Once known for a tax-free economy, the UAE’s introduction of federal corporate tax aligns with global tax practices already implemented in many countries.
The new tax framework, which features a fixed rate along with certain well-defined rules on taxable income, deductions, and compliance, demonstrates the UAE’s resolve to balance economic growth with responsible fiscal policies.
In this article, we answer some of the most frequently asked questions about the UAE corporate tax. Let’s get started!
What Is Corporate Tax?
Corporate tax, also known as corporate income tax or business profits tax, is a direct levy on a company’s net income. The UAE Corporate Tax Law, issued on 9 December 2022, establishes the legal foundation for federal corporate tax, which came into effect for financial periods beginning on or after 1 June 2023.
What Is the Corporate Tax Rate in the UAE?
The UAE corporate tax rate for 2024 is applied as follows:
- 0% tax on profits up to AED 375,000
- 9% tax on profits exceeding AED 375,000
- 15% tax on multinational enterprises (MNEs) with global revenues above AED 3.15 billion according to OECD BEPS 2.0 Pillar 2 framework
Taxable income is calculated by subtracting allowable deductions and exemptions from total revenue generated within the UAE during the fiscal year. In addition to taxable income, factors like business type and location can also influence the final tax amount.
Who Needs to Register for Corporate Tax in the UAE?
Businesses categorized as either resident or non-resident, with a permanent establishment or nexus in the UAE, must register for corporate tax and obtain a registration number.
Resident Persons
This group includes entities incorporated in the UAE, whether on the mainland, offshore, or within free zones. Foreign companies managed and controlled from the UAE, as well as individuals conducting business locally, also fall under this category. All resident persons are subject to tax on their worldwide income.
Non-Resident Persons
Non-residents include companies with a permanent establishment in the UAE and businesses earning UAE-sourced income not linked to a permanent establishment. These entities will only be taxed on income connected to their UAE operations or nexus.
When Should You File Corporate Tax?
Registration deadlines for resident persons depend on the month of the company’s trade license issuance, regardless of the year it was granted. For instance, if the license was issued in March or April, registration must be completed by 30 June 2024. For companies with multiple licenses, the earliest license’s issuance date will determine the registration deadline.
Nonetheless, all taxable persons must register by the required deadlines to comply with the corporate tax law. Failure to do so will result in an administrative penalty of AED 10,000.
Moreover, once registered, companies must prepare for their first corporate tax filing, which is due within nine months after the end of their tax period. Any corporate tax owed must be paid during this time. For most companies with a fiscal year ending on 31 December, the initial taxable period will be from 1 January 2024 to 31 December 2024. This means the filing deadline for the first corporate tax return is 30 September 2025. Businesses must also retain all relevant records and documents for seven years following the tax period to ensure compliance with UAE regulations and support future audits.
Who Is Exempt From Corporate Tax in the UAE?
Certain entities like the government and government-controlled organizations are automatically exempt from corporate tax in the UAE. The following categories are also considered Exempt Persons:
- Extractive businesses operating within the UAE
- Non-extractive natural resource companies
- Qualifying public benefit organizations
- Qualifying investment funds
- Public and private pension or social security funds
- Wholly-owned UAE subsidiaries of designated exempt entities
Small Business Tax Relief
This provision allows qualifying small enterprises to benefit from a 0% tax rate, provided they meet certain revenue limits and conditions. However, these businesses must register with tax authorities and comply with the specified requirements to avail this relief.
Free Zone Businesses
Qualifying Free Zone Persons can also enjoy a 0% corporate tax rate on eligible income. To qualify, these businesses must maintain a substantial presence in the UAE, meet the necessary income thresholds, and adhere to all applicable regulations.
How Does Corporate Tax Enhance Financial Best Practices?
The introduction of corporate tax in the UAE has compelled businesses to improve their regulatory compliance practices. Companies are now focused on maintaining accurate financial records, preparing precise tax returns, and conducting regular audits. They are also increasingly engaged in monitoring and analyzing financial trends, which strengthens their overall financial practices.
How Does Corporate Tax Attract Foreign Investors?
With the introduction of the new corporate tax regime, there will be greater transparency in tax compliance and accountability. This will positively influence the UAE’s reputation as a favorable business destination and instill more confidence in foreign investors.
