Tax update: What’s new in the UAE? – January 2025

By Feroz Hematally, Head of Tax, Africa, India and Middle East, and Naveen Gone, Manager, Finance and Tax, UAE

Navigating the complex tax and regulatory landscape can be challenging. Stay ahead of the curve with new monthly updates curated by our team of tax and compliance experts. Our aim is to provide a comprehensive digest of the latest tax and regulatory developments, news and enforcement actions in the United Arab Emirates (UAE). Here are the key takeaways for January 2025.

UAE corporate tax updates

• List of qualifying public benefit entities

The UAE’s Federal Tax Authority (FTA) has released the list of qualifying public benefit entities under Federal Decree-Law No. 47 of 2022 on the taxation of corporations and businesses. This list is essential for confirming the eligibility for tax exemptions available to these entities.

Government entities must notify the Ministry of any changes to public benefit entities and can file applications suggesting amendments. Furthermore, qualifying public benefit entities are required to provide any information requested by the Ministry and FTA.

• Zero-rate of corporate tax benefit for qualifying free zone

Whilst this is not a new update, it is important to revisit this topic as many free zone entities concluded their tax periods last month and tax returns are now due for filing later in the year,

The UAE boasts over 40 multidisciplinary free zones (hubs for commerce with specific permissible business activities) that empower expatriates and foreign investors to fully own their businesses. These zones are designed with cutting-edge infrastructure and specialised services that facilitate efficient workflows, significantly reducing time and effort needed to launch and operate businesses.

Free zones have been instrumental in driving growth of the UAE economy. Each zone is governed by its own regulations and tailored to specific industries, creating a conducive environment for a wide array of businesses. This strategic distribution of free zones throughout the country has established the UAE as a prime location for innovation and investment. With various advantages such as 100% foreign ownership, tax efficiency, streamlined administrative processes and modern infrastructure, these zones support a vibrant business community. Additionally, the availability of diverse legal structures and commercial activities enhances their appeal to investors.

Recognising the substantial contributions of free zone entities, the recently introduced corporate tax regulations have considered a zero corporate tax rate benefit for qualifying companies.

It is important to clarify that the zero-rate corporate tax applies solely to income generated from business activities registered within the free zone. The head office or branches that operate outside the free zones are beyond the purview of a 0% corporate tax rate.

The following income of a free zone entity is subject to a corporate tax rate of 0%:

• Transactions with other free zone entities except income from excluded activities
• Transactions with non-free zone entities (whether domestic or foreign) provided the income from qualifying activities except income from excluded activities
• Income that meets de-minimis thresholds

To obtain the designation of Qualifying Free Zone Person and benefit from the zero-rate corporate tax, an entity must fulfil specific criteria. This includes generating qualifying income from relevant transactions, maintaining adequate operational substance within the UAE, adhering to de-minimis requirements, and complying with transfer pricing regulations and documentation standards. Furthermore, the entity must prepare and maintain audited financial statements.

Failure to maintain the necessary criteria can have significant repercussions. If a free zone entity does not meet the qualifying free zone conditions, it will forfeit the zero-rate corporate tax benefit for the relevant financial year and the following four years.

It is therefore recommended that free zone entities to conduct a thorough assessment of their eligibility for the zero-rate corporate tax benefits. They must implement standard operating procedures to ensure ongoing compliance with the applicable requirements. By doing so, they can maximise the advantages offered by operating in a free zone and minimise the risk of losing valuable tax benefits.

UAE VAT updates

• Correction mechanism for VAT return errors

The FTA has issued Decision No. 8 of 2024, effective from 1 January 2025, clarifying the requirement to voluntarily disclose the correction of errors or omissions in Value Added Tax (VAT) returns that do not affect the payable amount. Situations requiring a voluntary disclosure include:

1. Misreporting standard-rated taxable supplies for one emirate in another emirate’s section
2. Incorrectly reporting zero-rated taxable supplies, either by understating or overstating them
3. Misreporting exempt supplies, by either understatement or overstatement

• List of charities

The FTA has published the updated list of charities that may recover input tax for the purposes of Federal Decree-Law No. 8 of 2017 on VAT.

Tax procedures updates

• Raqeeb whistleblower programme

Initiated by the UAE Cabinet of Ministers, the Raqeeb whistleblower programme requires the FTA to handle reports of tax non-compliance by individuals or entities. It also rewards informants financially when specific conditions are met.

Since a detailed guide was first released by the FTA in April 2022, it has been updated to include the recently introduced corporate tax. The guide has also been simplified and updated with a new whistleblower form for better understanding.

• Grace period to update information in tax records

The FTA has announced, via its tax procedures public clarification (TAXP007), a grace period designed to allow taxpayers to amend their tax records without facing administrative penalties. This initiative is intended to motivate registrants to ensure their tax information is current and precise.

Amendments may be needed for the following key areas:

• Registrant information: updates to name, address and email address
• Trade license activities: modifications or updates to licensed activities
• Legal structure: changes in legal entity type, partnership agreements for unincorporated partnerships, or articles of association and their equivalents
• Business nature: revisions to the nature or scope of the registrant’s business operations
• Business address: alterations to the address from which business is conducted

The period for filing amendments is set from 1 January 2024 to 31 March 2025. It is crucial for registrants to review their records and make necessary changes within this period to avoid possible administrative penalties.

If you have any queries or would like to discuss any of these topics further, please contact us: