Corporate Tax in the UAE

From June 1, 2023, a new corporate tax came into effect in the United Arab Emirates, affecting almost all business persons in the country. The Emirates are gradually moving away from a tax-free environment and are striving to maintain tax transparency in business, comply with international financial standards, and combat illegal activities and tax evasion. This is important as the country positions itself as a global financial and trading center and is actively implementing advanced tax and accounting practices. In 2024, the UAE achieved significant results in this regard, leading to its removal from the FATF "gray" list. This indicates a positive trend, suggesting that authorities will likely continue to develop and enhance their tax system.

All legal and natural persons conducting business in the UAE are required to register for corporate tax purposes with the tax authority, obtain a taxpayer registration number, and annually file a tax return. This must be done in 2024. Failure to register on time will result in a penalty of 10,000 dirhams. Each of these stages — corporate tax registration, preparation and filing of the tax return, and tax payment—is a multi-step process where it is essential to comply with the requirements and key deadlines, as well as to have a clear understanding of the potential consequences for any violations. An experienced tax consultant can help you navigate the complexities of corporate tax in detail.

Key definitions of the UAE federal corporate tax law

Rates

The UAE offers a competitive corporate tax rate of 9%, positioning it among the lowest globally. Special conditions allow reductions to 0% for companies in qualifying free zones and for small businesses with annual revenues below certain thresholds. These reductions aim to encourage specific economic activities and support small enterprises.

Tax base

Corporate tax applies to a company's taxable income, defined as net profits or losses adjusted by specific items under UAE tax regulations. The law is federal, making it applicable across all Emirates and ensuring consistency in tax practices.

Taxable income

Taxable income encompasses all business revenue after deducting allowable expenses, following UAE corporate tax rules. Entities may adjust net profits for qualifying deductions, including certain losses carried forward, and for other incentives where applicable.

Taxable persons

Both juridical persons (such as companies) and natural persons (like individual entrepreneurs conducting business under a license) fall under the scope of corporate tax. Foreign persons with a UAE permanent establishment or income from UAE sources are also liable, depending on income origin and activity type.

Exemptions

Exempt entities include government bodies, investment funds, pension funds, and companies involved in natural resource exploration. Moreover, certain types of income, like dividends and real estate gains, may not be subject to corporate tax.

Who is subject to the corporate tax in the UAE?

For corporate tax purposes, taxable persons can include both residents and non-residents. This classification is separate from UAE residency status, visa status of company owners, or their physical presence in the country.

Corporate tax rates in the UAE

Mainland companies:

•  Taxable profit up to 375,000 dirhams is taxed at a rate of 0%.
•  Taxable profit exceeding 375,000 dirhams is taxed at a rate of 9%.

Free zone companies:

— For companies earning income from qualifying activities (Qualifying Free Zone Person), a corporate tax rate of 0% applies. To qualify for the zero rate, the following criteria for QFZP must be met:

•  the company's activities must be among the government-defined qualifying activities;
•  companies must operate within the free zone territory;
•  own a sufficient amount of assets;
•  have an adequate number of qualified employees;
•  demonstrate a sufficient level of operating expenses.

— If a company’s non-qualifying income exceeds 5% or 5 million AED of its total income (whichever is lower), the entire profit becomes subject to the standard 9% rate, ensuring alignment with UAE tax compliance standards.

Small Business Relief:

Persons with revenue for the tax period up to 3 million dirhams may opt for the Small Business Relief tax regime and pay no corporate tax. If the threshold amount is exceeded, the right to apply SBR is lost. The program is valid until December 31, 2026.

Natural persons conducting business activities

This category includes freelancers, self-employed individuals, sole entrepreneurs, and other natural persons who conduct business based on a commercial license.

•  If the annual turnover from business activities is up to 1 million dirhams, the tax rate is 0%.
•  Upon exceeding the threshold of 1 million dirhams, natural persons must pay corporate tax at a rate of 9% on profits exceeding 375,000 dirhams.
•  Freelancers and sole entrepreneurs can apply for the Small Business Relief (SBR) regime if their revenue is up to 3 million dirhams.

Thus, with the SBR regime, the corporate tax rate for individuals can be reduced to 0% if their revenue does not exceed 3 million dirhams.

When the turnover reaches 1 million dirhams, individuals conducting business are required to register for corporate tax purposes and annually file a tax return.

Who is exempt from corporate tax?

The new tax rules do not apply to certain categories of persons:

•  Federal governments and the governments of the Emirates, their agencies, authorities, and other government entities;
•  State-owned enterprises;
•  Companies engaged in the exploration of natural resources in the UAE;
•  Public benefit organizations;
•  Investment funds;
•  Government and private pension funds and social security funds.

Which incomes are not subject to corporate tax?

•  Individual salary
•  Investment income and income from deposits
•  Real estate income
•  Rental income
•  Dividend income
•  Inheritance
•  Capital gains

Tax groups

Entities can form a tax group if: 

• the parent company holds at least 95% of the share capital, voting rights, and profits of the subsidiaries, 
• they share the same financial year and accounting standards, 
• neither the parent nor subsidiary can be classified as an exempt person or a Qualifying Free Zone Person.

Navigating corporate taxes in Dubai with Emirabiz

To conduct business in the UAE legally and transparently, avoiding potential tax and banking issues, all companies and individuals engaging in business activities in this country should carefully comply with tax obligations, file tax returns on time, and submit financial statements to the relevant authorities. Our team of experienced tax and business consultants and accountants can help you understand all the intricacies of taxation in the UAE. Contact us and we will address your concerns!