The UAE’s move from being a tax-free haven to having a regulated corporate tax system marks a significant change in its economy. As of June 1, 2023, the federal Corporate Tax (CT) system is fully active. By 2025, businesses must meet its requirements. This blog post gives an overview of the UAE Corporate Tax system, including rates, exemptions, compliance responsibilities, and key points for businesses in both mainland and free zones.
Why Corporate Tax Was Introduced
The UAE introduced Corporate Tax under Federal Decree-Law No. 47 of 2022 to meet global tax standards, especially the OECD’s Base Erosion and Profit Shifting (BEPS) framework. This change improves transparency, limits aggressive tax planning, and supports the UAE’s commitment to working with other countries on tax issues.
Who Is Subject to Corporate Tax?
• All UAE businesses (mainland and free zone entities)
• Foreign entities with a permanent establishment in the UAE
• Freelancers and sole proprietors if their annual net profit exceeds the taxable threshold
• Multinational Enterprises (MNEs) with global revenues above EUR 750 million, subject to a 15% minimum effective tax rate under OECD Pillar Two rules
Tax Rates and Thresholds
The UAE Corporate Tax system is designed to be competitive:
Taxable Income (AED) Corporate Tax Rate
Up to AED 375,000 -0%
Above AED 375,000- 9%
MNEs (EUR 750M+ revenue) 15% (DMTT)
DMTT refers to the Domestic Minimum Top-Up Tax, which ensures large multinationals pay a minimum 15% tax globally.
Free Zone Businesses: Special Considerations
Qualifying Free Zone Persons (QFZPs) may still enjoy a 0% tax rate on qualifying income if they meet strict economic substance requirements and keep accurate financial records. However, non-qualifying income or failure to meet substance rules might result in the standard 9% rate.
Compliance Requirements
To stay compliant, businesses must:
• Register for Corporate Tax with the Federal Tax Authority (FTA)
• Keep accurate accounting records, including audited financial statements
• File annual tax returns electronically
• Follow transfer pricing rules, including documentation and disclosures
• Pay tax liabilities on time
Penalties apply for late registration, filing errors, and not meeting documentation standards.
Transfer Pricing and Audits
Transfer pricing regulations are now necessary for businesses dealing with related parties. This includes:
• Preparing Local Files and Master Files
• Using the arm’s length principle
• Submitting Disclosure Forms with the tax return
Most entities, especially those claiming Free Zone benefits or engaging in cross-border transactions, must undergo annual audits.
Exemptions and Reliefs
Some entities and types of income are exempt from Corporate Tax:
• Government entities and wholly-owned subsidiaries
• Extractive businesses (oil, gas, natural resources)
• Qualifying investment funds
• Public benefit entities
• Dividends and capital gains from qualifying shareholdings Additionally, small business relief may apply to entities with revenue below AED 3 million, allowing for simplified compliance and a lower tax burden.
Key Deadlines
• Registration: Businesses must register with the FTA before their first tax period starts.
• Tax Period: Usually follows the financial year (e.g., Jan–Dec or Jul–Jun).
• Filing Deadline: Within 9 months after the end of the financial year.
• Payment Deadline: Same as filing—within 9 months.
For example, for a business with a financial year ending December 31, 2024, the tax return and payment are due by September 30, 2025.
Strategic Considerations for Businesses
To handle the new tax landscape successfully, businesses should:
• Review their legal structure to minimize tax exposure
• Check Free Zone eligibility and qualifying income
• Implement strong accounting systems for accurate reporting
• Train staff on compliance and documentation
• Work with tax advisors for planning and risk management.