The United Arab Emirates (UAE) has long been known for its business-friendly environment, low tax regime, and attractive regulatory framework. However, with global pressures for tax transparency and sustainable economic diversification, the UAE introduced a federal Corporate Tax (CT) system that came into effect on 1 June 2023.

This guide will help startups, SMEs, and established businesses understand what Corporate Tax in the UAE is, who it applies to, how much it is, and what to expect moving forward.

What is Corporate Tax?

Corporate Tax (CT) is a direct tax imposed on the net income or profit of corporations and other businesses. The UAE’s move to introduce corporate tax aligns with international standards and aims to strengthen its position as a leading global hub for business and investment.

Objectives of Corporate Tax in the UAE

• Support economic development by diversifying government revenue sources.
• Align with global tax standards set by the OECD and BEPS (Base Erosion and Profit Shifting) initiatives.
• Enhance transparency and fairness in the tax system.
• Reinforce the UAE’s position as an international business hub with a clear and competitive tax regime.

Who Needs to Pay Corporate Tax in the UAE?

The UAE Corporate Tax applies to:

UAE Incorporated Businesses

• LLCs, PJSCs, PSCs, etc.

Foreign Entities with UAE Operations

• Branches, subsidiaries, and those with a permanent establishment in the UAE.

Free Zone Businesses

• Must comply with Corporate Tax but may continue to benefit from 0% tax rates under certain conditions, such as maintaining adequate substance and earning only qualifying income.

Individuals

• Only if they are conducting business activities under a commercial license.

Who is Exempt from Corporate Tax?

Certain entities are exempt from the UAE Corporate Tax:

• Government entities
• Wholly government-owned companies (under specific conditions)
• Extractive businesses (e.g., oil & gas, under Emirate-level taxation)
• Public and regulated private pension funds
• Investment funds meeting regulatory conditions
• Charities and public benefit entities (with cabinet approval)

Corporate Tax Rates in the UAE

Taxable Income	Corporate Tax Rate
AED 0 – AED 375,000	0%
Above AED 375,000	9%

Startups and small businesses with income below AED 375,000 benefit from a 0% tax rate, encouraging entrepreneurship.

What Income is Taxable?

Taxable income is generally the net profit reported in the business’s financial statements, prepared according to International Financial Reporting Standards (IFRS), with adjustments for tax purposes.

Common Income Types:

• Sales and services income
• Rental income
• Royalties, commissions
• Foreign income (under certain conditions)

Key Compliance Requirements

To comply with UAE Corporate Tax laws, businesses must:

1. Register for Corporate Tax

• Even if your business qualifies for the 0% tax rate, registration is mandatory.

2. Maintain Proper Accounting Records

• Financial statements must be prepared per IFRS and retained for at least 7 years.

3. File Corporate Tax Returns

• Annually, within 9 months of the end of the relevant financial year.
• No advance tax payments are required.

4. Transfer Pricing Documentation

• Applicable if your business has transactions with related parties or connected persons.

What Should Startups & SMEs Do?

Here’s a simple checklist to get started:

• Register with the Federal Tax Authority (FTA)
• Determine if your income is taxable
• Ensure books of accounts are in order
• Set up internal controls for tax reporting
• Consult a tax advisor if operating across mainland and free zones

Special Considerations for Free Zone Businesses

Many Free Zones still offer 0% tax incentives, but to qualify under the Corporate Tax regime:

• The business must earn Qualifying Income (as defined by the law).
• Must maintain adequate substance in the UAE.
• Must not elect to be subject to regular corporate tax.

If these conditions are not met, standard rates will apply.

Calculation Example

Let’s say your business in Dubai earns AED 800,000 in net profit in a financial year:

• The first AED 375,000: 0% tax
• Remaining AED 425,000: 9% tax = AED 38,250

Conclusion

The introduction of Corporate Tax in the UAE marks a significant shift in the country’s fiscal policy. While the 0% threshold up to AED 375,000 supports small and new businesses, others must prepare for compliance by updating accounting practices and understanding the tax implications.

Startups and SMEs should not see this as a burden, but as a move towards a more mature and globally integrated business environment.

FAQs

1. Is Corporate Tax applicable to all businesses in the UAE?

Yes, but exemptions and special rates apply based on business type, income level, and location (e.g., free zones).

2. When is the first tax return due?

For businesses with a financial year starting 1 June 2023, the first return is due by 28 February 2025.

3. Is VAT still applicable along with Corporate Tax?

Yes. VAT (5%) remains separate and applicable on eligible goods/services.

4. Can I file Corporate Tax returns myself?

Yes, but it’s advisable to consult with a tax advisor, especially if you have cross-border operations or complex structures.specially if you have cross-border operations or complex structures.