he UAE has introduced a business-friendly Corporate Tax (CT) system, with different tax rates based on income levels and exemptions for certain businesses. Understanding who qualifies for lower tax rates, which businesses are exempt, and how companies can optimize their tax position is essential for compliance and financial planning.
Corporate Tax Rates in the UAE
The UAE follows a tiered corporate tax system:
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0% Tax Rate – For taxable income up to AED 375,000 (approx. $102,000).
- This supports startups and small businesses, reducing their tax burden.
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9% Tax Rate – Applied to taxable income above AED 375,000.
- This is one of the lowest corporate tax rates globally, ensuring the UAE remains a competitive business destination.
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15% Minimum Tax Rate – For multinational corporations with global revenues exceeding €750 million.
- This aligns with the OECD’s Global Minimum Tax (Pillar Two) and ensures large multinational enterprises pay a fair tax.
These tax rates apply to business profits, meaning companies are taxed on their net earnings after allowable deductions such as business expenses, depreciation, and employee costs.
Who is Exempt from Corporate Tax?
While most businesses are subject to corporate tax, certain entities are fully exempt, either due to their nature of operations or because they are taxed under a different system. These include:
1. Mandatory Exemptions (Automatic Exemption)
The following entities are automatically exempt from corporate tax:
- Government entities and their wholly owned subsidiaries.
- Charities and non-profit organizations (if registered with the Federal Tax Authority).
- Public pension and social security funds.
- Businesses engaged in natural resource extraction (e.g., oil & gas companies), which are subject to Emirate-level taxation.
2. Entities That Can Apply for Exemption from the FTA
Certain businesses and organizations may apply for exemption from corporate tax through the Federal Tax Authority (FTA), subject to approval. These include:
- Public benefit organizations that contribute to social welfare, education, health, or philanthropy. (They must meet FTA criteria and receive official recognition.)
- Wholly owned government subsidiaries engaged in specific sovereign activities.
- Qualifying investment funds (e.g., Real Estate Investment Trusts, private equity funds) that meet FTA-defined criteria.
- Wholly owned subsidiaries of exempt persons, if they exclusively conduct activities supporting their parent entity’s exempt status.
Entities seeking exemption must submit a formal application to the FTA, demonstrating that they meet the exemption requirements. The FTA has the authority to approve, reject, or revoke exemptions if conditions are no longer met.
Special Tax Considerations for Free Zone Companies
- Qualifying Free Zone Persons can benefit from a 0% tax rate on:
- Transactions with other Free Zone companies.
- International business activities (outside the UAE).
- However, Free Zone companies may become fully taxable at 9% if:
- They generate income from the UAE mainland.
- They fail to meet the conditions set by Cabinet Decision No. 55 of 2023.
Small Business Relief & Foreign Business Considerations
- Small Business Relief: Businesses with revenues below AED 3 million per year can opt out of corporate tax until 2026.
- Foreign Companies: Only taxed in the UAE if they have a Permanent Establishment (PE). Foreign investors with no UAE business activities are not taxed.
Final Thoughts
The UAE’s corporate tax system is designed to be competitive, offering low rates, automatic exemptions, and application-based tax reliefs. Businesses should carefully review their eligibility for exemptions, tax obligations, and compliance requirements to optimize their tax position and avoid penalties.