The United Arab Emirates Ministry of Finance recently announced the long-awaited Corporate Tax Law, set to take effect from the beginning of the financial year, June 1 2023.
The UAE’s new standard corporate tax rate of 9% is reportedly the lowest rate within the GCC region, beneath Qatar and Oman’s rates of 10% and 15% corporate income tax respectively.
The Corporate Tax will only be levied on taxable income exceeding AED 375,000. Incomes below this threshold will be subject to 0% corporate tax.
The objective of this tax is to aid the UAE in the acceleration of its economic development and transformation. It will also allow the country to meet international tax standards. Furthermore, the nation will solidify its position as a leading jurisdiction, centre for global investment and business hub.
This direct tax will be levied on the net profit or income of businesses.
Navigate corporate tax law in the UAE with confidence
A standard corporate tax rate of 9% applies to taxable income exceeding AED 375,000.
Free Zone entities may qualify for 0% tax if they meet specific conditions and avoid mainland business activities.
Correct entity classification and compliance are critical to avoid penalties and optimize tax positions.
Expert guidance from an FTA-registered Juridical Person Tax Agent ensures proper navigation of these complex regulations.
The introduction of Corporate Tax in the UAE marks a seismic shift in how businesses operate across the Emirates. For SME founders and leaders, this Federal Decree-Law brings complexity that can feel overwhelming—new filing obligations, compliance deadlines, and the constant worry about penalties for getting it wrong.
You’re not alone if you’re questioning whether your current setup meets the new requirements or if you’re losing sleep over potential pitfalls. The Ministry of Finance has fundamentally changed the business landscape, and navigating corporate tax law in the UAE demands expertise that goes beyond basic bookkeeping.
This guide cuts through the confusion surrounding Corporate Tax implementation. We’ll walk you through the essential compliance requirements, decode the Federal Decree-Law provisions that matter most to your business, and provide the clarity you need to transform tax anxiety into confident action.
Who is subject to corporate tax in the UAE?
Under Federal Decree-Law No. 47 of 2022, the UAE Corporate Tax framework applies to specific categories of “Taxable Persons” based on their residence status and business activities. Understanding these classifications is the first step in determining your corporate tax obligations and compliance requirements.
Resident persons
A “Resident Person” for corporate tax purposes includes any entity with significant ties to the UAE. The law establishes clear criteria for this classification, which focuses on substantive business presence rather than mere registration.
Juridical persons incorporated in the UAE: Any company, partnership, or legal entity established under UAE law automatically qualifies.
Foreign entities with UAE management and control: Overseas companies whose central management and strategic decisions occur within the UAE are considered residents for tax purposes.
Natural persons conducting business activities: Individuals who operate a commercial enterprise within the UAE, regardless of nationality or personal residence status.
Resident persons face corporate tax obligations on a worldwide income basis, meaning all income becomes subject to UAE Corporate Tax, regardless of its source location.
Non-resident persons
A “Non-Resident Person” becomes subject to UAE corporate tax under two specific circumstances: establishing a “Permanent Establishment” or deriving UAE-sourced income.
A Permanent Establishment (PE) represents a fixed place of business through which the enterprise carries out its activities, including physical offices, branches, management facilities, or construction projects lasting more than six months. The second trigger occurs when a non-resident derives UAE-sourced income, even without a physical presence. This includes income generated from activities, assets, or contracts based in the UAE.
Unlike residents, non-resident persons are subject to corporate tax on a source basis, covering only the income connected to their UAE operations. Whether you are a resident or a non-resident with UAE exposure, our experienced team can help manage your compliance requirements and ensure accurate tax positioning.
What are the UAE corporate tax rates?
The UAE Corporate Tax system uses a straightforward rate structure that reflects the country’s commitment to maintaining a competitive business environment while ensuring compliance with international standards. The framework establishes clear thresholds based on taxable income, creating predictable obligations for businesses.
UAE Corporate Tax Rates
Taxable Income Threshold
Corporate Tax Rate
Income up to AED 375,000
0%
Income above AED 375,000
9%
Large Multinationals (Global revenue > €750M)
15%
The special tax regime for free zone companies
The UAE Corporate Tax law introduces a preferential 0% tax rate for qualifying Free Zone entities, but this benefit comes with strict conditions. A “Qualifying Free Zone Person” must meet specific criteria established by the Ministry of Finance to benefit from the 0% rate, primarily by maintaining proper substance and generating the right type of income.
To qualify for the 0% rate, your Free Zone company must satisfy these essential conditions:
Maintain adequate Economic Substance within the Free Zone.
Generate “Qualifying Income” as defined by the regulations.
Refrain from electing to be subject to standard corporate tax rates.
Comply with all regulatory requirements of your specific Free Zone authority.
Qualifying Income typically includes revenue from transactions with other Free Zone entities. However, any non-qualifying income, such as revenue from mainland UAE businesses, automatically becomes subject to the standard 9% corporate tax rate. This mixed treatment creates complexity that requires professional oversight and careful structuring.
How to calculate your taxable income
Understanding how corporate tax applies to your business starts with calculating your taxable income. This is not simply your gross revenue; taxable income represents your net profit after applying specific exemptions and deductions recognized by UAE tax law. Getting this calculation wrong can lead to overpayment or penalties from the Federal Tax Authority (FTA).
Exempt income
Certain types of income are specifically excluded from the corporate tax calculation. The UAE framework provides key exemptions that can substantially reduce your taxable base, including:
Qualifying dividends received from UAE resident companies.
Capital gains from the disposal of qualifying shareholdings.
Income from qualifying Free Zone activities (subject to substance requirements).
Income from foreign permanent establishments, subject to specific conditions.
Qualifying for these exemptions requires meeting strict conditions and maintaining proper documentation. For instance, dividend and capital gain exemptions often involve complex ownership thresholds and holding periods that demand careful tax planning to meet.
Deductible expenses
The fundamental principle of expense deductibility is simple: expenses must be incurred wholly and exclusively for the purpose of generating taxable income. This means your business expenditures must have a clear, documented connection to your revenue-generating activities.
Common deductible expenses include employee salaries, rent, professional fees, and depreciation on business assets. However, the FTA scrutinizes certain categories, particularly entertainment costs and related-party transactions. Transfer pricing documentation becomes crucial when deducting expenses paid to related entities, as the OECD principles followed by the UAE require arm’s-length pricing for all intercompany transactions.
Your path to corporate tax compliance
Navigating your obligations under Federal Decree-Law No. 47 of 2022 becomes straightforward when you understand the essential steps. Here is your compliance roadmap:
Tax Registration: Register your business with the Federal Tax Authority (FTA) through the EmaraTax portal. Registration is mandatory before your first tax period begins and must be completed to avoid penalties.
Financial Record Keeping: Maintain accurate books and records throughout your financial year using IFRS standards. Your records must support all tax calculations and include comprehensive documentation for all transactions.
Filing the Tax Return: Submit your corporate tax return via EmaraTax within nine months of your financial year-end. The return must be based on your financial statements and include detailed tax computations.
Paying the Tax: Corporate tax payment is due within nine months of your financial year-end, coinciding with the tax return filing deadline. Late payments incur penalties and interest charges from the FTA.
Each step demands precision and timely execution. Book your consultation to ensure your corporate tax compliance strategy protects your business from costly errors.
Partner with CTC for compliance and peace of mind
Managing corporate tax obligations alongside VAT requirements and Economic Substance Regulations creates a complex web that keeps business owners awake at night. The risk of missing deadlines, incorrect filings, or misinterpreting FTA guidelines can result in significant penalties that impact your bottom line. You should not have to navigate these complexities alone while trying to grow your business.
CTC Tax & Accounting stands as your Expert Partner, equipped with the credentials and experience to handle every aspect of your tax compliance. As an FTA-registered Juridical Person Tax Agent (TAN 30000764), we possess the legal authority to represent you directly before the Federal Tax Authority. Our certified experts bring ACCA certifications and Big Four experience from firms like KPMG and Mazars, ensuring your obligations are managed with precision.
Whether you are a newly registered business or managing ongoing requirements, we transform compliance from a source of stress into a seamless process. We turn your accounting nightmares into a walk in the park, delivering the confidence and security you need to focus on what matters most—growing your business.
Frequently asked questions about UAE corporate tax
Business owners across the UAE often have the same pressing questions about navigating their new tax obligations. Here are clear answers to the most common concerns we hear from SME leaders.
What are the key steps for a small business to ensure corporate tax compliance and avoid penalties?
First, register with the Federal Tax Authority before your first tax period starts. Second, maintain accurate, IFRS-compliant financial records throughout the year to support your calculations. Finally, file your annual corporate tax return and pay any tax due within nine months of your financial year-end. Missing these deadlines triggers automatic penalties.
Under what conditions can a Free Zone company benefit from a 0% tax rate?
A Free Zone company can benefit from the 0% corporate tax rate on its “Qualifying Income.” This requires maintaining adequate economic substance in the zone, complying with all Free Zone regulations, and not conducting business with mainland UAE entities. Any income derived from the mainland is taxed at the standard 9% rate.
Who is considered a “taxable person” and required to register for UAE corporate tax?
Under Federal Decree-Law No. 47 of 2022, a “Taxable Person” is any business or individual conducting business activities in the UAE. This includes mainland companies, branches of foreign entities, and Free Zone companies. Registration with the FTA is mandatory for all such entities to ensure they meet their compliance duties.
What are the UAE corporate tax rates and at what profit threshold do they apply?
The UAE applies a two-tier corporate tax rate. Taxable income up to AED 375,000 is taxed at 0%, offering significant relief for small businesses and startups. Any taxable income exceeding this threshold is taxed at a standard rate of 9%. Large multinational groups may face a different rate under global minimum tax rules.
What common deductions can be claimed when calculating taxable income in the UAE?
Businesses can deduct legitimate expenses incurred wholly and exclusively for generating taxable income. Common deductions include employee salaries, office rent, utilities, professional fees, and asset depreciation. Businesses should avoid claiming personal expenses, non-business-related entertainment, or fines, as these are not deductible and can lead to adjustments during an FTA audit.
