Ultimate Guide to Corporate Tax in the UAE
Corporate Tax in the UAE has been a hot topic among entrepreneurs since its introduction. Despite the abundance of articles on the subject, many still find themselves uncertain about the details. This lack of clarity has led to unfortunate situations where businesses have faced significant penalties — a AED 10,000 fine is no small matter.
To address this issue, we've compiled a comprehensive guide that breaks down the essentials of UAE Corporate Tax in clear, straightforward terms. Our goal is to provide you with all the necessary information in one easily digestible article, helping you navigate this complex topic with confidence.
To address this issue, we've compiled a comprehensive guide that breaks down the essentials of UAE Corporate Tax in clear, straightforward terms. Our goal is to provide you with all the necessary information in one easily digestible article, helping you navigate this complex topic with confidence.
We remember when the UAE was a "0% tax on everything" country. Why was Corporate Tax introduced?
Corporate Tax (CT) in the UAE is a direct tax levied on a company's taxable income, calculated by deducting all expenses from income or profit.
On December 9th, 2022, the Federal Tax Authority (FTA) introduced the CT law through Federal Decree Law No. 47/2022, which came into effect on June 1st, 2023.
This new tax regulation likely contributed to the UAE's successful removal from the "grey list" of countries under increased monitoring for money laundering. The UAE had been on this list since March 2022, with the Financial Action Task Force (FATF) expressing concerns about potential money laundering and terrorism financing through banks, precious metals and stones, and real estate sectors. This listing had negatively impacted the country's reputation, reduced investment, and created challenges for entrepreneurs conducting international business from the UAE.
Here are the actions taken by the UAE authorities:
These efforts paid off in 2024 when the UAE achieved its goal of being removed from the list. FATF president Raja Kumar acknowledged that the country had "taken substantial steps" to enhance its financial crime-fighting system. Bhavin Shah, a Dubai-based financial crime expert, noted that the UAE's removal from the list "restores the global business community's trust in the UAE to have a robust framework to fight financial crimes."
On December 9th, 2022, the Federal Tax Authority (FTA) introduced the CT law through Federal Decree Law No. 47/2022, which came into effect on June 1st, 2023.
This new tax regulation likely contributed to the UAE's successful removal from the "grey list" of countries under increased monitoring for money laundering. The UAE had been on this list since March 2022, with the Financial Action Task Force (FATF) expressing concerns about potential money laundering and terrorism financing through banks, precious metals and stones, and real estate sectors. This listing had negatively impacted the country's reputation, reduced investment, and created challenges for entrepreneurs conducting international business from the UAE.
Here are the actions taken by the UAE authorities:
- Enhanced legislation, including the Corporate Tax law, to improve transparency and tighten financial controls.
- Established a specialized court to expedite money laundering cases.
- Strengthened audits by requiring banks and financial institutions to conduct more thorough customer screenings and report suspicious transactions.
These efforts paid off in 2024 when the UAE achieved its goal of being removed from the list. FATF president Raja Kumar acknowledged that the country had "taken substantial steps" to enhance its financial crime-fighting system. Bhavin Shah, a Dubai-based financial crime expert, noted that the UAE's removal from the list "restores the global business community's trust in the UAE to have a robust framework to fight financial crimes."
On the chart: Dubai Financial Market General Index (DFM General). The stock market dived after news of the UAE being added to the list in 2022. But after they split out, things started looking up on the charts. Source: Investing.com
Corporate Tax in the UAE is one of the lowest on the planet
In the UAE, Corporate Tax is straightforward:
- companies pay 9% tax on yearly income above AED 375,000;
- income up to AED 375,000 is tax-free (0% rate);
- and there is a long list of reliefs and exemptions for various businesses — we’ll talk about it later in this article.
The UAE is one of the few countries that combines a highly developed economy with low corporate tax rates. Link
Top-3 things every entreprenuer needs to know about the Corporate Tax
1. Anyone conducting “entrepreneurial activity” must register for Corporate Tax, and the fine for late registration is AED 10,000.
Yes, even if you’re a “natural person”, for example, freelancer. Yes, even if your revenue is zero. Yes, even if all your sales are outside the UAE.
Your registration deadline depends on when your Trade License was issued:
Yes, even if you’re a “natural person”, for example, freelancer. Yes, even if your revenue is zero. Yes, even if all your sales are outside the UAE.
Your registration deadline depends on when your Trade License was issued:
If you're involved in any entrepreneurial activity or freelancing, you must register for Corporate Tax. However, registration and tax payment are only required if your annual turnover is over AED 1,000,000.
Yes, otherwise you'll get an AED 10,000 fine.
If you're involved in any entrepreneurial activity or freelancing, you must register for Corporate Tax. However, registration and tax payment are only required if your annual turnover is over AED 1,000,000.
Dividends are not taxed (0%).
Company owners pay no tax if they have a real job and employment contract with the company, but they pay 9% tax if they just own shares without working there.
2. All businesses must keep financial records following FTA and IFRS rules. Failing to do so can result in a fine of up to AED 20,000.
Guidelines for CT records by The Federal Tax Authority (FTA). These standards are used to figure out how much businesses have to pay in taxes. One of the rules is that revenue and expenses are recorded using the accrual basis of accounting, which means income is recorded when it's earned and expenses when they're incurred.
This is the set of accounting rules for companies to make their financial statements more consistent, transparent, and comparable around the world. It is issued by the International Accounting Standards Board (IASB).
3. All business owners, entrepreneurs, and freelancers must file a Corporate Tax report and pay the tax after each reporting period.
Otherwise — yes, you’ve guessed it right — the fine will be AED 500 for every month of delay.
You'll pay 9% tax on income above AED 375,000. Income below this amount isn't taxed, but you still need to file a report to confirm your zero tax status.
Otherwise — yes, you’ve guessed it right — the fine will be AED 500 for every month of delay.
You'll pay 9% tax on income above AED 375,000. Income below this amount isn't taxed, but you still need to file a report to confirm your zero tax status.
Yes, if companies meet the requirements for Tax Group formation and your Tax Group application is approved.
Taxable income is your company's profit or loss, as shown in your accounting books, with some adjustments based on the Corporate Tax Law.
If you're involved in any entrepreneurial activity or freelancing, you must register for Corporate Tax. However, registration and tax payment are only required if your annual turnover is over AED 1,000,000.
Yes, otherwise you'll get a fine.
Whew, that's a lot of information! Don't worry, we've got your back. Just send us a message, and we'll guide you through the Corporate Tax rules and regulations. 🤝
Corporate Tax for Mainland and Free Zones companies: what's the difference?
Corporate Tax in the UAE applies to both Mainland and Free Zone companies, affecting businesses of all sizes and turnover levels. The standard corporate tax rate is 9% on taxable income above AED 375,000, while income up to this threshold is subject to a 0% rate.
Here are the good news: there are some exceptions. Let's have a look into them.
Here are the good news: there are some exceptions. Let's have a look into them.
Who's exempt from paying Corporate Tax in the UAE?
Mainland
- Businesses with an annual taxable profit of less than 375,000 AED get a 0% tax rate.
- Small and Medium Enterprises with revenue below AED 3,000,000 a year can apply for tax relief but need to meet certain criteria.
- Exempt Industries: government entities, extractive businesses, public benefit entities, qualified investment funds, social security funds.
Free Zones
Companies operating in Free Zones often get a full tax break, usually for up to 50 years, if they meet the requirements for Qualified Free Zone Persons (QFZP) registration:
Companies operating in Free Zones often get a full tax break, usually for up to 50 years, if they meet the requirements for Qualified Free Zone Persons (QFZP) registration:
- Registration with a Free Zone Authority. You need to register your company with a Free Zone authority and ensure you have a strong presence in the country. That way, your business will be recognized as a legit company operating within the Free Zone, and you'll benefit from their rules and benefits.
- Qualifying activities and earning qualifying income. Your company should be doing qualifying activities, as defined in the CT law. Any income your business makes from these activities is a qualifying income.
- Complying with the UAE's Transfer Pricing Rules. Your business should follow the UAE's transfer pricing rules, as mentioned in Articles 34 and 55 of Federal Decree Law 47 from 2022. These rules guarantee that when affiliated companies do business, they do it at a fair price. So there's no dodging taxes or manipulating things through internal transactions.
- Turnover should be below AED 5,000,000 or 5% from turnover (non-qualified activity).
No hassle until turnover exceeds AED 1,000,000
Let's find out if your business fits the above criteria and will be exempt from paying Corporate Tax.
How to calculate the Corporate Tax
The simplified formula is:
Revenue — Cost Taxable Basic (>AED 375,000)
Figuring out how much Corporate Tax you owe in the UAE is pretty straightforward. First, you start with your company's profit or loss from your financial books. Then, you make some adjustments based on the tax rules. This gives you your "taxable income."
The good news is, you don't pay any tax on the first AED 375,000 of this income. For anything above that, you pay 9% tax. Let's break it down with an example:
Say your company's taxable income is AED 500,000. You don't pay tax on the first AED 375,000. So, you only pay 9% tax on the remaining AED 125,000 (that's 500,000 minus 375,000). Your tax bill would be AED 11,250 (9% of 125,000). Even if you make less than AED 375,000 and don't owe any tax, you still need to register and file a tax return. It's all part of keeping things transparent and organized.
We also have a more detailed article with the full formula for calculating corporate taxes.
The good news is, you don't pay any tax on the first AED 375,000 of this income. For anything above that, you pay 9% tax. Let's break it down with an example:
Say your company's taxable income is AED 500,000. You don't pay tax on the first AED 375,000. So, you only pay 9% tax on the remaining AED 125,000 (that's 500,000 minus 375,000). Your tax bill would be AED 11,250 (9% of 125,000). Even if you make less than AED 375,000 and don't owe any tax, you still need to register and file a tax return. It's all part of keeping things transparent and organized.
We also have a more detailed article with the full formula for calculating corporate taxes.
Remember that your accounting records need to be in line with FTA and IFRS rules, otherwise you could face a fine of AED 20,000.
This applies to everyone, companies as well as freelancers and individuals. We have helped more than 100 companies with their bookkeeping, and happy to support you too. 😉
This applies to everyone, companies as well as freelancers and individuals. We have helped more than 100 companies with their bookkeeping, and happy to support you too. 😉
Useful links to laws and resources
If you want to learn more about corporation tax, here are some helpful links:
The full list of corporate tax exemptions
How to calculate corporate tax
Corporate Tax Guide by FTA
The full list of corporate tax exemptions
How to calculate corporate tax
Corporate Tax Guide by FTA
We hope this article clears up all your questions about Corporate Tax in the UAE.
If you've still got any questions left, or would like to start working with us, book a call with one of our consultants.
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Al Safiya Bldg, 3F-66, Dubai, UAE | License #1341688
