MIDDLE EAST TAX ALERT | UAE Corporate Tax: What the FTA’s Latest Guidance Means for Your Business

The Federal Tax Authority (FTA) published several significant updates this month that may impact your UAE Corporate Tax (CT) position, including the preparation of your 2025 CT return (due by September 30, 2026) and your ongoing tax compliance obligations. This alert summarizes the key developments, their practical implications, and the actions you should consider.

Summary of FTA Private Clarifications (Issued up to May 2026)

The FTA published a consolidated summary of positions taken in private clarifications across key areas of the UAE CT and TP regime, including exempt persons, permanent establishments, free zone qualification, the participation exemption, taxable income adjustments, and tax loss transfers. [1]

Although most positions are consistent with existing FTA guidance and prevailing market practice, the publication provides useful confirmation on several issues that taxpayers have been monitoring closely:

• Tax Loss Transfers: The 75% common ownership condition may be satisfied through beneficial ownership, not solely legal ownership. In addition, the transferor’s and transferee’s tax periods need only have aligned end dates (not start dates), provided the ownership threshold is maintained continuously from when the loss arises until it is utilized.
• Free Zone Substance: The ‘adequate substance’ requirement remains a fact-specific assessment; the presence of employees or asset-based/passive activities does not by itself guarantee that the condition is met for Qualifying Free Zone Person (QFZP) purposes.
• Participation Exemption (PE): For tax periods commencing on or after January 1, 2025, the asset composition test applies only where the participation is a Related Party of the taxpayer. The AED four million acquisition cost threshold operates as an alternative gateway and is not dependent on also satisfying the five percent entitlement tests.
• Subject-To-Tax Test: The FTA has confirmed that Saudi companies subject to Zakat are considered to satisfy the PE requirement that the foreign entity is subject to CT or a similar tax at a rate of at least nine percent.
• Arm’s Length Pricing and QFZP Status: If a taxable person has not recorded related party transactions at arm’s length prices in its financial statements, it can maintain QFZP status, as long as it makes appropriate TP adjustments in its CT return to demonstrate compliance with the arm’s length principle.
• Interest Paid to a Natural Person (Connected Person): Interest expense is an allowable deduction whether paid to a natural person (Connected Person) or a legal entity, provided it is at arm’s length and any applicable interest deduction limitation rules are otherwise satisfied.

Taxpayers claiming the PE, relying on intra-group loss transfers, or seeking to maintain QFZP status should reassess their tax positions ahead of the September 30 filing deadline to ensure alignment with the FTA’s latest guidance.

Private Clarifications Tax Procedures Guide (TPGPC1)

The FTA also issued revised procedural guidance for clarification requests, confirming that the FTA expects clarification requests to be narrowly framed, technically substantiated, and supported by contemporaneous evidence. [2]

In practice, successful applications should include:

• A concise factual background identifying the parties, transactions, and relevant time periods.
• Clearly numbered questions addressing a specific tax uncertainty.
• References to the relevant provisions of the CT Law and existing FTA guidance already considered.
• A detailed technical analysis supporting the proposed treatment.
• Consideration of reasonable alternative interpretations and why they are not preferred.

The guide also highlights that requests may be rejected if they are hypothetical, incomplete, seek general confirmation of eligibility, or relate to matters already addressed in published FTA guidance.

Given the level of technical analysis and supporting documentation expected, taxpayers should ensure that clarification requests are carefully prepared by individuals with appropriate tax technical expertise. Taxpayers should also note that private clarification requests are subject to non-refundable application fees of AED 1,500 when the request relates to a single tax and AED 2,250 when it relates to more than one tax. Accordingly, consideration should be given as to whether seeking a clarification is the appropriate course of action.

For completeness, private clarifications on the UAE’s Qualified Domestic Minimum Top-up Tax (QDMTT) regime are currently limited to registration-related queries. The guide states that the date from which clarification requests relating to all aspects of the QDMTT legislation will be accepted will be announced in Q4 2026.

Additional Procedures for the Compliance of QFZPs Engaged in the Activity of Distribution of Goods or Materials in or from a Designated Zone

FTA Decision No. 6 of 2026 introduces an additional compliance requirement for QFZPs engaged in distribution of goods or materials in or from Designated Zones in the UAE: an independent external auditor must issue an Agreed-Upon Procedures (AUP) report under ISRS 4400, and the report must be submitted within 30 days after the CT return is filed. [3]

Failure to submit the AUP report will result in the QFZP no longer satisfying the qualifying conditions for that tax period, resulting in the entity being subject to the standard UAE CT regime at a rate of 9%.

The report must verify that:

• The customers are purchasing the goods or materials for resale (including resale following processing or alteration).
• The goods imported by the QFZP entered the UAE through a Designated Zone.

The Decision also sets out detailed guidance on the audit procedures required to verify compliance with both requirements. These procedures must be performed on a sample basis in accordance with the prescribed sampling methodology.

The requirement applies to tax periods commencing on or after January 1, 2026. Affected taxpayers should begin preparing evidence and coordinating with auditors during FY26 rather than waiting until the filing stage.

FTA Public Clarification for Downward Adjustments in CT Returns (CTP011)

This public clarification focuses on the disclosure and documentation requirements for making downward adjustments in CT returns. [4]

Taxpayers must self-assess appropriate TP adjustments, if transactions with related parties are not recorded at arm’s length in the financial statements. The clarification confirms that such adjustments no longer require prior FTA approval. Any adjustments may be scrutinized as part of an FTA tax audit.

Disclosure of related party transactions with downward adjustments is now mandatory regardless of their value or nature, or whether the threshold for preparing the related party transactions schedule is met.

Taxpayers must maintain robust TP documentation (ideally contemporaneous) to support any downward adjustments, including:

• A rationale for the downward adjustment describing why the initial pricing in the financial statements was not at arm’s length and how the adjustment results in an arm’s length outcome.
• A benchmarking analysis to validate the arm’s length outcome.
• A reconciliation between the financial statement values and the arm’s length values disclosed in the CT return.
• Evidence of symmetrical corresponding adjustments made by the relevant related party to the same transaction/arrangement.

This public clarification does not extend to FTA-initiated corresponding adjustments or to TP adjustments made by a foreign competent authority. Practically, groups may need to revisit any uncertain FY24 positions to ensure they are at arm’s length. They may also consider revising their tax compliance process to flag all transfer pricing adjustments (upward or downward) and ensure that adequate documentation is maintained specifically for downward adjustments well in advance of the CT return filing deadline.

Next Steps

With the filing deadline approaching, it is important that taxpayers assess the above updates and ensure their CT and TP positions are appropriately supported and aligned with the latest FTA guidance.

Our team is available to discuss these developments and how they may apply to your business.

References

[1] Federal Tax Authority, Corporate Tax – Summary of FTA Private Clarifications Issued up to May 2026 (tax.gov.ae, 2026)

[2] Federal Tax Authority, Private Clarifications: Tax Procedures | TPGPC1, (tax.gov.ae, 2026)

[3] Federal Tax Authority, Determining the Additional Procedures for the Compliance of Qualifying Free Zone Persons Engaged in the Activity of Distribution of Goods or Materials in or from a Designated Zone for the Purposes of the Taxation of Corporations and Businesses (tax.gov.ae, 2026)

[4] Federal Tax Authority, Corporate Tax Public Clarification CTP011: Downward Adjustments Made by a Taxable Person in the Tax Return to Comply with the Corporate Tax Law (tax.gov.ae, 2026)