UAE imposes a federal corporate tax (CT) on business profits for financial years starting on or after June 1, 2023. The standard rate is 9% on taxable income exceeding AED 375,000, while a 0% rate applies to income below this threshold. A 0% rate may apply to Qualifying Free Zone Persons, and 15% for large multinationals (Pillar two).
UAE Corporation Tax is now a central fact of doing business in the Emirates. The change affects reporting, internal controls, pricing, and how businesses choose where to locate functions. Therefore, the firms must adapt their operating model and their finance function. The guide below explains the law, and the practical effects of UAE Corporation Tax.
Why the UAE Introduced UAE Corporation?
The UAE introduced UAE Corporation Tax to align with international norms and broaden the country’s revenue base while keeping the business environment competitive. The policy trade-off is deliberate. The government keeps the rates low and offers targeted reliefs while bringing corporations into a transparent tax framework. That balance supports infrastructure and public services and preserves the UAE’s role as an investment hub. For business leaders the consequence is a recurring obligation that requires governance and controls. Companies must embed corporate tax work into their accounting function. Firms that ignore corporate tax compliance will face interest and penalties and may lose opportunities to claim reliefs that reduce effective tax.
The Effective Date and Scope of UAE Corporation Tax
UAE Corporation Tax applies for financial periods starting on or after 1 June 2023. That means any tax period that begins on or after that date falls within the regime. The law applies to resident persons and to non-residents who have a permanent establishment in the UAE or derive certain UAE-source income. The scope includes commercial companies, branches, and individuals carrying on business under a trade licence.
The Rates
The UAE has a two-tier headline rate structure that is straightforward. Taxable income up to AED 375,000 is taxed at 0 percent. Taxable income above AED 375,000 is taxed at 9 percent. The structure supports small enterprises while applying a low, single rate to larger taxable profits.
Large multinational groups will also face a domestic minimum top-up tax if their consolidated global revenue meets the global minimum threshold. The UAE has adopted the OECD two-pillar framework and implemented a 15 percent domestic minimum top-up tax for qualifying multinationals, effective in line with the agreed timetable for large groups. Companies with consolidated global revenue above the threshold should model the interaction between the 9 percent headline corporate rate and the top-up rules.
Who Is In Scope for UAE Corporation Tax
The law covers resident juridical persons established in the UAE, which includes mainland companies and free zone entities, subject to conditions, as well as branches of foreign companies that have a permanent establishment in the UAE. Individuals who run business activity under a commercial licence are also in scope. Free zone persons have special provisions and may qualify for a 0 percent rate on qualifying income if they meet the statutory tests.
Residence and permanent establishment rules are decisive. A company that is resident in the UAE for financial reporting purposes will be a taxable person. A foreign enterprise with a permanent establishment must allocate profit to that establishment and file accordingly. The FTA guidance explains how to determine taxable residence and the mechanics of profit attribution.
What Counts as Taxable Income
Taxable income is profit as adjusted by the tax law. The starting point is the net profit in audited financial statements prepared in accordance with acceptable financial reporting standards. The law then adds back non-deductible expenses and applies specified adjustments. Certain income is explicitly exempted or eligible for special treatment when the law says so.
Accounting services must be able to reconcile bookkeeping profit to the taxbase. Firms must maintain clear records for revenue recognition, cost allocation, and special adjustments. The FTA publishes guides explaining common adjustments and showing worked examples of how to get from accounting profit to taxable income. Those worked examples are practical templates for finance teams that want to get their numbers right.
Free Zone Treatment and the Qualifying Free Zone Person Rules
Free zones remain strategically important for the UAE economy. The law recognises this by creating a tailored regime for free zone persons. A free zone person is within scope but may be a Qualifying Free Zone Person if it meets the statutory tests. A Qualifying Free Zone Person may benefit from a 0 percent rate on qualifying income, subject to a detailed set of conditions around substance, trading relationships, and transfer pricing.
The tests are specific. A free zone entity must show that it has adequate substance in the free zone, that income is generated by qualifying activities, and that it has appropriate transfer pricing arrangements with related parties. Free zone entities that do not qualify will be taxed at the standard rates. The FTA has published a Free Zone Person guide with examples showing how to compute qualifying income and how to document eligibility.
Small Business Relief and Election Options
The law provides mechanisms to reduce compliance burdens on small taxpayers. There is a small business relief option that applies when revenue thresholds are met and the taxpayer elects into the relief. The relief has specific quantitative tests and election rules that must be followed. Small business relief is not automatic; companies must make the appropriate election and follow the recordkeeping and reporting requirements.
Business leaders should treat an election as a governance decision. The choice interacts with accounting treatment and the firm’s growth strategy. If a company expects revenue to climb above the threshold, it must plan for the end of relief and build systems that scale to full corporate tax compliance. The FTA’s topic pages and guidance documents describe the relief in practical terms and provide the forms and timelines required to make an election.
Registration, Filing and Deadlines
Registration with the Federal Tax Authority is mandatory for taxable persons that meet the threshold. Legal filing regulations mandate the timely submission of corporate annual income tax returns and tax payments. The FTA sets out the filing windows and provides e-services for registration, filing, and payment.
Penalties, Audits and Dispute Resolution
The law sets out penalties for late filing, late payment, incorrect disclosure, and failure to keep records. Penalties are financial and can escalate. The FTA has the authority to audit returns and to issue assessments. Companies have rights to administrative review and appeal, but those rights have time limits and procedural requirements.
The practical consequence is that companies must treat corporate tax compliance as a control environment. Accounting services and internal audit should be part of the compliance loop. When disputes arise, the quality of contemporaneous documentation, including accounting records and transfer pricing files, is decisive in negotiations with tax authorities. Good records reduce risk.
Data, Documentation and the Audit Trail
The FTA expects an audit trail. Documents, contracts, invoices, and accounting entries must support tax positions. Companies should implement a document retention policy and a labelled filing system for submissions that support corporate tax compliance. Transfer pricing studies, intercompany agreements and substance documentation for free zone persons should be available on request.
Common Pitfalls Companies Make
Common pitfalls include relying on unaudited or incomplete accounting records to prepare returns, failing to document transfer pricing comparability, and misclassifying income that has special tax treatment. Free zone entities can use 0 percent rates because they do not need to prove their actual business operations and qualifying business activities. Late gap discovery costs companies interest payments and penalties and damage to their reputation.
The accounting services that combine technical tax expertise with effective bookkeeping services solve these critical issues. The goal is to prevent errors before filing rather than to fix them afterward.
Cross-Border Payments and Withholding Taxes
The UAE does not broadly apply withholding taxes on outbound payments in the way some jurisdictions do. The tax impact of international payments extends beyond its direct effects because transfer pricing modifications and international tax credit regulations also create tax effects. Accounting services must document the commercial rationale for cross-border payments and reconcile them to the tax return.
R&D and Incentives
The UAE is considering incentives such as refundable R&D credits and employment-based credits in line with broader policy goals. Companies that invest in innovation should watch for the introduction of those incentives and evaluate how to demonstrate qualifying activity and claim credits. When incentives come into force, accounting services will have to track qualifying expenditures to support claims.
Conclusion
UAE Corporation Tax is a structural change that affects profit after tax and how businesses operate. The right approach is to combine quality accounting services with practical tax advisory. That combination reduces risk, optimises outcomes and lets management focus on growth. SS&Co helps firms map the rules to operations, implement the controls required for corporate tax compliance and support management through audits and business decisions.
FAQ’s
- What is UAE Corporation Tax?
A tax on company profits for financial years starting on or after 1 June 2023. - Who must pay UAE Corporation Tax?
Most UAE companies, branches and people doing business under a trade licence. - What documents should I keep?
Invoices, contracts, bank statements, payroll and records showing how you calculated tax. - What is corporate tax compliance?
Registering, filing correct returns, paying tax on time and keeping records for audits. - What happens in an FTA audit?
The FTA reviews returns and supporting documents and may issue assessments. - Where can official guidance be found?
On the Federal Tax Authority (FTA) website and in its corporate tax guides.
