UAE corporate tax: Businesses will need to adapt for future legislative changes

The National

20 hours ago

In the world of tax, it is vital to be aware of contradictions that could occur. What starts out looking like an advantage could change with future legislation.
When patching for shortfalls, it is the bigger issues that get the immediate attention, but that does not mean something is being ignored.
Being aware of this and acting ahead of a loophole being closed is a gamble. Also, assuming that the legislation will only apply from the date of enactment is a chance.
We recently discussed a working example with regards to corporate tax in the UAE. Ministerial Decision No. 173 of 2025 closed the ability to acquire non-depreciated investment property assets and take immediate tax advantage to claim all the accumulated depreciation in one go against current year taxable profits.
The law's backdating was only seven months. It might have been to June 2023 when corporate tax launched. Indeed, a court might read the law to mean that it would be impossible for an entity to take advantage in the short time before the change.
This form of court intervention was a mechanism that was used in issued law when VAT was launched. So, the precedent exists.
What time period should be required between the commencement of a government regime and law which is obviously a patch? That is a matter for the courts.
Some might indulge in tax limbo – in other words, staying technically within the law. For instance, we have seen businesses set up multiple entities to avoid any one company from having a headcount that exceeds a number which would then require specific hiring policies. While not in the spirit of the law, it is an action that is legal.
Imagine a business that had paid a person, Timmy, who is both the owner and managing director, Dh2 million a year. While a profitable business, the salary is well beyond what an individual would be paid if they were not also the owner, which is more likely to be in the ballpark of Dh475,000 a year.
Timmy is legally a connected party. When submitting their corporate tax return, a connected party declaration with detailed supporting proof would be required to justify the remuneration. This rule applies if the amount is more than Dh500,000 per annum.
Setting up five entities and dividing the business evenly between them, while not an easy ask, could keep the individual below the reporting threshold. Notionally, none of those salary payments would be disallowed as a charge against taxable profits, thus reducing any payable tax amount.
Is this legal? I cannot find anything in the legislation or clarifications that says it is not. I am not suggesting that there is always calculated tax planning on any individual's part. Entrepreneurs in the SME sector may accidentally find themselves in this position.
Keep in mind though that blatant tax avoidance can lead to an organisation's structure being changed. The regulatory authorities can look through the organisation and reorganise it if required.
Another matter to consider is one of contradictions. Timmy wants to stay on the right side of the law. He wishes to inform the Federal Tax Authority in his submission that the sum total of his remuneration across multiple entities might by higher than what they would consider reasonable.
However, there is no place in the online return platform to do so. The portal is very black and white when it comes to thresholds. If you exceed a reporting value, additional screen options appear. Otherwise, you would not even know they existed.
You could manually disallow an amount within one of your overhead expenses lines when completing the return. As this is visible to the tax inspectorate, this might raise questions later that you would rather deal with immediately. Relying in the future on memory or archived records can be both distracting and cost a business valuable time.
If a couple of these entities qualified for small business relief, with a turnover under Dh3 million, then even this option would not be open to you. This relief comes with a lighter reporting requirement. Hence, there is no clear solution in this regard.