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As the UAE continues to refine and expand its Corporate Tax (CT) framework, several recent directives and clarifications from the Federal Tax Authority (FTA) have introduced important updates that businesses and individuals must monitor closely.
Family Foundations
UAE CT Law allows a Family Foundation to apply to the FTA to be treated as an Unincorporated Partnership, meaning it would be fiscally transparent and not subject to Corporate Tax in its own right. To qualify, the foundation must meet 5 key conditions, such as it must benefit identifiable natural persons or public benefit entities, engage only in savings or investment-related activities and not be established for tax avoidance.
Even if approved for transparent treatment, the Family Foundation must register for Corporate Tax. Upon approval, its assets, liabilities, income, and expenses are attributed to beneficiaries in proportion to their interest. Natural person beneficiaries are not required to register for CT unless they conduct a separate business. Public benefit entities must register if they qualify as Taxable Persons.
Foundations must file an annual confirmation within nine months of each tax period's end. If any of the required conditions are no longer met, the foundation’s transparent status is revoked, and it becomes a Taxable Person from the beginning of the relevant tax period.
Interest Deductions
FTA issued detailed guidance on the Interest Deduction Limitation Rule, offering clarity on how businesses should treat interest expenses under the Corporate Tax regime. The guide defines "interest" broadly, encompassing not just traditional loans but also Islamic finance profit rates, finance leases, factoring arrangements, and other finance-related charges. The treatment depends on the economic substance rather than the accounting presentation.
Interest expenses are generally deductible if incurred wholly and exclusively for business purposes, are not capital in nature, and are unrelated to exempt income. Interest payments to related parties must comply with the arm’s length principle, requiring robust transfer pricing documentation.
The General Interest Deduction Limitation Rule restricts net interest deductions to 30% of adjusted EBITDA. Any disallowed interest may be carried forward for up to 10 years, but only by the entity that incurred the expense. A de-minimis threshold of AED 12 million exempts smaller businesses. Exemptions also apply to licensed banks, insurers, and qualifying infrastructure projects, while holding companies and treasury centers must comply with the rule. Debt instruments entered into before 9 December 2022 are grandfathered, provided they remain materially unaltered.
Businesses must keep robust documentation on financing arrangements, EBITDA calculations, and interest classifications to avoid penalties.
Late Registration Penalties
The FTA released a Public Clarification outlining the conditions for waiving the AED 10,000 penalty for late CT registration. The waiver applies if the first CT return is submitted within seven months from the end of the first tax period (shortened from the standard nine months). This also applies to previously paid penalties, eligible for a refund if conditions are met. Tax payment deadlines remain unchanged at nine months. Taxable persons joining a tax group or later classified as exempt may also qualify for the same, upon timely filing.
Reference/Citation
Taxation of Family Foundations - Corporate Tax Guide | CTGFF1
Interest Deduction Limitation Rules - Corporate Tax Guide | CTGIDL1
CTP006 - Clarification Public Tax Corporate - Waiver of Administrative Penalty for failing to submit a Corporate Tax registration application within a specified deadline
