- September 19, 2025
- Posted by: Kangming
- Categories: Economics, Innovation, Policy
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Introduction
This May, under the guidance of the Shanghai Municipal Commission of Commerce, the Pudong International Chamber of Commerce hosted the “2025 Shanghai Outbound Investment & Cooperation Service Open Day Series – Middle East Special Session.” I was invited to attend and recommended a Dubai Registered Tax Agent (TAN-30004360) and Partner at MAC&ROSS to present the latest edition of UAE Tax Benefits for Business. After the event, the two most frequently asked questions remained:
“Can Dubai still offer a 0% corporate income tax rate?”
“How can we avoid triggering regulatory pitfalls?”
“How can we avoid triggering regulatory pitfalls?”
Below is a consolidated overview of the mandatory provisions from the PDF, recent interpretations from the Federal Tax Authority (FTA), and key points on the interface with China’s foreign exchange and tax regulations. This is intended for enterprises planning market entry to conduct preliminary “compliance self-assessments.”
I. Tax Rates and Scope of Application (Extracted from Official Texts)
Mainland Enterprises
- Annual taxable income ≤ AED 375,000: 0%
- Amount exceeding threshold: 9%
- Reporting currency: AED, with exchange rates based on the daily mid-rate published by the Central Bank of the UAE
Free Zone Person (FZP)
- Qualifying Free Zone Person (QFZP) deriving Qualifying Income: 0%
- Non-qualifying income: 9%
- Once an “Excluded Activity” is triggered or the De-minimis threshold is exceeded (>5% of total revenue OR AED 5,000,000, whichever is lower), all income for that tax period is subject to 9% taxation, and the QFZP election is prohibited for the subsequent five years
Value Added Tax (VAT)
- Standard rate: 5%; export of goods and services: 0%
- Mandatory registration threshold: annual taxable supplies ≥ AED 375,000
Transfer Pricing
- Transactions with related parties or Connected Persons must be supported by contemporaneous documentation prepared in accordance with the OECD’s six transfer pricing methods
- Entities with revenue ≥ AED 200 million or part of a multinational group (consolidated revenue ≥ AED 3.15 billion) must submit a Master File & Local File
Economic Substance
- QFZPs must maintain adequate employees, assets, and operating expenditure in the free zone for “core income-generating activities”; outsourcing is permissible but must be subject to effective oversight with written evidence retained
Small Business Relief
- Enterprises with revenue ≤ AED 3 million for two consecutive tax periods may apply for simplified reporting, though loss carry-forward is not permitted and transfer pricing exemptions do not apply
II. Why Choose Dubai? – A Snapshot of Hard Metrics
(Note: The original text references a diagram; the conclusion below is based on its implied analysis)
Conclusion (Prudent Version):
Few jurisdictions simultaneously satisfy the three hard criteria of “low tax rates, capital mobility, and rapid establishment” within a single legal framework. Dubai offers an attractive investment environment, but whether the “0% rate” can be successfully implemented depends on whether the enterprise can concurrently pass the three-tier test of economic substance, transfer pricing, and China’s Outbound Direct Investment (ODI) compliance.
Few jurisdictions simultaneously satisfy the three hard criteria of “low tax rates, capital mobility, and rapid establishment” within a single legal framework. Dubai offers an attractive investment environment, but whether the “0% rate” can be successfully implemented depends on whether the enterprise can concurrently pass the three-tier test of economic substance, transfer pricing, and China’s Outbound Direct Investment (ODI) compliance.
III. The “Three Passes” for Alignment with Chinese Regulatory Oversight
- ODI Filing: A “pre-filing + post-event reporting” model across three authorities – Commerce, Development and Reform, and Foreign Exchange. Fund flows must strictly align with the filed documentation.
- Outbound Payment Tax Filing: To enjoy the 5% withholding tax benefit under the China-UAE tax treaty for dividends, interest, and royalties, enterprises must obtain a Certificate of Tax Residency from the Chinese tax authority and submit it prior to source withholding in the UAE.
- Transfer Pricing Contemporaneous Documentation: After preparing the Local File in the UAE, the Chinese parent company must still prepare a Chinese version in accordance with Announcement No. 42 to avoid secondary adjustments by Chinese tax authorities.
IV. Common Areas of Uncertainty (Summarized by Earnest Corporate Services Department)
- “Reasonable Commercial Purpose” Determination: If a free zone company acts solely as a re-export intermediary, but procurement contracts, logistics documents, and fund flows are all executed in China, the FTA may disqualify the 0% rate application.
- De-minimis Calculation Basis: Should revenue recognition follow IFRS or UAE VAT law? The FTA has yet to issue detailed guidance. It is advisable to first declare and pay tax in full under IFRS 15, with subsequent refund applications.
- Foreign Exchange Repatriation: While the UAE imposes no restrictions on outbound remittances, Chinese banks still conduct transaction-by-transaction reviews under the “Three Principles of Business Conduct.” Advance preparation of sales contracts, shipping documents, and audit reports is essential.
V. Conclusion: First Calculate “Verifiable” Figures, Then Reserve “Uncontrollable” Buffers
Dubai’s 0% tax rate is explicitly stipulated by law, but “qualification” requires simultaneous compliance with multi-layered requirements: free zone registration, economic substance, transfer pricing, and China’s foreign exchange and tax regulations. Any missing evidence in the chain may convert the 0% rate into 9%, or even trigger a 25% adjustment plus late payment penalties in China.
It is recommended that enterprises complete the following before capital injection:
- Commercial substance pre-assessment (personnel, premises, systems)
- Related-party transaction benchmarking analysis (OECD six-method simulation)
- Integrated ODI-UAE tax cost modeling (including worst-case scenarios of 9% + 25%)
Earnest Advisory – Specialising in financial and tax compliance for Chinese enterprises going global | Overseas corporate establishment and audit.
We welcome enterprises with investment intentions in the Middle East to approach us with their specific questions.
We welcome enterprises with investment intentions in the Middle East to approach us with their specific questions.