UAE Corporate Tax: What Every Business Owner Needs to Know

The UAE introduced Corporate Tax (CT) effective for financial years starting on or after June 1, 2023. This marked a significant shift for a country long known for its tax-free environment. Here's everything you need to understand about the new regime.

Corporate Tax Overview

Tax Rates

The UAE Corporate Tax operates on a tiered system:

Taxable Income	Rate
Up to AED 375,000	0%
Above AED 375,000	9%
Large Multinationals (Pillar 2)	15%

Key point: The 0% threshold means small businesses with profits under AED 375,000 pay no corporate tax, though they may still need to register and file.

Who is Subject to Corporate Tax?

In Scope:

UAE-incorporated companies
Foreign companies effectively managed in UAE
Permanent establishments of foreign entities
Natural persons conducting business (above AED 1 million)

Out of Scope:

Employment income
Personal investment income (dividends, capital gains from shares)
Real estate income (personal, not business)

Free Zone Businesses

Free zone companies can benefit from 0% corporate tax on Qualifying Income if they:

Maintain adequate substance in the UAE
Derive "Qualifying Income" (specific categories)
Meet the de minimis requirements
Elect for the Qualifying Free Zone Person regime

Qualifying Income Includes:

Transactions with other Free Zone Persons
Certain income from non-Free Zone Persons
Income from Qualifying Activities

Non-Qualifying Income (Taxed at 9%):

Income from mainland UAE customers (generally)
Excluded activities income
Income failing substance requirements

Important: Free zone businesses must carefully track and segregate qualifying vs non-qualifying income.

Calculating Taxable Income

Starting Point

Taxable income starts with accounting profit per financial statements, then adjusted for:

Additions (Non-Deductible Expenses)

Entertainment expenses (50% disallowed)
Fines and penalties
Donations (unless to approved charities)
Related party transactions above arm's length
Interest expenses (subject to limitations)

Deductions

Carried forward losses (up to 75% of taxable income)
Qualifying R&D expenses
Small business relief election

Small Business Relief

Businesses with revenue under AED 3 million can elect for Small Business Relief:

Benefits:

Treated as having no taxable income
Simplified compliance
No need for transfer pricing documentation

Conditions:

Revenue threshold applies for relevant tax period
Not available for Free Zone Persons
Not available for members of Multinational Enterprise Groups

Note: This is an annual election, not automatic.

Registration Requirements

Who Must Register?

All taxable persons must register for Corporate Tax, including:

Companies with no taxable income
Free zone companies
Businesses below the AED 375,000 threshold

Registration Timeline

Registration deadlines are staggered based on license issuance date. Generally, businesses should register within the timeframe specified by the FTA (currently being phased in).

Required Information

Trade license details
Financial year end
Business activities (ISIC codes)
Ultimate parent entity information
Free zone status

Filing and Payment

Filing Deadline

Corporate Tax returns must be filed within 9 months of the end of the tax period.

Example: For a December 31, 2024 year-end:

Tax period: January 1 - December 31, 2024
Filing deadline: September 30, 2025

Payment

Tax payment is due by the same deadline as filing. Late payment incurs penalties.

Penalties

Violation	Penalty
Late registration	AED 10,000
Late filing	AED 500/month (up to AED 14,000)
Late payment	4% + 1% per month

Transfer Pricing

Transactions between related parties must be at arm's length (market price).

Documentation Requirements

All businesses with related party transactions must:

Maintain transfer pricing documentation
File a Disclosure Form with the CT return

Large groups (consolidated revenue over AED 3.15 billion) must also file:

Master File
Local File
Country-by-Country Report

Key Related Party Transactions

Intercompany sales/purchases
Management fees
Interest on loans
Use of intellectual property
Cost allocations

Group Structures

Tax Groups

Related companies can form a Tax Group if:

UAE resident companies
95%+ ownership relationship
Same financial year
Prepare consolidated financials

Benefits:

Single CT return for the group
Intra-group transactions eliminated
Losses can offset profits within group

Transfers Within Groups

Asset transfers between group members can be tax-neutral under certain conditions, avoiding recognition of gains.

Planning Considerations

1. Entity Structure Review

Is your current structure optimal for CT?
Should mainland and free zone activities be separated?
Are intercompany arrangements documented?

2. Related Party Pricing

Review all intercompany charges
Document the arm's length basis
Consider benchmarking studies

3. Expense Deductibility

Review entertainment expenses
Ensure proper documentation for deductions
Plan charitable contributions through approved entities

4. Loss Utilization

Understand loss carry-forward rules
Plan for the 75% utilization cap
Consider group relief opportunities

5. Free Zone Optimization

Assess Qualifying Free Zone Person status
Track qualifying vs non-qualifying income
Maintain substance requirements

Exemptions and Relief

Dividend Exemption

Dividends from UAE companies are exempt (participation exemption) if:

5%+ ownership in subsidiary
Held for at least 12 months
Subsidiary subject to 9%+ tax

Capital Gains Exemption

Gains on sale of shares in subsidiaries can be exempt under similar conditions to the dividend exemption.

Government and Public Entities

Federal and Emirate government entities, and certain public benefit organizations, are exempt.

Getting Ready for Corporate Tax

Immediate Actions

Register for Corporate Tax (if not already)
Review your accounting systems for CT compliance
Identify related party transactions
Assess free zone status and qualifying income
Document your transfer pricing positions

Ongoing Compliance

Maintain proper records for 7 years
Track deductible vs non-deductible expenses
Prepare quarterly CT estimates
File and pay on time

How Element3 Can Help

Navigating Corporate Tax requires expertise. Our services include:

CT Registration - Timely registration with FTA
Impact Assessment - Understanding your CT exposure
Structure Optimization - Reviewing entity arrangements
Transfer Pricing - Documentation and compliance
CT Return Preparation - Accurate filing
Planning Strategies - Minimizing tax legally

Schedule a CT consultation to ensure your business is fully compliant and optimized for the new tax regime.