Top 10 Myths About UAE Corporate Tax Debunked for 2025

Corporate Tax in the UAE: What’s Fact and What’s Fiction?

With the rollout of Federal Decree-Law No. 47 of 2022, Corporate Tax is now part of life for most UAE businesses. But with new rules come new rumors—and, honestly, some wild stories. It’s easy to get confused when everyone has an opinion, so let’s set the record straight with facts you can count on.

Ready to see what’s real and what’s just talk? Here’s the truth behind the top 10 myths about UAE Corporate Tax.

‍

Myth 1: “Free Zone companies don’t have to pay Corporate Tax.”

Let’s start with a big one. Some people think having a Free Zone company means you’re completely off the hook. That’s not true.

Here’s what really happens:
Free Zone businesses are not automatically exempt. To get the zero percent tax rate, you must become a Qualifying Free Zone Person (QFZP). That means you need to follow strict rules, such as:

• Earning income from outside the UAE or from other Free Zone businesses
  
  
• Having your operations, people, and assets based in the Free Zone
  
  
• Keeping your financial statements audited and ready
  
  
• Making sure you don’t go over the allowed amount of “non-qualifying” income
  
  

Miss just one of these? You’ll be paying the standard 9% tax, not zero.

‍

Myth 2: “If I don’t make a profit, I don’t need to file.”

It’d be nice if this were true, but it’s not.

Every Taxable Person has to file a Corporate Tax return each year. That means:

• You must file even if your business made a loss
  
  
• You must file even if your income is below AED 375,000
  
  
• You must file even if every dirham you made is exempt
  
  

Small Business Relief or not, filing is still your job. Skipping it can get you a penalty—even if you don’t owe any tax.

‍

Myth 3: “Natural persons aren’t subject to Corporate Tax.”

Not quite! If you’re a freelancer, consultant, or running your own side gig, listen up.

Here’s the deal:
If you’re earning more than AED 1 million in a year from business or commercial activity in the UAE, you must register and file for Corporate Tax—just like a company.

But don’t worry, regular salaries, interest from the bank, and most rental income (if you’re not running a rental business) are usually outside the scope.

‍

Myth 4: “Corporate Tax only applies to income earned in the UAE.”

Not really.

Corporate Tax covers your UAE-sourced income and some foreign income—unless it qualifies for an exemption. For example:

• Dividends from a foreign company might be exempt if you meet the participation exemption rules.
  
  
• Foreign branch profits (from a Permanent Establishment) are only exempt if you follow the correct procedure and meet the conditions.
  
  

If you earn income from abroad, you still need to assess whether it’s taxable, exempt, or reportable under the UAE law.

‍

Myth 5: “Only big companies are affected.”

Nope. The law covers all Taxable Persons no matter how big or small you are.

That includes startups, SMEs, side hustlers, and sole proprietors. Even if your revenue is low, you’ll still need to:

• Register with the Federal Tax Authority (FTA)
  
  
• Keep proper business records
  
  
• File your tax returns
  
  

If you qualify for Small Business Relief (with revenue of AED 3 million or less), you might pay zero tax—but you still must register and file.

‍

Myth 6: “Dividends are always taxable under Corporate Tax.”

This one’s only half true.

Here’s the truth:
Dividends can be exempt from Corporate Tax if you meet all the conditions of the participation exemption:

• You own at least 5% of the shares in the company paying the dividend
  
  
• That company is taxed at a rate of at least 9% in its own country
  
  
• You hold, or intend to hold, those shares for at least twelve months
  
  

If you don’t meet every one of these? The dividends might be taxed.

‍

Myth 7: “If I’m VAT-registered, I don’t need to register for Corporate Tax.”

Wrong!
VAT and Corporate Tax are totally separate. Registering for one doesn’t cover the other.

You have to:

• Register for Corporate Tax on the EmaraTax portal
  
  
• Follow the different rules and thresholds for each
  
  

If you don’t register for Corporate Tax (even though you already did for VAT), you could get a fine of AED 10,000.

‍

Myth 8: “All business expenses are fully deductible.”

Sounds great, but not quite.

Only expenses that are wholly and exclusively for business are allowed—and even then, some are capped or disallowed.

• Fines and penalties? Not deductible.
  
  
• Bribes or illegal payments? Never deductible.
  
  
• Entertainment? Only 50% of those expenses count.
  
  
• Payments to related parties? Only if you have clear documentation to prove the amount is justified.
  
  

Big asset purchases aren’t deductible immediately; they’re claimed over several years as depreciation.

‍

Myth 9: “If I claim Free Zone 0% tax, I don’t have to file a return.”

That’s not how it works.

Even if you’re a QFZP getting the 0% tax rate, you must:

• Register for Corporate Tax
  
  
• File your annual Corporate Tax return
  
  
• Submit financial statements (audited, if required)
  
  
• Keep transfer pricing documentation if you have related party transactions
  
  

Skipping these steps could mean losing your 0% rate—and facing 9% tax on all your income.

‍

Myth 10: “The UAE Corporate Tax law will change again soon, so I can wait.”

That’s wishful thinking and risky.

The main framework of UAE Corporate Tax is now law and designed to be stable and internationally respected. While there may be more details or clarifications over time, waiting around can only mean one thing: bigger risks, more penalties, and possibly an audit.

If you haven’t registered, filed, or sorted your compliance, don’t delay. The sooner you start, the safer your business will be.

‍

Final Thoughts: Myths Won’t Protect Your Business

UAE Corporate Tax is here for good. The real risks come from believing myths or waiting for someone else to sort things out.

• Register early
  
  
• File on time
  
  
• Keep good records
  
  
• Double check your facts
  
  

If you want to make compliance easier, many businesses use Tax Star’s software to track deadlines, organize filings, and keep everything on one dashboard.

Questions about your status? Want a compliance checklist built just for you? Reach out to a trusted advisor or book your free Tax Star demo today. Staying ahead of Corporate Tax means dealing with the facts not the fiction.

‍