Introduction to UAE Corporate Tax
The United Arab Emirates (UAE) introduced Corporate Tax (CT) to establish a structured and transparent tax system while maintaining its appeal as a global business hub. The Federal Decree-Law No. 47 of 2022, which governs corporate taxation, became effective for financial years starting on or after June 1, 2023. The introduction of this tax aligns with international best practices and aims to ensure the UAE remains competitive while generating revenue for national development.
Why Did the UAE Introduce Corporate Tax?
The UAE implemented corporate tax for several key reasons:
- Economic Diversification: The government aims to reduce reliance on oil revenues and create a stable, long-term financial system.
- International Compliance: Many global organizations, including the OECD, encourage countries to implement corporate taxation to avoid harmful tax practices.
- Public Services & Infrastructure Development: Revenue from corporate taxes will help fund essential projects such as healthcare, education, and infrastructure.
- Strengthening Business Environment: The UAE remains business-friendly by keeping its corporate tax rates among the lowest in the world.
Who is Subject to Corporate Tax?
Corporate Tax applies to various entities operating in the UAE. Taxable persons include:
- UAE-incorporated businesses engaged in trade, commercial, and professional activities.
- Foreign companies with a Permanent Establishment (PE) in the UAE.
- Individuals conducting business activities that require a commercial license.
- Entities in Free Zones, depending on their operations and whether they engage in transactions with the mainland.
Certain businesses and entities are, however, exempt from corporate tax.
Who is Exempt from Corporate Tax?
Not all businesses need to pay corporate tax. Exemptions include:
- Government entities and their wholly-owned subsidiaries.
- Charitable organizations (if approved by the Federal Tax Authority).
- Public pension and social security funds.
- Companies involved in the extraction of natural resources, which are subject to emirate-level taxation instead.
- Qualifying Free Zone Companies that meet the conditions for tax incentives (subject to Cabinet Decision No. 55 of 2023).
Corporate Tax Rates in the UAE
The UAE has introduced a structured corporate tax rate system:
0% on taxable income up to AED 375,000, supporting small and medium-sized businesses.
9% on taxable income exceeding AED 375,000, ensuring a competitive tax rate compared to global standards.
15% for multinational enterprises with global revenues exceeding €750 million, in compliance with the OECD’s Global Minimum Tax framework.
Corporate Tax Compliance & Filing Requirements
Businesses must comply with the following obligations:
- Mandatory registration: Companies must register with the Federal Tax Authority (FTA) for corporate tax.
- Annual tax return filing: Returns must be filed within nine months after the end of the financial year.
- Proper record-keeping: Businesses must maintain accurate financial records to ensure compliance and facilitate audits.
- Transfer pricing rules: Companies engaged in transactions with related parties must comply with UAE’s transfer pricing documentation requirements.
- Penalties for non-compliance: Late filings, underreporting income, or failing to register may lead to financial penalties imposed by the FTA.
Impact of Corporate Tax on Businesses
- Small businesses: Companies earning below AED 375,000 enjoy a 0% tax rate, reducing the burden on startups and SMEs
- Free Zone companies: Those meeting the criteria for a Qualifying Free Zone Person can benefit from a 0% rate.
- Multinational companies: Large businesses must assess their global tax obligations under the OECD framework to ensure compliance.
Final Thoughts
The introduction of Corporate Tax in the UAE marks a significant shift in the business landscape. However, with low tax rates, clear exemptions, and a well-structured compliance system, the UAE remains one of the most attractive destinations for businesses globally. Companies must stay informed and ensure their financial records align with the new tax regulations to avoid penalties and optimize their tax position.