UAE Corporate Tax Explained: What Every Business Needs to Know

The United Arab Emirates (UAE) has long been known as a tax-friendly jurisdiction, particularly attractive to entrepreneurs, investors, and multinational companies. But with the introduction of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, the landscape is evolving. For the first time, most businesses operating in the UAE will be subject to federal Corporate Tax (CT).

Whether you’re a founder of a startup, a CFO of a multinational group, or a sole trader earning business income, this blog post will walk you through the key concepts, requirements, exemptions, and strategic implications of the UAE Corporate Tax regime.

‍

What Is Corporate Tax?

Corporate Tax is a direct tax on business profits, also referred to in other countries as business income tax or corporate income tax. In the UAE, it applies to both:

• Juridical persons (companies, partnerships, foundations), and
  
  
• Natural persons (sole proprietors, freelancers) if they exceed revenue thresholds.

The UAE Corporate Tax regime took effect for financial years starting on or after 1 June 2023.

‍

Corporate Tax Rates

According to Article 3 of the Corporate Tax Law, the standard tax rates are:

• 0% on taxable income up to AED 375,000
  
  
• 9% on taxable income above AED 375,000
  
  

For Qualifying Free Zone Persons (QFZPs):

• 0% applies on Qualifying Income
  
  
• 9% applies on non-qualifying income
  
  

There is no separate tax for individuals (like personal income tax), but natural persons running a business may still fall under the scope of Corporate Tax if certain conditions are met.

‍

Who Must Pay Corporate Tax?

The law categorizes taxpayers into:

‍

‍Taxable Persons

• UAE-incorporated companies
  
  
• Branches of foreign companies in the UAE
  
  
• Free Zone entities (even if they claim 0% rates)
  
  
• Natural persons conducting business and earning > AED 1 million/year
  

‍

Exempt Persons

‍

As per Article 4, certain entities are exempt from Corporate Tax:

• Government and Government-controlled entities
  
  
• Extractive and Non-extractive natural resource businesses (if taxed at the Emirate level)
  
  
• Qualifying Public Benefit Entities
  
  
• Qualifying Investment Funds
  
  
• Public or regulated private pension and social security funds
  
  
• Entities wholly owned by exempt persons that serve their purpose
  
  

Some exemptions require FTA application and approval.

‍

How Is Corporate Tax Calculated?

The starting point is your Accounting Income based on audited IFRS financial statements. From there, you apply adjustments as outlined in Chapter 6 of the CT General Guide.

‍

Key Adjustments Include:

• Excluding exempt income (e.g. participation exemption, foreign PE income)
  
  
• Disallowing non-deductible expenses
  
  
• Applying caps like the interest deduction limit (AED 12M / 30% of EBITDA)
  
  

The result is your Taxable Income, which is then taxed at 0% or 9% depending on thresholds.

‍

What Income Is Exempt?

The law excludes the following from taxable income:

• Dividends from UAE and foreign companies (if participation exemption applies)
  
  
• Capital gains on qualifying shareholdings
  
  
• Foreign Permanent Establishment (PE) income (if elected)
  
  
• Income from aircraft/ship operations in international transport
  
  

These exemptions help prevent double taxation and support global competitiveness.

‍

What Expenses Are Deductible?

Under Article 28, business expenses are deductible if they are:

• Wholly and exclusively incurred for business
  
  
• Not capital in nature (unless amortized)
  
  
• Not on the non-deductible list (e.g., fines, bribes, personal expenses)
  
  

Special rules apply to:

• Entertainment expenses (50% deductible)
  
  
• Interest (subject to the general interest limitation rule)
  
  
• Payments to related parties (require arm’s length documentation)
  
  

Recordkeeping and Financial Statements

Every Taxable Person must:

• Maintain proper accounting records in accordance with IFRS
  
  
• Use accrual basis accounting (cash basis only allowed in limited cases)
  
  
• Prepare audited financial statements if:
  
  
  • Revenue exceeds AED 50 million
    
    
  • Or they claim Free Zone 0% rates
    

Records must be kept for 7 years and may be audited by the FTA.

‍

Tax Filing and Payment Deadlines

All Taxable Persons must:

• Register for Corporate Tax
  
  
• File a return annually via the EmaraTax portal
  
  
• Pay due tax within 9 months of the end of the Tax Period
  
  

For example:

If your year ends on 31 December 2024, you must file and pay by 30 September 2025.

Penalties apply for:

• Late registration (AED 10,000)
  
  
• Late filing or payment (AED 500–AED 20,000)
  
  
• Incorrect returns (penalties of up to 300% of tax underpaid)
  
  

Losses and Tax Groups

The regime allows for tax losses to be:

• Carried forward for up to 10 years
  
  
• Used to offset up to 75% of taxable income per year
  
  
• Transferred between group companies (if conditions are met)
  
  

You may also form a Tax Group (like consolidated filing), which simplifies tax reporting for related companies.

‍

Free Zone Businesses: What’s Different?

Free Zone entities are not automatically exempt. They must qualify as Qualifying Free Zone Persons (QFZPs) by:

• Earning Qualifying Income (e.g. from other Free Zone or foreign entities)
  
  
• Meeting substance requirements
  
  
• Keeping audited financials
  
  
• Not earning more than de minimis non-qualifying income (5% or AED 5M)
  
  

Failing to meet these conditions results in being taxed at 9% on full income for the year—and for the next four years.

‍

International Aspects

The UAE CT regime aligns with international standards:

• Follows Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting principles
  
  
• Includes transfer pricing rules (arms-length pricing + documentation)
  
  
• Allows foreign tax credits to prevent double taxation
  
  
• Respects Double Tax Treaties in place with over 130 countries
  

‍

Anti-Avoidance and Audit Risk

The law includes a General Anti-Abuse Rule (GAAR) to counteract tax planning that lacks economic substance. The FTA can disregard arrangements that are made solely for tax avoidance purposes.

FTA audits may be triggered by:

• Large related-party transactions
  
  
• Mismatches with VAT returns
  
  
• Claiming non-deductible items
  
  

Keeping clear documentation is essential to reduce audit risk.

‍

Strategic Opportunities and Considerations

‍

‍Plan proactively:

• Review group structures
  
  
• Assess Free Zone eligibility
  
  
• Determine if exempt income applies (participation, PE)
  
  
• Adjust pricing of related-party transactions

‍Seek reliefs:

• Small Business Relief (for revenue < AED 3M)
  
  
• Restructuring and group transfer reliefs
  
  
• Election for PE exemption
  
  
• Carryforward of interest and tax losses

‍

Final Thoughts

The UAE’s Corporate Tax regime represents a major policy shift, but it also reflects international norms in a business-friendly way. For most companies, the 9% rate remains competitive, especially when compared to global averages exceeding 20%–30%.

That said, the administrative and compliance burden is real—and ignorance is no longer an option.

By understanding the core concepts—rates, exemptions, deductibility, and compliance—you can build tax into your business planning, avoid costly mistakes, and potentially even enhance your profitability.

‍