What is Corporate Tax in the UAE?

Corporate Tax is a direct tax imposed on the net income or profit of corporations and other businesses. In the UAE, this tax is governed by Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.

✅ Key Features of UAE Corporate Tax:

• Effective Date: 1 June 2023
• Standard Rate: 9% on taxable income above AED 375,000
• 0% Tax Rate: On the first AED 375,000 of taxable income (to support startups and small businesses)
• 15% Global Minimum Tax: Applies to large multinationals falling under OECD’s Pillar Two (with revenue exceeding EUR 750 million)

🏢 Who Is Subject to Corporate Tax?

Businesses that carry out commercial activities in the UAE are subject to corporate tax, including:

• UAE-based companies (mainland and Free Zone)
• Foreign legal entities with a permanent establishment in the UAE
• Individuals engaged in business or commercial activities (not salaried individuals)
• Free Zone companies unless they meet conditions for 0% tax under “Qualifying Free Zone Person”

🛡️ Exemptions from Corporate Tax:

Certain entities are exempt from corporate tax, such as:

• Government entities
• Government-controlled entities (subject to conditions)
• Extractive and non-extractive natural resource businesses (already taxed separately)
• Charities and public benefit organizations (approved by the Cabinet)
• Investment funds (under specific conditions)
• Pension or social security funds

🔍 How Corporate Tax Impacts UAE-Based Businesses

1. Tax Planning Becomes Essential

With a new 9% tax on net profits, businesses must:

• Review their financial statements and accounting practices
• Optimize expense deductions and cost structures
• Consider group tax planning and transfer pricing strategies

2. Compliance and Reporting Obligations

Businesses are now required to:

• Register for Corporate Tax with the Federal Tax Authority (FTA)
• Maintain audited financial records
• File annual corporate tax returns
• Make payments of due tax within specified timelines

Non-compliance can lead to fines, penalties, and reputational damage.

3. Impact on Free Zone Companies

Free Zones continue to offer 0% corporate tax on qualifying income, but to maintain this benefit, companies must:

• Be a Qualifying Free Zone Person
• Earn qualifying income (such as from business with other Free Zone entities or foreign clients)
• Maintain adequate substance in the Free Zone
• Not have elected to be subject to regular corporate tax

Failure to meet these conditions results in the standard 9% tax rate being applied.

4. SMEs and Startups Get Some Relief

With a 0% tax on the first AED 375,000 of income, smaller businesses have a buffer. Still, they must:

• Register for tax
• Keep proper books of accounts
• File returns, even if the taxable income is zero

This encourages formalization of operations while easing the initial financial burden.

5. International Businesses Face Transfer Pricing Scrutiny

Multinational companies must comply with transfer pricing (TP) rules, including:

• Arm’s length pricing of intra-group transactions
• Master file and local file documentation
• Economic substance declarations (if applicable)

This aligns UAE businesses with OECD standards, reducing the risk of being labeled a tax haven.

🧾 Summary of Key Corporate Tax Compliance Requirements

Requirement	Description
Tax Registration	Mandatory for all taxable persons
Taxable Income Threshold	9% tax applies above AED 375,000
Filing Frequency	Annually, within 9 months of the end of the financial year
Accounting Standards	IFRS (or simplified standards for small businesses)
Transfer Pricing	Required for related-party transactions
Record Keeping	Minimum of 7 years

📊 Strategic Implications for Businesses

1. Business Structuring: Companies may need to re-evaluate their entity structures (especially Free Zone vs mainland).
2. Profit Reinvestment: While taxes apply, retained earnings for growth remain untaxed at the individual level.
3. Compliance Cost: There’s an increase in accounting, auditing, and tax advisory costs.
4. Level Playing Field: Corporate tax levels the competition between local and foreign firms, encouraging best practices.

✅ Final Thoughts

The introduction of corporate tax is a pivotal change in the UAE’s economic model—but not a deterrent to business. The 9% rate is still among the lowest globally, and its predictable structure, generous thresholds, and incentives for Free Zone firms make it a business-friendly regime.

To stay ahead, businesses should:

• Register early
• Implement proper bookkeeping and audit practices
• Seek expert advice for tax planning and compliance

If you need help preparing your company for UAE corporate tax or want a customized tax impact assessment for your business, our team at Privis Management Consultants is here to help.