Is Corporate Tax charged on revenue or on profit?

Article 1 – Definitions In the application of the provisions of this Decree-Law, the following words and expressions shall have meanings assigned against each, unless the context otherwise requires: State Federal Government Local Government Ministry Minister Authority : United Arab Emirates. : The government of the United Arab Emirates. : Any of the governments of the Member Emirates of the Federation. : Ministry of Finance. : Minister of Finance. : Federal Tax Authority. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 2 Corporate Tax : The tax imposed by this Decree-Law on juridical persons and Business income. Business : Any activity conducted regularly, on an ongoing and independent basis by any Person and in any location, such as industrial, commercial, agricultural, vocational, professional, service or excavation activities or any other activity related to the use of tangible or intangible properties. Qualifying Income : Any income derived by a Qualifying Free Zone Person that is subject to Corporate Tax at the rate specified in paragraph (a) of Clause 2 of Article 3 of this DecreeLaw. Government Entity : The Federal Government, Local Governments, ministries, government departments, government agencies, authorities and public institutions of the Federal Government or Local Governments. Government Controlled : Any juridical person, directly or indirectly wholly Entity owned and controlled by a Government Entity, as specified in a decision issued by the Cabinet at the suggestion of the Minister. Person : Any natural person or juridical person. Business Activity : Any transaction or activity, or series of transactions or series of activities conducted by a Person in the course of its Business. Mandated Activity : Any activity conducted by a Government Controlled Entity in accordance with the legal instrument establishing or regulating the entity, that is specified in a decision issued by the Cabinet at the suggestion of the Minister. State’s Territory : The State’s lands, territorial sea and airspace above it. Natural Resources : Water, oil, gas, coal, naturally formed minerals, and other non-renewable, non-living natural resources that may be extracted from the State’s Territory. Extractive Business : The Business or Business Activity of exploring, extracting, removing, or otherwise producing and exploiting the Natural Resources of the State or any interest therein as determined by the Minister. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 3 Non-Extractive Natural Resource Business Qualifying Public Benefit Entity Qualifying Investment Fund Exempt Person Taxable Person Licensing Authority Licence Taxable Income Financial Year Tax Return Tax Period Related Party : The Business or Business Activity of separating, treating, refining, processing, storing, transporting, marketing or distributing the Natural Resources of the State. : Any entity that meets the conditions set out in Article 9 of this Decree-Law and that is listed in a decision issued by the Cabinet at the suggestion of the Minister. : Any entity whose principal activity is the issuing of investment interests to raise funds or pool investor funds or establish a joint investment fund with the aim of enabling the holder of such an investment interest to benefit from the profits or gains from the entity’s acquisition, holding, management or disposal of investments, in accordance with the applicable legislation and when it meets the conditions set out in Article 10 of this Decree-Law. : A Person exempt from Corporate Tax under Article 4 of this Decree-Law. : A Person subject to Corporate Tax in the State under this Decree-Law. : The competent authority concerned with licensing or authorising a Business or Business Activity in the State. : A document issued by a Licensing Authority under which a Business or Business Activity is conducted in the State. : The income that is subject to Corporate Tax under this Decree-Law. : The period specified in Article 57 of this Decree-Law. : Information filed with the Authority for Corporate Tax purposes in the form and manner as prescribed by the Authority, including any schedule or attachment thereto, and any amendment thereof. : The period for which a Tax Return is required to be filed. : Any Person associated with a Taxable Person as determined in Clause 1 of Article 35 of this Decree-Law. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 4 Revenue Recognised Stock Exchange Resident Person Non-Resident Person Free Zone Free Zone Person Unincorporated Partnership Permanent Establishment State Sourced Income Qualifying Free Zone Person Investment Manager Corporate Tax Payable Foreign Partnership : The gross amount of income derived during a Tax Period. : Any stock exchange established in the State that is licensed and regulated by the relevant competent authority, or any stock exchange established outside the State of equal standing. : The Taxable Person specified in Clause 3 of Article 11 of this Decree-Law. : The Taxable Person specified in Clause 4 of Article 11 of this Decree-Law. : A designated and defined geographic area within the State that is specified in a decision issued by the Cabinet at the suggestion of the Minister. : A juridical person incorporated, established or otherwise registered in a Free Zone, including a branch of a Non-Resident Person registered in a Free Zone. : A relationship established by contract between two Persons or more, such as a partnership or trust or any other similar association of Persons, in accordance with the applicable legislation of the State. : A place of Business or other form of presence in the State of a Non-Resident Person in accordance with Article 14 of this Decree-Law. : Income accruing in, or derived from, the State as specified in Article 13 of this Decree-Law. : A Free Zone Person that meets the conditions of Article 18 of this Decree-Law and is subject to Corporate Tax under Clause 2 of Article 3 of this Decree-Law. : A Person who provides brokerage or investment management services that is subject to the regulatory oversight of the competent authority in the State. : Corporate Tax that has or will become due for payment to the Authority in respect of one or more Tax Periods. : A relationship established by contract between two Persons or more, such as a partnership or trust or any other similar association of Persons, in accordance with laws of a foreign jurisdiction. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 5 Foreign Tax Credit Family Foundation Interest Accounting Income Exempt Income Connected Person Tax Loss Qualifying Business Activity Foreign Permanent Establishment Market Value Qualifying Group : Tax paid under the laws of a foreign jurisdiction on income or profits that may be deducted from the Corporate Tax due, in accordance with the conditions of Clause 2 of Article 47 of this Decree-Law. : Any foundation, trust or similar entity that meets the conditions of Article 17 of this Decree-Law. : Any amount accrued or paid for the use of money or credit, including discounts, premiums and profit paid in respect of an Islamic financial instrument and other payments economically equivalent to interest, and any other amounts incurred in connection with the raising of finance, excluding payments of the principal amount. : The accounting net profit or loss for the relevant Tax Period as per the financial statements prepared in accordance with the provisions of Article 20 of this Decree-Law. : Any income exempt from Corporate Tax under this Decree-Law. : Any Person affiliated with a Taxable Person as determined in Clause 2 of Article 36 of this Decree-Law. : Any negative Taxable Income as calculated under this Decree-Law for a given Tax Period. : Any activity that is specified in a decision issued by the Cabinet at the suggestion of the Minister. : A place of Business or other form of presence outside the State of a Resident Person that is determined in accordance with the criteria prescribed in Article 14 of this Decree-Law. : The price which could be agreed in an arm’s-length free market transaction between Persons who are not Related Parties or Connected Persons in similar circumstances. : Two or more Taxable Persons that meet the conditions of Clause 2 of Article 26 of this Decree-Law. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 6 Net Interest Expenditure Bank Insurance Provider Control Tax Group Withholding Tax Credit Withholding Tax Tax Registration Tax Registration Number Tax Deregistration Tax Procedures Law Administrative Penalties : The Interest expenditure amount that is in excess of the Interest income amount as determined in accordance with the provisions of this Decree-Law. : A Person licensed in the State as a bank or finance institution or an equivalent licensed activity that allows the taking of deposits and the granting of credits as defined in the applicable legislation of the State. : A Person licensed in the State as an insurance provider that accepts risks by entering into or carrying out contracts of insurance, in both the life and non-life sectors, including contracts of reinsurance and captive insurance, as defined in the applicable legislation of the State. : The direction and influence over one Person by another Person in accordance with the conditions of Clause 2 of Article 35 of this Decree-Law. : Two or more Taxable Persons treated as a single Taxable Person according to the conditions of Article 40 of this Decree-Law. : The Corporate Tax amount that can be deducted from the Corporate Tax due in accordance with the conditions of Clause 2 of Article 46 of this Decree-Law. : Corporate Tax to be withheld from State Sourced Income in accordance with Article 45 of this DecreeLaw. : A procedure under which a Person registers for Corporate Tax purposes with the Authority. : A unique number issued by the Authority to each Person who is registered for Corporate Tax purposes in the State. : A procedure under which a Person is deregistered for Corporate Tax purposes with the Authority. : The federal law that governs tax procedures in the State. : Amounts imposed and collected under this DecreeLaw or the Tax Procedures Law. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 7 Top-up Tax 1 Multinational Enterprise 2 : The top-up tax imposed on Multinational Enterprises in accordance with this Decree-Law and the rules and controls to be determined by the Cabinet under Article (3) of this Decree-Law for the purposes of the pillar two rules issued by the Organization for Economic Cooperation and Development. : An entity and/or one or more of its member entities located in the State or in a foreign jurisdiction, as specified in a decision to be issued by the Cabinet at the suggestion of the Minister. Chapter Two – Imposition of Corporate Tax and Applicable Rates

10.3. Explanatory notes 10.3.1. Cash Basis of Accounting As noted in Section 4.1, for Corporate Tax purposes, the accounting net profit or loss as stated in the Financial Statements of a Taxable Person forms the starting point for determining their Taxable Income. The financial accounting method adopted by the Taxable Person will determine when income and expenditure is recognised in the Financial Statements. Taxable Persons that earn Revenue that does not exceed AED 3,000,000 can follow the Cash Basis of Accounting wherein the income and expenditure is recognised when cash payments are actually received or paid. 10.3.2. Calculation of Revenue Revenue is defined in the Corporate Tax Law as “the gross amount of income derived during a Tax Period”.173 Revenue is not restricted to the sale of goods or services by a Business. It includes all income earned in the Tax Period and will include, for example, income from sale of assets, Exempt Income, etc. Revenue is different from profit. Profit is the difference between Revenue of a Business and its expenditure. Only Revenue, not expenditure, is relevant to determine eligibility to adopt the Cash Basis of Accounting. Businesses that are registered for VAT are required to charge VAT on certain products or services that they sell. The VAT charged should not be included in the calculation of Revenue. This is because the VAT collected must be transferred to the FTA and does not belong to the Business. The Cash Basis of Accounting does not alter the nature of payments. For example, the receipt of a loan or repayment of loan (principal amount) is not Revenue or expenditure (though the Interest element on such loans will be taxable or deductible subject to normal rules). Accordingly, the loan of AED 1,500,000 received by Company V during the 2025 Gregorian calendar year should not be included in the calculation of Revenue. As Company V’s Revenue does not exceed AED 3,000,000, it is eligible to adopt the Cash Basis of Accounting. 173 Article 1 of the Corporate Tax Law. Corporate Tax Guide | Determination of Taxable Income | CTGDTI1 87

As Figure 1 above demonstrates, Revenue is not the same as profit. Businesses do not take into account their expenses or costs when calculating their Revenue. Example 7: Calculation of Revenue ABC LLC is a UAE Resident Person. During its most recent Tax Period, ABC LLC made sales of AED 1,500,000 and received AED 1,000,000 of dividends from UAE companies. It had operating expenses of AED 2,000,000. ABC LLC therefore has Revenue of AED 2,500,000, costs of AED 2,000,000 and a profit of AED 500,000. However, the costs and profit are not relevant for the purposes of assessing whether ABC LLC is eligible for Small Business Relief. ABC LLC will be eligible because its Revenue is below the threshold of AED 3,000,000. 4.3.8. Implications for Resident Persons that are VAT registered Businesses that are registered for VAT are required to charge VAT on certain products or services that they sell. The VAT charged should not be included in the calculation of Revenue. This is because the VAT collected must be transferred to the FTA and does not belong to the Business. Small Business Relief is a Corporate Tax relief. It does not change the Resident Person’s compliance requirements for VAT or any other purpose in any way. This means that while some Taxable Persons can benefit from Small Business Relief for Corporate Tax purposes and therefore have simplified Corporate Tax compliance requirements, their VAT compliance requirements will continue as before. Illustrative examples Example 8: Sale of Business asset during a Tax Period Mr X is a Resident Person for Corporate Tax purposes. He has conducted a Business for many years and his Revenue has never exceeded AED 3,000,000. In the Tax Period ending on 31 December 2024, his Revenue was AED 1,850,000 and he elected for Small Business Relief. During the Tax Period ending 31 December 2025, Mr X agreed to sell his shop to a friend for AED 1,200,000. Mr X’s Revenue for the Tax Period, including the proceeds from the sale of the shop, totalled AED 4,150,000. Corporate Tax Guide | Small Business Relief | CTGSBR1 25

Article 2 – Preparing and Maintaining Audited Financial Statements 1. For the purposes of Clause (2) of Article (54) of the Corporate Tax Law, all of the following shall prepare and maintain audited financial statements: a. A Taxable Person that is not a Tax Group and that derives Revenue exceeding AED 50,000,000 (fifty million United Arab Emirates dirhams) during the relevant Tax Period. b. A Qualifying Free Zone Person. 2. For the purposes of Clause (2) of Article (54) of the Corporate Tax Law and Article (3) of Ministerial Decision No. 114 of 2023 referred to above, a Tax Group shall prepare and maintain audited special purpose financial statements in accordance with the form, procedures and rules specified by the Authority. 3. Without prejudice to Clause (1) of this Article, a Qualifying Free Zone Person engaged in the activity of distribution of goods or materials in or from a Designated Zone in accordance with Ministerial Decision No. 265 of 2023 referred to above shall comply with any additional procedures prescribed by the Authority. 4. For the purposes of calculating the Revenue threshold specified in Clause (1) of this Article for a Non-Resident Person, only Revenue derived through Permanent Establishments and/or nexuses in the State shall be taken into account.