UAE CORPORATE TAX

Corporate tax in the UAE is a federal tax imposed on the net profit (taxable income) of businesses operating within the country. It officially came into effect on June 1, 2023, and most companies became fully taxable starting January 1, 2024. The tax applies to companies that exceed a certain income threshold and is regulated by the Federal Tax Authority (FTA). The goal is to align the UAE with global tax standards while maintaining its appeal as a business-friendly jurisdiction.

Background of Corporate Tax in the UAE

The UAE has long been regarded as one of the most attractive destinations for entrepreneurs and investors globally. Its stable political climate, strategic geographic location, world-class infrastructure, and previously 0% corporate tax regime made it a top choice for both startups and multinational corporations.

According to the International Monetary Fund (IMF), the UAE has the fifth-largest economy in the Middle East. While historically reliant on oil and natural resources, the country has been actively diversifying its economy, making significant strides in sectors such as finance, tourism, logistics, and technology.

Is Corporate Tax the Same as VAT?

When corporate tax was first introduced, many businesses mistakenly assumed it was similar to the Value Added Tax (VAT). However, the two are fundamentally different:

• Corporate tax is levied on a business’s net profit (taxable income) and applies to most companies regardless of size or revenue.

• VAT is a consumption tax charged on the sale of goods and services. It is collected from customers at the point of sale and remitted to the government.

In essence, while VAT is paid by consumers, corporate tax is paid by the business directly to the government, based on its net profits—not gross revenue.

Who is Subject to Corporate Tax in the UAE?

Under the new regulations introduced by the UAE Ministry of Finance, most businesses operating in the UAE are now subject to corporate tax, including those based in free zones (unless they qualify for specific exemptions).

Entities required to pay corporate tax include:

• UAE-based corporations and other legal entities whose primary operations or management are in the country.

• Individuals conducting business activities in the UAE.

• Foreign legal entities with a Permanent Establishment in the UAE, as defined under Section 8 of the Corporate Tax Law.

When Does Corporate Tax Apply?

The implementation date for corporate tax varies based on a business’s financial year:

• Businesses with a July–June financial year began tax calculations from July 1, 2023.

• Businesses with a January–December financial year started on January 1, 2024.

Unless specifically exempt, all commercial entities in the UAE must register, comply with reporting requirements, and file corporate tax returns under the new framework.

How Much Is Corporate Tax in the UAE?

The UAE Ministry of Finance (MOF) has introduced a tiered corporate tax structure based on annual net profits:

• 0% Tax Rate: For businesses earning up to AED 375,000 in annual net profit.

• 9% Tax Rate: For businesses earning above AED 375,000 in annual net profit.

• 15% Tax Rate: For large multinational companies with global revenues exceeding EUR 750 million (approximately AED 3.15 billion), as part of the OECD’s Base Erosion and Profit Shifting (BEPS) initiative (Pillar Two).

Corporate Tax Registration

All taxable businesses in the UAE must register for corporate tax through the Federal Tax Authority (FTA) portal. The registration process includes submitting the following documents:

• Trade license

• Passport and Emirates ID of the business owner(s)

• Corporate structure details

• Financial records

• Description of business activities

Once submitted, applications are reviewed by the FTA. If approved, a Tax Registration Number (TRN) is issued. The process typically takes around 20 days, but it may take longer if further documentation is required.

Need help registering? Our team at AB Nexis can handle the entire corporate tax registration process on your behalf to ensure accuracy and timely compliance.

Who Is Exempt from Corporate Tax in the UAE?

While most businesses are required to register, some entities are exempt from paying or filing corporate tax, including:

1. Government Entities

Federal and local UAE government bodies, departments, and public institutions are automatically exempt.

2. Natural Resource Businesses

Entities engaged in extracting or exploiting natural resources (e.g., oil and gas) are taxed at the Emirate level and are exempt from federal corporate tax.

3. Charitable and Social Organisations

Registered non-profits and charitable entities that have obtained approval from the MOF under Cabinet Decision No. 37 of 2023.

4. Regulated Investment Funds

Certain real estate or other investment funds may be exempt if formally approved by the MOF and FTA.

5. Government-Owned Companies

UAE entities fully owned and controlled by the government and listed by ministerial decree are also exempt.

6. Pension and Social Security Funds

Public and private pension or social security funds that comply with Ministerial Decision No. 115 of 2023 may qualify for exemption.

UAE Corporate Tax: Exempt Income

In addition to specific entity-based exemptions, the UAE Corporate Tax Law also provides income-based exemptions. This means that even taxable businesses may exclude certain types of income from their tax calculations.

Below are key categories of exempt income:

• Dividends and Profit Distributions
  Income earned from dividends or other profit distributions received from UAE-resident juridical persons is exempt, as per Article 22 of the Corporate Tax Law.

• Foreign Participating Interests
  Dividends and capital gains earned from a participating interest in a foreign juridical person may also qualify for exemption. To be eligible, the UAE entity must hold at least a 5% ownership stake in the foreign company. Specific thresholds may vary by jurisdiction (e.g. 10% for UK companies held for at least 10 consecutive months).

• Capital Gains on Share Transfers
  Capital gains from selling shares in a subsidiary may be exempt, provided ownership and holding criteria are met.

• Foreign Exchange and Capital Gains
  Gains or losses from foreign exchange transactions and capital gains on domestic or foreign participating interests may be exempt under certain conditions.

• International Shipping and Aviation Income
  Earnings by non-residents from the leasing or operation of aircraft or ships in international transport may be exempt from corporate tax.

• Foreign Branch Income
  Income earned through a foreign branch or permanent establishment may be exempt if the company elects to apply the Foreign PE exemption.

Corporate Tax for Free Zone Persons

Free Zone companies are subject to UAE Corporate Tax but may benefit from a 0% tax rate if they meet specific conditions and qualify as a Qualifying Free Zone Person (QFZP).

To be classified as a QFZP, the entity must:

• Earn Qualifying Income

• Maintain adequate economic substance in the Free Zone

• Not opt into the standard corporate tax regime

• Comply with transfer pricing rules

What Is Qualifying Income?

According to Ministerial Decision No. 139 of 2023, Qualifying Income includes:

• Transactions with other Free Zone Persons

• Domestic and international income from Qualifying Activities, such as:

  • Manufacturing and processing

  • Holding company activities

  • Fund and wealth management

  • Logistics and distribution

  • Headquarter services

  • Reinsurance and financing activities
    (As defined in Ministerial Decision No. 265 of 2023)

Excluded Activities, like income from real estate transactions with non-Free Zone entities, disqualify the income from the 0% rate.

Note: The de minimis rule applies. If non-qualifying income exceeds 5% of total revenue or AED 5 million (whichever is lower), the Free Zone entity may lose QFZP status and be taxed at the standard 9% rate.

Corporate Tax for Freelancers in the UAE

Freelancers operating under their personal name (i.e. not through a company) are also subject to corporate tax if their annual revenue exceeds AED 1 million.

Key Points for Freelancers:

• You must obtain a freelancer or professional license to work legally in the UAE.

• If your income crosses AED 1 million in a calendar year, you are obligated to register for corporate tax and comply with filing and reporting requirements.

• Tax is levied on net profits, not gross income.

• You may still be eligible for deductions and exemptions depending on the nature of your work and income sources.

The UAE remains a freelancer-friendly environment, but new regulations require greater attention to tax compliance.

Corporate Tax for Groups

Under UAE Corporate Tax Law, two or more eligible entities can form a Tax Group, allowing them to be treated as a single taxable entity for corporate tax purposes. This option can offer administrative and financial efficiencies for qualifying businesses.

Conditions for Forming a Tax Group

To form a Tax Group, the parent company and its subsidiaries must:

• Be resident juridical persons in the UAE.

• Follow the same financial year.

• Use identical accounting standards in their financial records.

Additionally, the parent company must:

• Directly or indirectly hold at least 95% of the share capital of the subsidiary.

• Control 95% of voting rights in the subsidiary.

• Be entitled to at least 95% of the profits and net assets.

Note: Exempt Persons and Qualifying Free Zone Persons cannot be included in a Tax Group.

For tax filing, the parent entity must prepare consolidated financial statements for all subsidiaries in the group. Transactions within the group are disregarded when calculating the taxable income.

Tax Deductions and Allowable Expenses

Businesses may deduct expenses that are wholly and exclusively incurred for generating taxable income. However, the UAE Corporate Tax Law includes specific limits and exclusions.

Key Deductible Expenses

• Depreciation & Amortisation
  Long-term assets are depreciated or amortised over their useful life as per accounting standards.

• Mixed-Use Expenditures
  Expenses used partly for business and partly for personal purposes must be apportioned. Only the business portion is deductible.

• Donations
  Contributions to charitable organisations approved under Cabinet Decision No. 37 of 2023 are deductible.

• Interest on Financing
  If net interest expense exceeds AED 12 million, a business may deduct the lesser of:

  • 30% of adjusted EBITDA, or

  • AED 12 million
    This limit discourages excessive debt financing.

• Royalties to Foreign Affiliates
  Royalties paid to foreign group companies are deductible if made on arm’s length terms and are necessary for business operations.

• Unrecoverable VAT
  Input VAT that cannot be claimed back is deductible as a business expense.

• Owner/Director Remuneration
  Payments to owners, directors, or their relatives must reflect market value. Excessive payments are not deductible.

• Intragroup Management Fees
  These must comply with transfer pricing rules and reflect market-based pricing.

• Carried-Forward Tax Losses
  Losses can be carried forward and offset against future taxable profits, subject to conditions and accounting method consistency.

• Employee Entertainment
  50% of expenses incurred for employee-related entertainment are deductible.

• Doubtful Debts
  Allowable as per IFRS standards for financial reporting.

• Government and Licensing Fees
  Costs related to business setup, licence renewals, and other official charges are deductible.

Additional Tax-Exempt Income

Certain categories of income are exempt from UAE corporate tax if specific criteria are met:

• Dividends from UAE Companies
  Fully exempt if received from UAE-resident entities.

• Dividends from Foreign Subsidiaries
  Exempt if the UAE entity owns at least 5% of the foreign company.
  E.g., for UK-based subsidiaries, a UAE entity must own at least 10% of ordinary shares for a continuous 10-month period to qualify.

• Capital Gains from Share Disposals
  Gains from selling a stake in a subsidiary may be exempt if qualifying shareholding thresholds are met.

• Foreign Exchange Gains and Losses
  Exempt when arising from participating interests or qualified financial instruments.

• International Shipping and Aviation
  Income from international shipping or aircraft leasing by non-residents is exempt.

• Foreign Branch Exemption
  Income from a foreign permanent establishment may be exempt if the entity has opted for the exemption.

Foreign Branch Tax Deductions

For UAE-based companies with foreign branches, the Corporate Tax Law provides two distinct options for managing taxation on overseas income:

• Foreign Tax Credit:
  Companies may claim a credit for taxes paid in the foreign jurisdiction. However, the amount of credit is capped at the lower of:

  • The foreign tax paid, or

  • The UAE Corporate Tax due on the same income.

  Note: Any unused tax credit cannot be carried forward or back to other tax periods.

• Exemption on Foreign Branch Profits:
  Alternatively, companies may elect to exclude foreign branch profits from their UAE taxable income altogether. This option can help eliminate double taxation, depending on the nature of foreign operations.

Corporate Tax Administration in the UAE

The Federal Tax Authority (FTA) is responsible for administering corporate tax across the UAE. All businesses subject to the Corporate Tax Law must register with the FTA and submit an annual tax return, accompanied by financial statements.

While most companies follow International Financial Reporting Standards (IFRS), the FTA permits simplified accounting methods for smaller or qualifying businesses to make compliance more accessible.

Filing Corporate Tax in the UAE

Once a company’s financial year ends, it has nine months to file its corporate tax return and pay any dues. Registration, filing, and payment can all be done through the FTA’s digital platform.

Sample Tax Timelines

Here’s what a typical filing timeline looks like:

Businesses are encouraged to plan ahead and maintain organized records to avoid delays or penalties.

Why Corporate Tax Is a Strategic Move

The implementation of corporate tax is part of the UAE’s broader economic strategy to:

• Diversify the economy away from oil dependency.

• Align with global tax transparency standards.

• Create a sustainable long-term revenue model.

The UAE still remains one of the most tax-competitive economies in both the region and globally.

How UAE Corporate Tax Compares Internationally

With a 9% standard rate, the UAE offers one of the lowest corporate tax rates among advanced and emerging economies, making it an appealing jurisdiction for regional and global businesses.

Final Thoughts

UAE’s corporate tax is a major shift—but it’s also a strategic opportunity. By planning proactively, you can ensure your business remains compliant while unlocking tax efficiency.

AB Nexis offers expert guidance, corporate tax registration, and compliance management—so you can focus on growing your business with peace of mind.

Let’s Talk Tax.

Contact our team today to ensure your company is ready for UAE Corporate Tax—with zero guesswork and no delays.