The UAE has introduced a federal corporate tax (CT) effective for financial years starting on or after June 1, 2023, featuring a standard 9% rate on taxable business profits exceeding AED 375,000. A 0% rate applies to income below this threshold, and specific exemptions exist for Qualifying Free Zone Persons (QFZP) and certain entities.
Dubai built its global business reputation on being tax-friendly, so when Corporate Tax entered the picture, it naturally raised eyebrows. Is Dubai still a low-tax haven? Who actually pays? And do Free Zone companies really get 0% tax forever? Understanding Corporate Tax in Dubai today is beyond knowing the 9% rate, it’s about thresholds, exemptions, and Free Zone conditions.
The guide explains who pays Corporate Tax, what counts as Taxable Income, which rates apply, and what Free Zone businesses need to know.
Why Corporate Tax matters for every business in the UAE
The importance of Corporate Tax is evident from the fact that it directly effects after-tax profit. It changes planning decisions. It affects pricing and capital allocation. The UAE Corporate Tax regime came in effect from Tax Periods starting on or after 1 June 2023. The main rates are simple. The first AED 375,000 of Taxable Income is taxed at 0%. Income above AED 375,000 is taxed at 9%. These numbers impact budgets, cash flow and investment plans.
Corporate Tax is a tax on business profits. It applies to companies, certain partnerships, and individuals who run businesses above set turnover levels. The tax base starts with accounting net profit and then applies tax adjustments. The Federal Tax Authority, or FTA, administers the system.
Who is subject to Corporate Tax
Companies and business owners must check the rules carefully. The law applies to juridical persons incorporated in the UAE. It also applies to foreign companies that are effectively managed and controlled in the UAE. If a foreign company runs a business through a permanent establishment in the UAE, then Corporate Tax applies. Natural persons who run a business in the UAE and have more than AED 1,000,000 turnover in a calendar year are also in scope.
Key Definitions for better understanding of Corporate Tax in UAE
Taxable Person means the legal entity or natural person that is in scope. Resident Person includes companies incorporated in the UAE and foreign companies that are effectively managed and controlled in the UAE. Non-Resident Persons are taxed only in specific cases such as a permanent establishment or state-sourced income. Free Zone Persons have special rules if they meet qualifying conditions. These definitions shape where tax falls.
How Taxable Income is calculated
Taxable Income starts from accounting net profit in the financial statements. The law then makes adjustments. Some income is exempt. Some expenses are limited or disallowed. Tax loss rules allow carry forward and transfers under defined conditions.
Corporate Tax rates
The system uses two rates. The first AED 375,000 of Taxable Income is taxed at 0%. Any Taxable Income above AED 375,000 is taxed at 9%. A company with AED 6 million taxable profit will pay 9% on AED 5,625,000. That equals AED 506,250 in Corporate Tax for that period (after the 0% bracket). These are core figures.
Free Zone regime
Free Zone businesses can get a 0% rate on Qualifying Income if they meet conditions. To be a Qualifying Free Zone Person the company must derive Qualifying Income, maintain adequate substance, meet the de minimis test, not have elected to be taxed at general rates, follow transfer pricing rules and prepare audited financial statements. Qualifying Income is income from transactions with other Free Zone Persons and some qualifying activities with non-Free Zone parties. If the de minimis test fails, or substance is lacking, the 0% rate can be lost. These requirements are explicit in the guidance.
De minimis test
The de minimis rule limits how much non-qualifying revenue a Free Zone Person can earn while still keeping the 0% rate. The limit is the lower of AED 5,000,000 and 5% of total revenue. If non-qualifying revenue exceeds that lower limit then the company cannot be a Qualifying Free Zone Person. This rule is the gatekeeper for Free Zone tax benefits.
Adequate substance made practical
Adequate substance is not an abstract test. It looks at where core income generating activities are performed, the level of staff, assets and operating expenditure in the Free Zone, and whether the firm supervises outsourced activities adequately. The test is facts-based. Larger operations need more people and real expenditure. Small operations must show the link between activity and location.
Examples that clarify how Free Zone rules work
If a Free Zone company sells goods only to other Free Zone companies and keeps staff and operations in the Free Zone, that income is likely qualifying. If a Free Zone company gets most revenue from leasing real estate outside the Free Zone, that is an excluded activity and the company will likely fail the qualifying test.
Exempt persons and when exemption applies
Certain entities are exempt from Corporate Tax. Examples include some government entities, qualifying public benefit entities, certain pension and social security funds, and natural resource activities taxed at emirate level. Exemptions depend on meeting conditions and in some cases filing or listing in cabinet decisions.
Deductions and disallowed items
Expenses that are wholly and exclusively incurred for the business are generally deductible. Capital expenditure has special rules. Certain expenses are explicitly non-deductible. Transfer pricing and related party rules mean transactions must reflect arm’s length terms.
Transfer pricing in one paragraph
All transactions between related parties need to be conducted according to arm’s length standards. Taxable Persons must maintain records which prove their pricing methods. The UAE guidance requires businesses to maintain records and transfer pricing documents for all international transactions which involve multiple nations or larger business operations.
Tax losses and reliefs
The system allows tax losses to be carried forward subject to rules. There are specific reliefs for small businesses and for transfers within qualifying groups. Group restructuring and intra-group transfers can be relieved if they meet the legal tests. The guide lists the conditions and how losses interact with ownership changes. Plan for losses when you model scenarios.
Tax groups and simple mechanics
Companies can form a Tax Group if they meet the ownership and control tests. A Tax Group is treated as a single taxable person for Corporate Tax filings. That changes who files and how the 0% AED 375,000 allowance applies. When companies group, talk to advisors about the timing and the effect on year-by-year tax. The guide provides worked examples.
Withholding tax and non-resident income
If a non-resident earns state-sourced income in the UAE and the income is not attributable to a permanent establishment, the law provides for withholding tax on such payments. At the time of the guide, the withholding tax rate provision was 0%, though the mechanism exists in law. Check current FTA announcements for any updates.
Administration and compliance, what to calendar now
Register for Corporate Tax with the FTA as soon as a company is within scope. File Tax Returns and pay Corporate Tax within nine months from the end of the Tax Period. For example, if the financial year ends 31 December, the return and payment are due by 30 September of the following year. Late filing and late payment have penalties that escalate over time. The guide lists the registration, deregistration and filing steps.
Penalties you must expect if you miss deadlines
Submit a return late or pay late and you face penalties. The guide sets the penalties at AED 500 per month for delay in the first twelve months and AED 1,000 per month from month thirteen onwards. These penalties increase the cost of non-compliance. Calendar deadlines and assign responsibility in the finance team.
Records and audit risk
Keep audited financial statements, bank records and supporting documents. The FTA may request the financial statements used to compute Taxable Income. The law requires maintainable records that let the FTA verify the tax position. Keep records long enough to meet statutory requirements. Good records cut audit friction and make tax returns faster and safer.
Practical steps recommended by tax specialists at SS &Co
First, check registration status for all entities. Second, map each entity to whether it is resident, non-resident, Free Zone or exempt. Third, run a simple tax simulation for the current year using the AED 375,000 0% band and the 9% rate. Fourth, check Free Zone revenue mixes against the de minimis test and substance needs. Fifth, align accounting policies and tax adjustments so the finance team can produce Taxable Income with audit support. Sixth, prepare transfer pricing documentation for related party transactions. These steps are practical and actionable.
Forecasting checklist
Forecast revenue for each legal entity. Apply expected margins and normal adjustments. Calculate Taxable Income. Apply the first AED 375,000 at 0% and 9% thereafter. For Free Zone entities test qualifying income, de minimis, and substance. Test cash flow for nine-month payments after year end. This exercise gives a cash tax number and the timing of payment. Use that number in board reporting and in working capital planning.
Common mistakes to avoid
Do not assume Free Zone status equals tax free. Do not ignore substance. Do not forget to include unincorporated activity and high turnover sole proprietors. Do not delay registration or treat the AED 375,000 band as optional. Do not leave transfer pricing untested. Simple, clear compliance prevents costly surprises.
A brief note on double taxation and treaties
Double Taxation Agreements can change how residence is determined or how relief is applied. If a company is resident in two jurisdictions, the treaty provisions will generally decide residence by providing tie-breaker tests. For cross-border income, review the treaty network for relief or credit provisions. The guide explains the precedence of treaties where they apply.
Conclusion
Corporate Tax is not a mystery, it has clear rules and clear outcomes. Plan with the AED 375,000 0% band in mind. Use the 9% rate for forecasts. Treat Free Zone benefits as conditional. Keep records. Follow deadlines. The Federal Tax Authority provides guidance and the Ministry of Finance sets the law. Use the rules or seek tax and accounting services in Dubai to accompany you throughtout the filing process on regular basis and help make confident business decisions.
FAQ’s
- What is the Corporate Tax rate?
The first AED 375,000 of taxable income is taxed at 0%. Income above AED 375,000 is taxed at 9%. - Do Free Zone companies always pay 0%?
Only Free Zone companies that meet the qualifying conditions get 0% on their qualifying income. Others pay the standard rates. - How is taxable income worked out?
Start with accounting profit and then add or remove items according to the tax rules to get taxable income. - When must companies register and file?
Companies should register with the FTA when they are in scope and file the tax return and pay tax within nine months after the end of the tax period. - What are the penalties for late filing or payment?
A late return or late payment carries AED 500 for each month or part of a month for the first 12 months, then AED 1,000 per month after that. - Can companies carry forward tax losses?
Companies can carry forward tax losses, but there are rules and limits. In most cases carried losses can reduce taxable income up to 75% in a later year.
About the Author
Sana Fatima is the author of this piece of writing and an aspiring Chartered Accountant. She possesses practical knowledge in finance, accounting, taxation, audit, and business law dynamics. She uses her skills to translate difficult tax and accounting subjects into comprehensive materials. Her writing helps business teams and non-specialists understand the rules which govern their work.
