Since June 1, 2023, the United Arab Emirates (UAE) has introduced a federal corporate tax system under Federal Decree Law No. 47 of 2022, which applies to businesses operating within the country. The federal corporate tax effective from this date marks a significant shift in the UAE’s tax landscape, establishing a unified tax regime for resident and non-resident businesses. By introducing federal corporate tax, the UAE government aims to align with international standards and enhance transparency.
This direct tax levied on the net income or profit (corporate tax/CT) affects companies incorporated or effectively managed in the UAE, as well as non-resident entities earning UAE sourced income or having permanent establishments (PEs) in the country. Additionally, natural persons conducting business activities, such as individual entrepreneurs and freelancers whose business turnover exceeds AED 1 million annually, are subject to corporate tax, with a 0% rate on profits up to AED 375,000 and a 9% rate on income above this threshold. Corporate tax applies to both resident juridical persons and certain non-resident entities, depending on their income and business activities in the UAE. Compliance with corporate tax UAE regulations is essential for all affected businesses to avoid penalties and ensure proper tax management.
Businesses liable for corporate tax must obtain a corporate tax registration number by registering with the Federal Tax Authority (FTA), maintain proper accounting records and audited financial statements in compliance with the UAE corporate tax law, and submit their corporate tax returns within nine months after the end of their relevant tax period.
Businesses seeking expert guidance on registration, compliance, and ongoing obligations can benefit from professional support through corporate tax advisory services, ensuring accuracy, risk mitigation, and full alignment with UAE tax regulations.
Understanding Corporate Tax in the UAE
Corporate tax, also referred to as corporate income tax or business profits tax, is a direct tax levied on the net income or profit generated by companies and other business entities. The UAE’s corporate tax regime is designed to align with international best practices and promote tax transparency while preventing harmful tax practices. This federal corporate tax law supports the country’s strategic objectives of economic growth and investment attraction, reinforced by the UAE’s extensive network of double tax treaties.
Importantly, the corporate tax does not apply to businesses involved in the extraction of natural resources, which remain subject to emirate-level corporate taxation. Foreign entities effectively managed in the UAE and natural persons conducting business activities in the country are subject to corporate tax. However, foreign entities without a taxable nexus or permanent establishment in the UAE are generally not subject to corporate tax, except for withholding taxes on certain UAE sourced income.
Who Must Pay Corporate Tax?
The UAE corporate tax law applies to both resident and non-resident taxable persons engaged in business activities within the UAE. The scope includes:
Resident Persons
- Companies incorporated in the UAE: This includes mainland companies, free zone persons, and branches of foreign companies operating in the UAE. A ‘qualifying free zone person’—an entity that meets specific eligibility criteria—may benefit from a 0% corporate tax rate on qualifying income, subject to verification with the Free Zone Authority.
- Foreign entities effectively managed in the UAE: Entities incorporated abroad but controlled and managed from within the UAE.
- Government controlled entities and government entities: Unless specifically exempted by law.
- Natural persons conducting business activities: Freelancers, sole proprietors, and other individuals whose business turnover exceeds AED 1 million annually.
Non-Resident Persons
- Entities with a permanent establishment (PE) in the UAE: A PE can be a fixed place of business such as an office or factory, or a dependent agent habitually concluding contracts on behalf of the non-resident.
- Non-residents earning UAE sourced income: This includes income from sales, services, property, or loans secured by UAE assets, even if no PE exists.
- Entities with a taxable nexus in the UAE: Certain activities, including digital services, may create a taxable presence as defined by Cabinet decisions.
Corporate Tax Rates and Thresholds
The UAE has adopted a tiered corporate tax system to support small businesses while taxing larger profits at a competitive rate:
| Category | Taxable Income Condition | Corporate Tax Rate | Effective Date |
| Resident Taxable Persons | Up to AED 375,000 | 0% | From June 1, 2023 |
| Resident Taxable Persons | Above AED 375,000 | 9% | From June 1, 2023 |
| Qualifying Free Zone Persons | Qualifying income | 0% | From June 1, 2023 |
| Qualifying Free Zone Persons | Non-qualifying income | 9% | From June 1, 2023 |
| Large Multinational Enterprises | Consolidated global revenues > €750 million (2+ years) | 15% (Minimum effective tax rate via Domestic Minimum Top-up Tax – DMTT) | From January 1, 2025 |
| Small Businesses (Relief) | Revenue ≤ AED 3 million | 0% | Until end of 2026 |
Domestic Minimum Top-up Tax (DMTT)
Starting January 1, 2025, the UAE will introduce the Domestic Minimum Top-up Tax (DMTT) under Federal Decree Law No. 60 of 2023. This top-up tax ensures that large multinational enterprises (MNEs) with consolidated global revenues exceeding €750 million pay a minimum effective tax rate of 15% on their global profits, in line with the OECD’s Two-Pillar Solution. The DMTT prevents harmful tax practices and aligns the UAE’s corporate tax regime with international standards.
Qualifying Activities for 0% Corporate Tax in Free Zones
To benefit from the 0% corporate tax rate, Free Zone businesses must earn qualifying income from specific activities, including but not limited to:
- Banking, financing, and insurance services (excluding insurance brokerage)
- Leasing and rental of real estate assets
- Intellectual property management and licensing
- Investment fund management and advisory services
- Shipping, maritime, and logistics operations
- Research and development projects
- Treasury and intra-group financing services, including intra group transactions
- Regional headquarters and administrative functions
Businesses must maintain adequate substance, comply with transfer pricing rules, and meet other conditions to retain eligibility as qualifying free zone persons.
Exemptions from Corporate Tax
Certain exempt persons are recognized due to their social and economic importance, including:
- Government entities and government controlled entities
- Businesses involved in extractive industries and natural resources (taxed at emirate level)
- Qualifying public benefit entities
- Pension funds, private pension schemes, social security funds, and qualifying investment funds
- Wholly owned UAE subsidiaries of exempt persons
- Small businesses qualifying for relief with turnover below AED 3 million in previous tax periods
These categories are officially recognized as exempt from corporate tax under UAE law.
Financial Year and Tax Period
The financial year and tax period are foundational elements of the UAE’s federal corporate tax framework, directly impacting how businesses calculate, report, and pay their corporate tax obligations. Under Federal Decree Law No. 47 of 2022, every business subject to corporate tax in the UAE must establish a financial year, which can follow the calendar year (January to December) or any other 12-month period that suits the company’s operational cycle. This flexibility allows UAE businesses to align their financial reporting with global group requirements or industry practices, provided the chosen period does not exceed 12 months.
The tax period, typically mirroring the financial year, is the interval for which a business prepares its corporate tax return and settles its tax liability. In certain cases—such as when a new company is incorporated, undergoes restructuring, or ceases operations—the tax period may be shorter than a full year. For each relevant tax period, businesses must determine their taxable income based on their net profit or loss, as reflected in financial statements prepared in accordance with internationally accepted accounting standards.
Compliance with the UAE corporate tax law requires that all taxable persons file their corporate tax return within nine months of the end of the relevant tax period. The return must detail the taxable income, the amount of corporate tax due, and any supporting information required by the Federal Tax Authority (FTA). The FTA may also request additional documentation to verify the accuracy of the return, underscoring the importance of maintaining robust accounting records and transparent financial statements.
Understanding and adhering to the correct financial year and tax period is essential for businesses to remain compliant with the UAE corporate tax regime. Non-compliance—such as late filing or inaccurate reporting—can result in penalties, making it crucial for companies to establish clear internal processes and timelines for tax reporting. The UAE’s approach to corporate tax is designed to be straightforward and business-friendly, with a competitive corporate tax rate, a self-assessment system, and a range of exemptions and reliefs for qualifying income, small businesses, and certain exempt persons.
By proactively managing their financial year and tax period, UAE businesses can ensure timely compliance, optimize their tax position, and take full advantage of the benefits offered by the federal corporate tax regime. This not only supports the strategic objectives of the United Arab Emirates as a global business hub but also provides companies with the certainty and flexibility needed to thrive in a dynamic economic environment.
Key Tax Provisions and Compliance
Taxable Income Calculation
- For resident companies, taxable income includes profits from both UAE and foreign sources.
- For resident individuals, only income from business activities within the UAE is taxable.
- For non-residents, taxable income includes income attributable to a PE, income sourced in the UAE, and income linked to a taxable nexus.
Group Relief and Loss Carry-Forward
- Losses can be transferred within a tax group
- Losses can be transferred within a tax group, subject to ownership and residency conditions for controlled UAE subsidiaries.
- Tax losses can be carried forward indefinitely but are limited to offsetting 75% of taxable income annually.
Transfer Pricing and Advance Pricing Agreements
- Related party transactions must comply with the arm’s length principle consistent with OECD guidelines.
- Companies exceeding revenue thresholds must maintain transfer pricing documentation.
- The Federal Tax Authority plans to introduce Advance Pricing Agreements (APAs) from late 2024 to provide certainty on transfer pricing arrangements.
Registration and Filing
- All taxable persons must register with the Federal Tax Authority and obtain a corporate tax registration number by specified deadlines.
- Corporate tax returns and payments are due within nine months of the end of the relevant tax period.
- Records and supporting documents must be retained for at least seven years.
Penalties
Late registration, delayed filing, inaccurate returns, and non-compliance can result in penalties, we have written a separate blog on that you can find it here, although voluntary disclosures may reduce fines.
Role of the Ministry of Finance and Federal Tax Authority
The Ministry of Finance and the Federal Tax Authority are the official bodies responsible for implementing and administering the UAE corporate tax law. They provide guidance, enforce compliance, and ensure the corporate tax regime operates transparently and efficiently.
Calculating Corporate Tax: A Simplified Example
- Determine your accounting profit based on audited financial statements.
- Adjust for tax purposes by adding non-deductible expenses and subtracting exempt income.
- Calculate taxable income.
- Apply the tiered tax rates:
- 0% on the first AED 375,000
- 9% on income exceeding AED 375,000
Example:
Net profit: AED 850,000
Non-deductible expenses: AED 50,000
Taxable income: AED 900,000
Tax payable: 0% on AED 375,000 + 9% on AED 525,000 = AED 47,250
How BCL Globiz Supports Your Corporate Tax Journey
BCL Globiz is a leading accounting and tax consultancy based in Dubai, dedicated to helping businesses navigate the UAE’s corporate tax landscape. Our expert team provides end-to-end services including corporate tax registration, preparation of compliant financial statements, tax return filing, and transfer pricing documentation. We also advise on qualifying for exemptions, small business relief, and maintaining substance requirements.
Partnering with BCL Globiz ensures your business remains compliant, minimizes tax liabilities, and stays aligned with evolving regulations, allowing you to focus on growth and success in the UAE market.
Conclusion
The UAE’s introduction of federal corporate tax reflects its commitment to global best practices while fostering a competitive business environment. With clear tax rates, relief options, and compliance frameworks, companies operating in the UAE should proactively manage their tax obligations. Engaging professional advisors like BCL Globiz can simplify this transition and help you maximize the benefits of the new corporate tax regime.
Frequently Asked Questions (FAQs)
1. What is the effective date for the UAE federal corporate tax?
The UAE federal corporate tax became effective on June 1, 2023, applying to financial years starting on or after this date.
2. Who is subject to corporate tax in the UAE?
Corporate tax applies to resident companies, foreign entities effectively managed in the UAE, natural persons conducting business with turnover above AED 1 million, and non-resident entities with permanent establishments or UAE sourced income.
3. What are the corporate tax rates in the UAE?
The rates are 0% on taxable income up to AED 375,000 and 9% on income exceeding this threshold. Large multinational enterprises with consolidated global revenues over €750 million are subject to a 15% minimum effective tax rate starting in 2025.
4. Are Free Zone businesses subject to corporate tax?
Yes, Free Zone businesses are subject to corporate tax but qualifying free zone persons may benefit from a 0% tax rate on qualifying income if they meet substance and compliance requirements.
5. What types of income are exempt from corporate tax?
Exempt income includes that of government entities, qualifying public benefit entities, pension funds, social security funds, qualifying investment funds, and small businesses under certain thresholds.
6. How is taxable income calculated for corporate tax purposes?
Taxable income starts with accounting profit adjusted for non-deductible expenses and exempt income, including income from UAE and foreign sources for resident companies.
7. What are the filing requirements for corporate tax returns?
Taxable persons must file corporate tax returns and pay any tax due within nine months after the end of their relevant tax period.
8. Can tax losses be carried forward in the UAE?
Yes, tax losses can be carried forward indefinitely but can only offset up to 75% of taxable income in a given tax period.
9. What are the penalties for non-compliance with UAE corporate tax law?
Penalties include fines for late registration, delayed filing, inaccurate returns, and other violations. Voluntary disclosures may reduce penalties.
10. How can BCL Globiz assist with UAE corporate tax compliance?
BCL Globiz offers services including corporate tax registration, preparation of financial statements, tax return filing, transfer pricing documentation, and advisory on exemptions and reliefs to ensure full compliance with UAE corporate tax regulations, subject to ownership and residency conditions for controlled UAE subsidiaries.
