The United Arab Emirates (UAE), long known for its tax-free business environment, has implemented a Corporate Tax regime that came into effect on June 1, 2023. This transformation marks a significant shift in the region’s fiscal policy, aligning it with international taxation standards while still maintaining competitive advantages for investors and businesses.
This comprehensive guide explains everything about Corporate Tax in UAE, who it applies to, its rates, exemptions, compliance requirements, and strategic planning tips to stay ahead .
What is Corporate Tax in UAE?
Corporate Tax (CT) is a form of direct tax levied on the net income or profit of corporations and other entities. Unlike VAT (which is a consumption-based tax), Corporate Tax directly targets a business’s profits after allowable deductions.
The UAE’s Corporate Tax regime is governed by Federal Decree-Law No. 47 of 2022, aiming to:
- Support economic diversification.
- Ensure financial sustainability.
- Comply with global standards (such as OECD BEPS requirements).
Who is Subject to Corporate Tax in the UAE?
Corporate Tax applies to a broad range of entities, including:
1. UAE Resident Juridical Persons
This includes:
- Mainland companies
- Free Zone companies (under certain conditions)
- Private companies
- Public joint-stock companies
2. Foreign Companies
If a foreign business has a permanent establishment (PE) in the UAE, it will also be subject to tax on income earned from UAE-based operations.
3. Individuals (Natural Persons)
Corporate Tax is applicable to individuals only if they are:
- Engaged in a business or commercial activity, and
- Have annual revenue exceeding AED 1 million from that activity.
Note: Income from salaries, real estate (without licensing), dividends, and other personal investments are not taxable under CT.
Entities Exempt from Corporate Tax
Some entities are exempt from paying Corporate Tax, including:
- UAE government and government-controlled entities.
- Extractive businesses (oil, gas) already taxed under local laws.
- Qualifying public benefit entities (non-profits).
- Pension and social security funds.
- Investment funds (under qualifying criteria).
- Companies wholly owned and controlled by exempt entities.
Corporate Tax Rates in the UAE
The UAE has introduced a simple, competitive, and globally attractive tax rate structure:
- 0% on annual taxable income up to AED 375,000 (to support SMEs and startups).
- 9% on taxable income above AED 375,000.
- 15% for Multinational Enterprises (MNEs) falling under the OECD Pillar Two rules (with global revenue exceeding EUR 750 million).
What is Taxable Income?
Taxable Income is the net profit of a business, calculated based on audited financial statements prepared in accordance with International Financial Reporting Standards (IFRS).
Adjustments to accounting income are required to:
- Eliminate exempt income (e.g., qualifying dividends).
- Account for non-deductible expenses (e.g., penalties, personal expenses).
- Apply specific tax reliefs (e.g., small business relief, transfer pricing adjustments, etc.).
Corporate Tax for Free Zone Companies
Free Zones continue to enjoy preferential tax treatment, but only under specific conditions.
Qualifying Free Zone Person (QFZP)
A Free Zone company must meet these criteria to benefit from 0% tax on qualifying income:
- Maintain adequate substance in the UAE.
- Derive income from qualifying activities (e.g., manufacturing, re-exporting goods, holding companies, etc.).
- Do not earn income from the mainland UAE (unless it’s from permitted activities).
- Maintain transfer pricing documentation and comply with FTA regulations.
Any non-qualifying income will be taxed at the standard 9% rate.
Corporate Tax Registration in the UAE
Is Registration Mandatory?
Yes. Every business subject to Corporate Tax must register with the FTA, even if it expects to earn income below the AED 375,000 threshold.
How to Register:
- Access the EmaraTax platform.
- Fill in the Corporate Tax Registration Form.
- Upload the required documents (trade license, MOA, owner IDs, financial details).
- Receive your Tax Registration Number (TRN) after approval.
Corporate Tax Return Filing
Every taxable person must file a Corporate Tax Return within 9 months from the end of their financial year.
Key Filing Requirements:
- Only one tax return per year is required (no quarterly returns).
- Audited financial statements may be mandatory for certain thresholds.
- All businesses must maintain comprehensive records and documentation for 7 years.
Example:
If your financial year ends on 31st December 2024, your filing deadline will be 30th September 2025.
Small Business Relief
To support SMEs, the UAE has introduced Small Business Relief until December 31, 2026.
Eligibility Criteria:
- Annual revenue of less than AED 3 million in the relevant and previous tax periods.
- Taxable person must be a resident business in the UAE.
Effect:
Eligible businesses are treated as having no taxable income, and hence pay 0% Corporate Tax.
Corporate Tax Groups
Group taxation allows UAE-resident companies with 95% common ownership to form a Tax Group, filing a single consolidated tax return.
Advantages:
- Elimination of intra-group transactions.
- One tax return for the entire group.
- Easier management of losses and offsetting within the group.
Transfer Pricing Rules
Businesses must comply with OECD-compliant transfer pricing (TP) rules, ensuring:
- Arm’s Length Pricing in transactions with related parties.
- Maintenance of proper TP documentation, including:
- Master File
- Local File
- Disclosure Forms
This is mandatory for businesses with revenue or transactions exceeding specified thresholds.
Allowable and Non-Allowable Deductions
Allowed Deductions:
- Salaries and wages.
- Rent and utilities.
- Depreciation on fixed assets.
- Cost of goods sold (COGS).
- Advertising and marketing expenses.
Non-Deductible Expenses:
- Fines and penalties.
- Bribes or unlawful payments.
- Dividends paid to shareholders.
- Personal expenses not related to business operations.
Penalties for Non-Compliance
Failing to comply with UAE Corporate Tax laws can lead to penalties:
- Failure to register: AED 10,000
- Failure to submit return on time: AED 500/month (up to 12 months)
- Late payment: 14% annually on unpaid tax
- Incorrect returns or false information: Heavy administrative fines and potential audits
Economic Substance Regulations (ESR)
Certain UAE businesses must comply with ESR regulations, especially if they are:
- Holding companies
- Shipping companies
- Intellectual property businesses
- Financial leasing businesses
Failure to comply with ESR may lead to substantial fines and revocation of licenses.
Corporate Tax Planning Strategies
Strategic tax planning is essential to minimize liabilities and enhance compliance.
1. Proper Entity Structure
- Choose the right legal structure (LLC, Free Zone Entity, or Branch).
- Consider forming a Tax Group if beneficial.
2. Documentation & Recordkeeping
- Maintain detailed accounting records.
- Prepare for FTA audits with full documentation.
3. Leverage Reliefs
- Make use of small business relief, exemptions, and deductions where applicable.
4. Consult a Tax Advisor
- A registered tax agent or corporate service provider can offer tailored advice and help avoid costly errors.
Conclusion
The UAE Corporate Tax framework is a game-changer for the region’s business community. While it introduces new compliance responsibilities, it also creates opportunities for transparent growth, foreign investment, and long-term economic stability.
All businesses in the UAE must now rethink their tax strategies, ensure timely registration, maintain proper records, and stay updated with FTA announcements. Being proactive today means avoiding penalties tomorrow.
