. However, they help understand the FTA’s approach and identify issues worth reviewing before filing.

1. How to confirm economic presence in a free zone?

To qualify for the preferential regime, a company must demonstrate sufficient economic presence in the free economic zone. These requirements are assessed based on the nature of the business.

For example, a company that generates income from real estate rentals may not require a large staff. However, it is important to confirm that it operates, manages its assets, and performs the necessary functions. The mere absence of employees does not automatically mean the loss of its preferential status.

2. Is it necessary to confirm the status of the actual recipient of income?

When determining income eligible for a preferential tax rate, it’s important to select the appropriate basis. The FTA clarified that the additional test for the beneficial owner status of the income does not automatically need to be included in the separate basis for preferential taxation of trade in certain goods.

Practical conclusion: before applying the benefit, it is necessary to check the specific income category and the conditions related to it, and not to transfer the requirements from one basis to another.

3. What happens if the investment is sold before 12 months?

For certain capital gains exemptions, the investment’s holding period is relevant. However, selling an asset before 12 months has passed does not necessarily mean the exemption is not applicable.

The company’s original intent and documentation supporting the investment objective are important. Therefore, management decisions, investment justifications, and other materials that explain why the asset was acquired and subsequently disposed of should be preserved.

4. When is the buyer considered the end user of the product?

When determining income from trade in a free zone, the identity of the person to whom the goods are sold and for what purposes may be important.

If a buyer purchases a product for their own use, they may be considered the end user. However, if the product is intended for resale or use in a commercial supply chain, the assessment may be different.

It is important for companies to analyze not only the formal terms of the contract, but also the actual purpose of the goods, the nature of the buyer’s activities, and the subsequent movement of the products.

5. Does adjusting transfer prices deprive them of their preferential status?

Adjusting transfer prices does not in itself mean an automatic loss of the status of a qualified person of a free economic zone.

In doing so, the company must comply with transfer pricing rules, justify prices in related-party transactions, and retain supporting documents. It is also necessary to assess whether the adjustment affects income classification and compliance with other conditions of the preferential regime.

6. Can a tax in another country qualify for the participation income exemption?

When applying the capital gains exemption, it is important to consider the tax regime of the company in which the funds are invested.

The FTA analyzed the situation of a Saudi Arabian company paying zakat at a rate of 2.5%, although the corresponding activity could have been subject to corporate tax at a rate of 20%. The mere fact of paying zakat did not automatically determine that the conditions for the exemption had been met.

This example demonstrates that when assessing foreign taxation, it is necessary to analyze the applicable regime and the nature of the income, rather than relying solely on the presence of a payment to the budget.

7. From what point do the changes to the exemption rules apply?

When applying the participation income exemption, the start date of the tax period must be taken into account.

Specifically, the alternative AED 4 million participation cost criterion applies to tax periods beginning on or after 1 June 2023. The change to test assets only for related-party transactions applies to tax periods beginning on or after 1 January 2025.

Before calculating the tax base, it is important to check not only the content of the rule, but also the date from which it is in effect for a specific company.

The practice of private FTA clarifications shows that when preparing a declaration it is important to:

• confirm economic presence and the actual nature of the activity;
• determine the applicable basis for preferential taxation of each type of income;
• document investment intentions and asset ownership periods;
• check the purpose of the goods and the nature of the buyers’ activities;
• prepare price justifications in transactions with related parties;
• confirm compliance with the conditions for exemption from participation income;
• Check the dates when the changes come into effect.

Eligibility for a tax benefit depends not only on a company’s formal status but also on the nature of its transactions, compliance with specific conditions, and the quality of documentary evidence. Therefore, it’s advisable to analyze contentious issues before filing a tax return, rather than after receiving a request from the tax authority.