This article is general information about UAE Corporate Tax. It is not legal or tax advice. FTA private clarifications are issued to a specific applicant on that applicant's own facts and are not binding in any other case. For advice on your own position, please speak to Regulex.

Since Corporate Tax came into force under Federal Decree-Law No. 47 of 2022, the Federal Tax Authority (FTA) has steadily issued private clarifications that explain how the rules apply to real, and often awkward, situations. Taken together, the clarifications issued up to May 2026 give a useful picture of how the FTA is thinking about free zones, exempt structures, the participation exemption, registration and the mechanics of compliance. Before drawing on any of them, however, every business owner should understand exactly what a private clarification is, and what it is not.

What a private clarification actually is

A private clarification is the FTA's written answer to a single applicant, based on that applicant's own facts. It is not legislation, it is not a public ruling, and it does not bind the FTA in anyone else's case. In practice this means you cannot take another company's clarification and rely on it as though it were the law, because your facts, and therefore the answer, may be different.

This is reinforced by the clarifications themselves. The phrase that appears more than any other is a version of "it depends on the facts and circumstances of each case". Whether an office creates a permanent establishment, whether a free zone company has adequate substance, whether a particular service is a qualifying activity: the outcome almost always turns on the detail. The clarifications are best used as a guide to the FTA's approach, not as a substitute for analysis of your own position.

Free zones: the 0% rate has to be earned

Free zones dominate the clarifications, and the message is consistent. Qualifying Free Zone Person status, and the 0% rate on qualifying income, must be supported by genuine substance that is assessed activity by activity. A company needs adequate people, assets and expenditure for each activity it carries on. A passive, asset based business, for example one that only lets property to related parties and has no full time employees, may fail the adequate substance test because no one is actually performing the core income generating work.

Several practical points recur across the free zone clarifications:

  • Branches of one company across different free zones are tested together as a single Qualifying Free Zone Person, but a branch located outside a free zone is treated as a permanent establishment whose income does not qualify for the 0% rate.
  • Qualifying activities are read according to their purpose. Re-packaging finished goods can count as processing, chartering a ship without owning it can count as a shipping activity, and each element of an activity can stand on its own. By contrast, speculative derivatives trading is not qualifying commodity trading, and pure brokerage is not wealth and investment management.
  • Where goods are sold to another free zone person, the customer must be the genuine beneficial recipient, meaning it is free to use or resell the goods.
  • A company that did not record its transactions at arm's length in its accounts can still keep its Qualifying Free Zone Person status if it makes the correct transfer pricing adjustment in its Corporate Tax Return.

Funds, foundations and partnerships

The clarifications sharpen the tax treatment of common investment and family structures. For a qualifying investment fund or REIT, an investor is taxed on its share of the income available for distribution, so unrealised gains do not form part of taxable income because they cannot be distributed. A family foundation must genuinely be a foundation, trust or similar entity to qualify for its special treatment: an ordinary limited liability company or private company cannot, although an incorporated trust can.

Partnerships require particular care. A foreign partnership does not keep its tax transparent status automatically. A UAE taxable partner must file the annual declaration on behalf of the partnership, and if that declaration is missed, the partnership loses transparency and is no longer treated as tax neutral.

Everything starts from IFRS

A theme worth absorbing is that taxable income begins with accounting income prepared under IFRS. If IFRS recognises an amount as income, it is generally taxable, even when the underlying event took place before the first tax period. On this basis the reversal of an old provision, a government grant, or compensation for past events can all be taxable in the period in which they are recognised in the accounts. Arm's length pricing runs through the whole system, so related party transactions must be tested even where no cash changes hands. Even a one percent shareholding held only to satisfy a legal requirement, with no economic rights, is still a taxable event to assess on disposal, although its arm's length value may turn out to be nominal.

The participation exemption

For groups and investors, the clarifications settle several recurring questions. The minimum acquisition cost of AED 4 million overrides the 5% ownership tests, so a large enough holding can qualify even without a 5% stake. Dividends from a Saudi company that pays Zakat can qualify, because Zakat is treated as a tax of a similar character levied at a rate of 20%. Dividends paid out of profits that had accumulated before the shares were acquired can still be exempt. Movements in value need to be characterised correctly: fair value gains are outside the exemption, but impairment gains and losses fall within it.

Registration reaches further than many expect

Registration for Corporate Tax is broader than many owners assume:

  • A company with a separate legal personality must register even if it holds no trade licence and carries on no business, unless it is an exempt person.
  • Converting a sole establishment into a limited liability company creates a new and separate taxable person. The establishment must de-register and the new company must register with a new Tax Registration Number, because the old number does not carry over.
  • A business carried on by an individual ceases on that person's death and must de-register. How the heirs are taxed then depends on the arrangement between them.
  • A non-resident with a permanent establishment in the UAE must register even where a treaty exempts the income from tax.
  • An individual carrying on business must register once turnover from that business exceeds AED 1 million in a calendar year.

Financial statements, audit and transitional relief

On compliance, financial statements must follow IFRS. IFRS for SMEs is available where revenue does not exceed AED 50 million, and the cash basis is optional where revenue does not exceed AED 3 million. Where audited financial statements are required, broadly where revenue is AED 50 million or more, or where the company is a Qualifying Free Zone Person, the auditor must be registered in the UAE. An overseas auditor will not satisfy the requirement. On transitional relief for gains that built up in immovable property before Corporate Tax began, the relief can reduce a taxable gain but it cannot be used to create a tax loss.

What this means for business owners

Three ideas run through all of these clarifications: substance takes priority over form, IFRS is the anchor for taxable income, and the answer usually depends on the specific facts. That is exactly why you cannot borrow another company's private clarification and apply it to your own situation, and why a confident position on paper can still be wrong in practice.

Where a position is significant in value or genuinely uncertain, the safer course is a proper analysis of your own facts, and, where the stakes justify it, your own clarification request to the FTA. This is the work Regulex handles day to day, including corporate structuring, free zone status reviews, participation exemption analysis and Corporate Tax registration for businesses across the UAE. If any of the themes above touch your business, we are glad to help you apply them to your specific position.

Source: Federal Tax Authority, “Corporate Tax - Summary of FTA Private Clarifications issued up to May 2026”, tax.gov.ae. Private clarifications are issued to the applicant who requests them; the underlying law is the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) and its implementing decisions.