Introduction to UAE Corporate Tax
The introduction of Corporate Tax in the United Arab Emirates represents a significant development in the country’s fiscal landscape. Established under Federal Decree-Law No. 60 of 2023, which amends previous legislation, the UAE Corporate Tax regime seeks to balance fostering a competitive business environment with aligning the nation’s tax framework to international standards, including the OECD Pillar Two initiative.
Effective for financial years starting on or after June 1, 2023, UAE corporate tax applies broadly across business entities operating within the country. This article offers a comprehensive overview of the corporate tax system, covering its applicability, tax rates, exemptions, compliance requirements, and the penalties associated with non-compliance.
Applicability of UAE Corporate Tax
Corporate Tax in the UAE applies to all businesses and individuals operating under a valid UAE commercial license. The scope of applicability includes:
- Mainland businesses operating within the UAE under a commercial license.
- Free Zone entities, provided they meet certain conditions such as regulatory compliance and that they do not carry out business activities within the mainland UAE. Existing tax incentives for qualifying free zone companies remain in effect.
- Foreign entities and individuals who conduct regular or continuous business activities within the UAE.
- Businesses involved in banking operations.
- Entities engaged in real estate-related activities, including management, development, construction, brokerage, and agency services.
UAE Corporate Tax Rates
The UAE has implemented a tiered corporate tax system aimed at supporting small and medium enterprises (SMEs) while ensuring competitive rates for larger businesses.
- 0% Corporate Tax Rate
This rate applies to taxable income up to AED 375,000 for resident businesses, offering relief to smaller companies and startups.
Additionally, qualifying Free Zone Persons (QFZPs) enjoy a 0% tax rate on qualifying income, subject to criteria such as maintaining sufficient substance, earning qualifying income, not opting for the standard tax rate, and complying with transfer pricing rules.
Furthermore, the UAE provides small business relief for entities with revenue less than or equal to AED 3 million until December 31, 2026. - 9% Corporate Tax Rate
Taxable income exceeding AED 375,000 is subject to a 9% corporate tax rate. This rate also applies to non-qualifying income earned by QFZPs. - 15% Domestic Minimum Top-up Tax (DMTT)
Starting January 1, 2025, a minimum effective tax rate of 15% will be applied to Multinational Enterprises (MNEs) with global revenues of at least €750 million (approximately AED 3.15 billion) in two of the last four years. This mechanism implements the OECD Pillar Two global tax standards and ensures large MNEs pay a minimum level of tax within the UAE.
Entities Exempt from UAE Corporate Tax
Certain entities are exempted from corporate tax based on their nature of business, ownership, or activities:
- Government and Government-Controlled Entities
These entities are generally exempt unless engaged in licensed commercial activities subject to taxation. - Extractive and Non-Extractive Natural Resource Businesses
Such entities remain subject to Emirate-level taxation rather than federal corporate tax. - Qualifying Public Benefit Entities
Entities engaged in religious, charitable, educational, scientific, healthcare, environmental, or humanitarian activities may qualify for exemption. Conditions include the absence of unrelated business income and no distribution of profits or assets to owners or founders. - Qualifying Investment Funds
Investment funds meeting specific criteria—such as regulatory supervision, trading on recognized exchanges, and not being established for tax avoidance—are exempt. - Pension and Social Security Funds
Public and private pension funds regulated under applicable laws and meeting prescribed conditions also enjoy exemptions. - Wholly-Owned UAE Subsidiaries of Exempt Entities
These subsidiaries may qualify for exemption if they fulfill regulatory requirements. - Dividends and Capital Gains
Dividends and capital gains received by UAE taxpayers from qualifying shareholdings are exempt, provided ownership and holding period criteria are met and the foreign entity is taxed at 9% or higher. - Natural Persons (Individuals)
Income from salary, personal investments, and real estate is exempt unless the individual is engaged in a commercial business activity requiring a license and generating annual turnover exceeding AED 1 million. - Qualifying Intra-Group Transactions and Reorganizations
Exemptions apply to intra-group transactions and business reorganizations that comply with specific transfer pricing and regulatory conditions. - Foreign Permanent Establishments (PEs)
UAE resident entities may elect exemption for income derived from foreign permanent establishments if such income is taxed at a rate of at least 9% abroad.
Corporate Tax Compliance Requirements in the UAE
Compliance with corporate tax regulations requires businesses to undertake several mandatory steps and maintain accurate records.
- Registration
All taxable persons must register with the Federal Tax Authority (FTA) and obtain a Tax Registration Number (TRN). Some exempt entities may also be required to register, depending on their activities. - Tax Period
The tax period generally aligns with the financial year of the entity, which can be the Gregorian calendar year or any other 12-month period approved by the FTA. - Filing and Payment Deadlines
Annual corporate tax returns must be filed electronically via the FTA’s EmaraTax portal within nine months following the end of the tax period. Tax payments, where applicable, are due on the same date.
For example, for a financial year ending on December 31, 2024, the filing and payment deadline is September 30, 2025. - Financial Statements and Audit Requirements
Financial statements must be prepared in accordance with International Financial Reporting Standards (IFRS). An audit is mandatory for entities with revenue exceeding AED 50 million or those classified as Qualifying Free Zone Persons. Small businesses may apply for approval to use cash-basis accounting. - Record Keeping
Taxpayers must maintain all tax-related records, including financial statements and supporting documents, for a minimum of seven years after the end of the relevant tax period. - Transfer Pricing Compliance
UAE entities are required to comply with OECD Transfer Pricing rules, including preparing Master File and Local File documentation. Additionally, entities with group revenues exceeding €750 million must submit Country-by-Country Reporting (CbCR). - Penalties for Non-Compliance
Non-compliance with corporate tax obligations may result in significant penalties, such as:- AED 10,000 for late registration
- AED 500 to AED 20,000 for late filing
- Interest on underpaid tax at 14% per annum
Allowable Deductions and Expenses
To accurately determine taxable income, businesses can deduct certain expenses, including but not limited to:
- Salaries, rent, marketing expenses, utilities, and other standard operating costs
- Interest expenses capped at 30% of EBITDA, subject to exceptions
- Capital allowances representing depreciation of qualifying assets
- Losses incurred can be carried forward indefinitely and offset against future profits
Conclusion: Strategic Importance of UAE Corporate Tax Compliance
The UAE’s corporate tax framework has been carefully crafted to support economic growth while ensuring adherence to evolving international tax standards. Its tiered structure, which includes a 0% rate for smaller entities and a 9% standard rate for larger businesses, balances competitiveness with compliance.
By introducing the 15% Domestic Minimum Top-up Tax aligned with OECD Pillar Two, the UAE strengthens its position as a transparent and globally integrated financial hub.
Businesses operating within the UAE must stay informed about regulatory updates and seek expert tax advice to navigate the complexities of compliance efficiently. Proactive management of tax obligations will enable companies to optimize their tax positions, avoid penalties, and sustain growth within this dynamic economic environment.
