The UAE has long been known as a business-friendly hub with no personal income tax and zero tax for many years. However, starting June 1, 2023, the UAE introduced a federal corporate tax. This move aligns the country with global tax standards while maintaining its attractiveness as an investment destination.
In this article, you’ll gain a complete understanding of the UAE corporate tax rate, who it applies to, what’s exempt, and how it affects businesses of all sizes.
What is UAE Corporate Tax (CT)?
In the UAE, Corporate Tax is a direct tax levied on the net income or profit of corporations and other businesses. It is introduced to help diversify government revenue, support the national economy, and comply with international tax frameworks such as the OECD Base Erosion and Profit Shifting (BEPS) project.
UAE Corporate Tax Rate Breakdown
Here’s a quick overview of the CT rates:
- 0% on taxable income up to AED 375,000.
- 9% on taxable income above AED 375,000.
- A different rate (not specified yet) for large multinational corporations that fall under the OECD Pillar Two
This rate structure ensures that startups and small businesses remain largely unaffected, while larger businesses contribute more.
Who is Subject to UAE CT?
The tax applies to:
- All UAE-incorporated companies, including those in Free Zones.
- Foreign legal entities with a permanent establishment in the UAE.
- Individuals conducting business under a commercial license.
Note: Passive income such as dividends, interest, and capital gains earned by individuals from personal investments, is not subject to tax.
Who is Exempt from UAE CT?
Certain entities are exempt from CT, including:
- Government entities and government-controlled entities
- Extractive businesses (e.g., oil and gas companies) that meet specific conditions
- Public and regulated private pension and social security funds
- Qualifying investment funds
- Charities and public benefit organizations, subject to approval
Additionally, Free Zone companies that meet certain conditions can continue to benefit from 0% tax on qualifying income.
Taxable Income: How is it Calculated?
Taxable income is based on the net profit or loss reported in the business’s financial statements prepared under international accounting standards.
Key points:
- All revenues, gains, and expenses must be accounted for.
- Exempt income (e.g., qualified dividends or share disposals) is removed.
- Adjustments may be made for unrealized gains/losses, entertainment expenses, etc.
Businesses must maintain audited financial records to support the reported income.
Free Zone Companies: What You Need to Know
The UAE continues to support Free Zone businesses. If a Free Zone company:
- Maintains adequate substance in the UAE,
- Derives income from qualifying activities (e.g., trading with outside the UAE),
- And does not conduct business with the mainland,
Then it may still benefit from 0% corporate tax on qualifying income.
However, if a Free Zone company deals with the mainland or earns non-qualifying income, then that portion may be taxed at 9%.
Click if anyone is confused about how to start a business in the UAE.
Transfer Pricing and Documentation Requirements
All UAE businesses subject to corporate tax must comply with transfer pricing rules and maintain adequate documentation. This is especially important for:
- Multinational businesses
- Groups with related party transactions
Documentation includes:
- A master file
- A local file
- Transfer pricing policies
These must demonstrate that transactions are conducted on an arm’s length basis.
Important Note: Struggling to find an accurate document translation provider? Prime Quality offers certified translation in Dubai for various types of documents, including business, immigration, healthcare, and education, in 200+ languages.
Corporate Tax Registration and Filing
All taxable businesses in the UAE must:
- Register for tax with the Federal Tax Authority (FTA)
- File annual tax returns electronically
- Maintain financial records for a minimum of 7 years
Tax returns are due within 9 months of the end of the financial year. For example, if your financial year ends on December 31, your return is due by September 30 the following year.
Penalties for Non-Compliance
Failing to register, file returns, or pay CT on time can lead to penalties, which may include:
- AED 10,000 for failure to register
- AED 1,000 to AED 50,000 for failing to submit returns
- Late payment fines, interest, and possibly more
Timely compliance is critical to avoid these penalties.
Impact on UAE Businesses
While many small and micro-businesses are exempt due to the AED 375,000 threshold, the tax will affect:
- Large domestic firms
- Foreign companies with UAE branches
- Multinationals operating in Free Zones
The UAE remains one of the most competitive tax jurisdictions globally. Even at 9%, the tax rate is among the lowest worldwide, ensuring that the UAE stays attractive to investors and business owners.
Final Thoughts
Understanding the UAE corporate tax rate is essential for any business operating in the Emirates. With a reasonable tax rate, clear exemptions, and continued support for small businesses and Free Zone entities, the UAE maintains its status as a pro-business economy.
To stay compliant and efficient, businesses should:
- Seek professional tax advice
- Register with the Federal Tax Authority
- Keep accurate financial records
- Understand how tax rules apply to their specific industry or structure
By staying informed and prepared, businesses in the UAE can easily navigate this new tax era while continuing to grow and thrive.