Corporate Tax In UAE

Corporate Tax in the UAE: Everything You Need to Know in 2025

Introduction

In a significant shift from its traditional tax-free reputation, the United Arab Emirates (UAE) has introduced a federal corporate tax regime that is now fully in effect. Starting from financial years beginning on or after June 1, 2023, businesses operating in the UAE are subject to corporate tax (CT). This move aligns the UAE with global tax standards and promotes transparency while supporting small businesses and startups.

If you own or plan to operate a business in the UAE, understanding the new corporate tax law is essential to avoid penalties and maximize available benefits. In this comprehensive guide, we cover everything you need to know—from tax rates and exemptions to compliance procedures and free zone implications.

What Is Corporate Tax in the UAE?

Corporate Tax (CT) in the UAE is a direct tax imposed on the net profit of businesses. Administered by the Federal Tax Authority (FTA), it marks a pivotal evolution in the UAE’s economic policy to diversify revenue beyond oil and comply with international tax standards like the OECD's BEPS framework.

When Did UAE Corporate Tax Come Into Effect?

The corporate tax regime took effect for financial years starting on or after June 1, 2023. For businesses that follow a calendar year (January to December), corporate tax began applying from January 1, 2024.

Corporate Tax Rates in the UAE

The UAE offers one of the most business-friendly corporate tax structures globally, especially supportive of startups and SMEs.

Current Tax Rates:

• 0% on taxable income up to AED 375,000
• 9% on taxable income above AED 375,000
• 15% minimum tax for large multinational enterprises that meet the consolidated global revenue threshold of EUR 750 million (AED 3.15 billion) under the OECD Pillar Two rules.

This tiered system encourages entrepreneurship while ensuring large companies contribute their fair share.

Who Is Subject to Corporate Tax in the UAE?

The corporate tax applies broadly to both local and foreign entities that conduct business regularly in the UAE. The following are required to comply:

• All UAE-incorporated companies
• Branches of foreign companies operating in the UAE
• Free zone businesses (with caveats)
• Foreign entities with a permanent establishment in the UAE
• Banking sector and regulated financial institutions

Exemptions apply to certain entities and income types, which we’ll explore below.

Who Is Exempt from Corporate Tax?

Not every entity is subject to CT. Here’s a breakdown of the main exemptions:

1. Natural Resource Companies

Businesses engaged in oil and gas extraction or other natural resources remain subject to Emirate-level taxation, not federal corporate tax.

2. Individuals

There is no personal income tax in the UAE. Individuals are not subject to CT on:

• Salaries or wages
• Dividends and capital gains from personal investments
• Interest or income from savings accounts or deposits

3. Passive Income of Foreign Investors

Income such as dividends, capital gains, interest, royalties, and other returns on investments earned by foreign investors will not be taxed, provided there's no permanent establishment in the UAE.

4. Qualifying Free Zone Entities

Free zone companies can continue to enjoy 0% corporate tax on qualifying income, provided:

• They meet substance requirements
• Do not conduct business with the mainland
• Comply with all regulatory standards

The specific criteria for qualifying income are outlined in the detailed UAE Corporate Tax Law and related Cabinet Decisions.

How Is Taxable Income Calculated?

Taxable income is determined based on the accounting net profit (as per IFRS standards), with specific adjustments outlined in the legislation.

Example:

A business earns AED 450,000 in net profit for the fiscal year. Here's how the tax is computed:

• 0% on the first AED 375,000 = AED 0
• 9% on the remaining AED 75,000 = AED 6,750

Total Corporate Tax Payable: AED 6,750

Loss Relief and Carryforward Provisions

To support business sustainability, the law allows for loss carryforwards:

• Business losses incurred after the effective date can be used to offset taxable income in future years.
• Unused losses can be carried forward indefinitely, subject to ownership and business continuity conditions.

This provision is particularly valuable for startups and businesses in the growth phase.

Group Taxation: Forming a Tax Group

Companies with common ownership (at least 95% direct or indirect) can form a Tax Group and file a single consolidated tax return.

Benefits of group taxation:

• Offsetting profits and losses between group members
• Simplified compliance and reporting
• Streamlined administration

How to File Corporate Tax in the UAE

Filing Process:

• Returns must be filed annually via the Federal Tax Authority (FTA) online portal
• No provisional or advance tax payments are required
• Penalties apply for late filings or under-reporting

Required Documents:

• Audited financial statements (for larger businesses)
• Tax registration number
• Supporting schedules and reconciliation statements

Corporate Tax in UAE Free Zones

Free zones are a significant part of the UAE’s business ecosystem. Under the new regime:

• Free zone entities can still benefit from 0% corporate tax on income derived from outside the UAE or from other free zones
• Non-qualifying income (e.g., transactions with mainland UAE) may be taxed at 9%
• Entities must maintain adequate substance in the UAE and comply with transfer pricing regulations

Foreign Tax Credits and Double Taxation

To avoid double taxation, the UAE allows for foreign tax credits:

• Businesses can offset foreign taxes paid against their UAE CT liability
• Credits cannot exceed the UAE tax payable on the same income

This is particularly helpful for multinational businesses with cross-border operations.

Regulatory Oversight: Who’s in Charge?

• The Federal Tax Authority (FTA) handles administration, enforcement, and compliance.
• The Ministry of Finance acts as the Competent Authority for international tax matters, including exchange of information, tax treaties, and OECD-related obligations.

Final Thoughts: Why the Corporate Tax Law Matters

The UAE’s move to implement corporate tax is more than just a fiscal policy change—it’s a strategic step towards:

• Sustainable economic growth
• International tax alignment
• Attracting high-quality, compliant investment

While the 9% tax rate remains globally competitive, the system introduces accountability and long-term stability. Whether you're a small startup in Dubai or a multinational enterprise in Abu Dhabi, understanding and adapting to the UAE Corporate Tax Law is now a critical component of doing business in the region.

Key Takeaways

·        0% tax for income up to AED 375,000

·        9% standard corporate tax above that threshold

·        Free zone benefits continue (with conditions)

·        No personal income tax or tax on investment income

·        Annual electronic filing, no advance tax required

·        Foreign tax credits and group filing options available