Corporate Tax in the UAE
Nearly all business owners in the United Arab Emirates were impacted by the new corporate tax that went into effect on June 1, 2023. The Emirates are working to maintain tax transparency in business, adhere to international financial standards, and fight criminal activity and tax evasion as they progressively depart from a tax-free environment.
This is significant as the nation actively adopts cutting-edge tax and accounting procedures and markets itself as a significant international financial and trade hub.
The UAE was taken off the FATF “gray” list in 2024 after achieving notable progress in this area. This is a promising tendency, indicating that authorities will probably keep improving and developing their tax system.
It is mandatory for all legal and natural persons operating in the United Arab Emirates to register with the tax administration for corporate tax purposes, acquire a taxpayer registration number, and submit an annual tax return. The deadline for this is 2024. A 10,000 dirham fine will be imposed for late registration.
Corporate tax registration, tax return preparation and corporate tax filing in Dubai, and tax payment are all multi-step processes that involve adherence to specific standards and deadlines, as well as a thorough awareness of the potential penalties for any violations. A knowledgeable tax advisor can guide you through the complicated world of business taxation.
Key definitions of the UAE federal corporate tax law
Rates
With a competitive corporation tax rate of 9%, the UAE is one of the countries with the lowest rates in the world. Companies in qualifying free zones and small firms with yearly revenues below specific limits are eligible for reductions to 0% under special conditions. These reductions are intended to benefit small businesses and promote particular economic activities.
Tax base
According to UAE tax laws, corporate tax is applied to a company’s taxable income, which is net earnings or losses modified by certain elements. Because the law is federal, it applies to all Emirates and guarantees consistency in taxation procedures.
Taxable income
According to UAE corporate tax regulations, taxable income includes all firm revenue after permitted expenses are deducted. When relevant, entities may modify net profits to account for various incentives and qualifying deductions, such as certain losses carried forward.
Taxable persons
Corporate tax applies to both natural people (such as individual business owners operating under a license) and juridical persons (such as corporations). Depending on the source of their income and the nature of their activities, foreigners who have a permanent residence in the UAE or who get income from the UAE are also responsible.
Exemptions
Government agencies, investment funds, pension funds, and businesses engaged in the exploration of natural resources are examples of exempt entities. Furthermore, corporate tax may not apply to other forms of income, such as dividends and real estate profits.
Who is subject to the corporate tax in the UAE?
Both residents and non-residents may be considered taxable people for corporation tax purposes. This classification is distinct from a corporate owner’s residency status in the United Arab Emirates, their visa status, or their actual presence in the nation.
| Category | Type | Description |
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Resident persons
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Legal entities
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Companies that were founded and registered in the United Arab Emirates, either in a free zone or on the mainland.
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Individuals |
People with a revenue of more than AED 1,000,000 who work in the UAE under a freelancing license. They have to abide by corporate tax laws.
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Non-resident persons
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Legal entities
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Tax regulations must be followed by foreign businesses that have a permanent presence (such as an office or factory) in the United Arab Emirates, get money from state sources, or have a connection to the country.
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Individuals |
State-sourced income may be responsible for withholding tax for non-residents.
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Corporate tax rates in the UAE
Mainland companies:
- The tax rate on taxable profit is 0% up to 375,000 dirhams.
- If the taxable profit exceeds 375,000 dirhams, a 9% tax is applied.
Free zone companies:
A corporate tax rate of 0% applies to businesses that generate revenue from qualifying activities (Qualifying Free Zone Person). The following requirements for QFZP must be fulfilled in order to be eligible for the zero rate:
- The business must engage in one of the qualifying activities as stated by the government;
- Businesses must function inside the boundaries of the free zone;
- Own enough quantity of assets;
- Have a sufficient number of skilled workers;
- Demonstrate an adequate level of operational expenses.
- A company’s full earnings are subject to the standard 9% rate after its non-qualifying income surpasses 5% or 5 million AED of its total income, whichever is smaller. This ensures compliance with UAE tax compliance rules.
Small Business Relief:
Individuals who earn up to 3 million dirhams during the tax period are eligible to apply for the Small Business Relief tax system, which exempts them from corporation tax. The right to apply SBR disappears if the threshold amount is surpassed. The initiative runs through December 31, 2026.
Natural persons conducting business activities
Freelancers, self-employed individuals, sole proprietors, and other natural people operating under a commercial license fall under this category.
- The tax rate is 0% if the yearly revenue from business operations is less than one million dirhams.
- Natural persons are required to pay corporate tax at a rate of 9% on profits over 375,000 dirhams after surpassing the 1 million dirham threshold.
- If their annual turnover is up to three million dirhams, freelancers and sole proprietors are eligible to qualify for the Small Business Relief (SBR) regime.
Therefore, under the SBR regime, people whose turnover does not exceed 3 million dirhams can have their corporation tax rate lowered to 0%.
Businesses must register for corporate tax reasons and submit an annual tax return whenever their turnover hits one million dirhams.
Who is exempt from corporate tax?
Some individuals are exempt from the new tax regulations:
- governments at the federal and Emirates levels, as well as their agencies,
- authorities, and other governmental bodies;
- State-owned businesses;
- Companies involved in the United Arab Emirates’ natural resource exploitation;
- Public benefit organizations;
- Investment funds;
- Social Security and pension funds, both public and private.
Which incomes are not subject to corporate tax?
- Individual salary
- Investment income and income from deposits
- Real estate income
- Rental income
- Dividend income
- Inheritance
- Capital gains
Tax groups
Entities can form a tax group if:
The parent company owns at least 95% of the subsidiaries’ share capital, voting rights, and profits.
They use the same accounting standards and the same fiscal year.
Neither the parent company nor its subsidiary can be categorized as a Qualifying Free Zone Person or an exempt person.
Navigating corporate taxes in Dubai with JSB Incorporation
All businesses and individuals conducting business in the United Arab Emirates should carefully adhere to tax obligations, file tax returns on time, and submit financial statements to the appropriate authorities.
To conduct business in the country legally and transparently and prevent potential tax and banking issues. You may learn about all the complexities of taxation in the United Arab Emirates from our team of knowledgeable accountants and tax and business advisors. Contact us, and we’ll take care of your issues!
FAQs
Businesses and entities earning taxable income in the UAE are subject to corporate tax.
Yes, free zone businesses meeting certain conditions are exempt from corporate tax.
Taxable income is calculated based on accounting net profit per international financial reporting standards (IFRS).
Corporate tax applies only to business activities; personal income is not taxed.
Penalties include fines and potential legal action for failing to register, file, or pay tax on time.
Don't miss out on this limited-time opportunity!
We'd Love To Hear From You
contact us
Find us Here
Office No 20, 4th Floor, Al Moosa Tower 2,
Sheikh Zayed Road Dubai, United Arab Emirates P.O. Box 27614.
Get In touch
+971 4 824 4842
info@jsbincorporation.com