Summary of private clarifications on UAE corporate tax

The UAE Federal Tax Authority (FTA) has recently published a summary of private clarifications on corporate tax issued up to May 2026. A private clarification applies exclusively to the person that requested it.

Although taxpayers may not formally rely on the responses included in the summary, it offers a highly valuable insight into the FTA’s positions on the corporate tax matters addressed. The FTA provided clarifications with respect to specific situations described in applicants’ requests. Other taxpayers should assess whether their particular circumstances match the cases discussed.

Although all private clarifications are anonymized, we recognized a number of responses to the requests we helped our clients to draft.

The summary covers the following topics:

• Structures under special tax regimes: qualifying investment funds, real estate investment trusts (REIT), unincorporated partnerships and family foundations
• Permanent establishments
• Qualifying free zone persons (QFZP): adequate substance in a free zone, qualifying activity and income derived from it
• Taxable income: participation exemption, financial statements, allowable deductions, treatment of tax losses
• Other matters: tax groups, registration for corporate tax, tax periods and transitional rules

Below is our overview of the most noteworthy clarifications included in the summary.

Qualifying free zone persons

• To meet the adequate substance requirement, the presence of a separate physical office is not a determining factor – a company must have an adequate number of qualified full-time employees, as well as sufficient expenditure and assets. The law and clarifications do not specify what constitutes an “adequate” amount, however, the scale of resources must be proportionate to the nature and scale of the business.
• If a company is registered in one Free Zone and has branches in other Free Zones, the conditions for Qualifying Free Zone Person status, including the adequate substance requirement, apply to all branches collectively as a single taxable person. Adequate substance is assessed for each activity separately. However, if a branch is located outside a Free Zone, the income of such branch is taxed separately as income of a Domestic Permanent Establishment.
• The fact that a company’s employees hold visas issued by another group company does not in itself affect compliance with the adequate substance requirement, as visas may be sponsored by related parties. To maintain adequate substance, a company must have employment relationships with employees and bear the associated economic expenses.
• According to the corporate tax law, taxpayers seeking to apply a 0% corporate tax rate are required to meet all the criteria for qualifying free zone persons, including the arm’s length principle for transactions. If at least one requirement is not met, a QFZP will be disqualified from the beginning of the respective tax period. However, the FTA included an important clarification: if transfer pricing (TP) adjustments are made in the tax return to meet the arm's length principle, a Free Zone Person will not lose its QFZP status for that Tax Period, meaning that the arm's length condition is not considered breached for the transaction for which the adjustment was made.

Qualifying activities

• If a QFZP sells goods to another free zone person as part of trading of qualifying commodities, it is not required to determine whether the customer is a beneficial recipient.
• Trading of qualifying commodities constitutes a qualifying activity only with respect to physical goods and hedging instruments. Derivative trading on a speculative basis is not considered a qualifying activity.
• The price of a cash-settled derivative of a commodity can be referenced to show the existence of a quoted price for the respective commodity, provided that such a price is specified by a recognized commodity exchange market or a recognized price reporting agency.
• Income from holding of shares for less than 12 months can be considered qualifying income if such shares were acquired for investment purposes rather than for short-term trading or speculative activity, and the taxpayer can demonstrate that the intention was to hold them for at least 12 months.
• As part of treasury and financing services to related parties, companies may provide loans and payment processing services and act as a loan guarantor, as such services come within the definition of treasury and financial services. The investment of a group’s available funds into bank deposits or corporate bonds constitutes a qualifying activity regardless of whether such investment is short-term or long-term.
• For intellectual property to be considered qualifying, its holder is not required to secure a patent or other authorizations. Intellectual property that is automatically legally protected by the current UAE legislation is also recognized as qualifying.

Taxable income

• Taxable income is determined on the basis of income recognized in the financial statements. Transfer, sale or any other termination of equity participation, including liquidation, constitutes a taxable event. If the shares are disposed of to a related party, the transaction must be valued at market value in accordance with the arm’s length principle. If a company only holds legal ownership of the shares without any entitlement to dividends or liquidation proceeds, this may indicate that the market value of such an asset is nominal or aligned with the carrying amount of the shares. In such cases, there may be no taxable income. If a shareholding is liquidated, only the holder entitled to a portion of the liquidation proceeds is subject to a tax.
• The FTA clarified the application of the participation exemption to income from participation interests in jurisdictions where a corresponding juridical person is incorporated. Dividends received from companies incorporated in Saudi Arabia and paying 2.5% Zakat meet the minimum taxation criterion , as Saudi Arabia applies a Corporate Tax at a rate of 20%, which is similar in character to the Corporate Tax applied in the UAE. However, compliance with all the other conditions for the exemption must be verified in each specific case.
• The FTA reaffirmed that fair value gains relating to a participation interest are not covered by the participation exemption.
• The FTA also provided clarification on the AED 50 million threshold that triggers a mandatory audit of financial statements. The threshold is based on revenue recorded in the financial statements. For companies engaged in securities trading and investments, the threshold is based on gains from the sale of investments and securities, which are calculated as gross sales revenue less the cost of investments in accordance with IFRS 9. Losses on sales are excluded from the revenue calculation.

Structures under special tax regimes

• For the purposes of corporate tax, an unincorporated partnership may exist where a landowner enters into an agreement with a developer.
• The FTA explained the method of calculating taxable income for investment structures. Taxable income of an investor in a REIT that is a qualifying investment fund is the share of net profit available for distribution as per the financial statements. It excludes unrealized gains, as they cannot be distributed to the investor.
• A family foundation whose beneficiaries are natural persons and which is engaged in real estate investment can qualify for tax transparent status only if it carries out its activities without a license and is not required to obtain one.
• A juridical person owned by several family foundations that are unincorporated partnerships can apply to the FTA for a similar status.
• The main criteria for a permanent establishment of a non-resident company are not the mere existence of a license issued by a government authority, but the performance of core income-generating activities in the UAE and permanence in time (an aggregate presence of more than six months in a year). The FTA further clarifies that the activities of a permanent establishment must form an essential and significant part of the non-resident’s business as a whole.

How BaOne can help

• Analyze contentious issues regarding the application of Corporate Tax and VAT legislation;
• Develop transfer pricing policies and determine arm's length value for transactions between related parties;
• Draft a request for a private clarification from the tax authority and assist with its submission, both on the issues covered in this review and on other matters.