A Comprehensive Guide to Corporate Tax Regulations in UAE: What Businesses Need to Know

The introduction of corporate tax in the United Arab Emirates (UAE), effective from 1 June 2023, marks a significant transformation in the country's business environment. With Federal Decree-Law No. 47 of 2022, the UAE has aligned itself with global standards and practices, including OECD’s Pillar 2 rules on minimum effective taxation. This shift toward a federal corporate tax regime aims to establish a transparent and stable fiscal system, enhancing the UAE's position in international markets.

The new tax framework applies to the income or profit of corporations, including foreign entities conducting commercial activities within the UAE. Under this law, businesses must adhere to tax management practices that comply with the regulatory requirements set forth by the Ministry of Finance (MOF). The tax decrees and cabinet decisions provide a clear outline of the obligations for businesses, specifying the form of direct tax levied on corporate profits tax and corporate income.

This comprehensive guide will explore the key aspects of corporate tax regulations in the UAE, including corporate tax registration applications, tax rates, exempt persons, public clarifications from the MOF, and the filing process for financial years starting on or after 1 January 2024. We will also look at how the decree impacts businesses in various sectors, including those in extraction of natural resources or involved in the immovable property sector. Additionally, the administrative penalties for non-compliance will be addressed, ensuring that businesses understand the risks of failing to meet these new tax obligations.

What Is Corporate Tax in the UAE?

Corporate tax is a direct tax levied on the net income or profits of businesses operating in the UAE. For years, the UAE relied on its oil and gas revenues, but with the introduction of corporate tax under the Federal Tax Authority (FTA), the government aims to diversify its revenue sources and comply with international tax regulations such as the OECD guidelines.

The new tax law aims to ensure tax transparency and build a stable tax system that attracts foreign investment while supporting the growth of domestic businesses. Corporate tax in the UAE applies to various entities, including resident juridical persons, natural persons, and non-resident entities with a permanent establishment (PE) in the UAE or those earning UAE-sourced income.

 Who is exempted from UAE corporate tax?

Here are some of the main categories of entities that are exempted from corporate tax in the UAE under the Federal Tax Authority (FTA) regime (operating under Federal Decree‑Law No. 47 of 2022):

• Government entities and government‑controlled entities (as specified by a cabinet decision) are automatically exempt. 

• Extractive businesses (i.e., those involved in licensed natural resource extraction) and non‑extractive natural resource businesses may be exempt if they meet specific conditions (such as being subject to emirate‑level taxation). 

• Qualifying public benefit entities, public or private pension and social security funds, and qualifying investment funds — these may be exempt if approval is obtained from the FTA and conditions are fulfilled. 

• Wholly‑owned UAE subsidiaries of certain exempt persons.

Important caveats:

• Exemption does not mean the entity can ignore all obligations—some may still need to register or submit declarations depending on their business activities. 

• If an exempt entity engages in a taxable business activity (e.g., under a commercial licence), the exemption may not apply or may apply only in part. 

• “Exempt person” status and the conditions for maintaining it are specified via further legislated decisions and guidelines. 

Who Needs to Pay Corporate Tax in UAE?

Corporate tax is applicable to businesses operating in the UAE, including:

Resident Juridical Persons:

• Companies incorporated in the UAE, including mainland and free zone businesses.

Natural Persons:

• Individuals conducting business activities with an annual turnover above AED 1 million.

Non-Resident Persons:

• Non-resident entities with a permanent establishment (PE) or those earning UAE-sourced income.

There are certain exemptions including government entities, certain public-benefit organizations, and investment funds, which may not be subject to corporate tax. Free zone businesses may also qualify for exemptions, provided they meet specific substance and compliance requirements.

Corporate Tax Rates in UAE

The UAE corporate tax system is progressive and designed to help smaller businesses grow while ensuring large corporations contribute their fair share. The key corporate tax rates are as follows:

• 0% on Taxable Income Up to AED 375,000:
This rate is aimed at supporting small businesses and startups.

• 9% on Taxable Income Above AED 375,000:
This rate applies to businesses with income above this threshold.

Additionally, businesses that are part of Multinational Enterprises (MNEs) with global revenues exceeding €750 million will face a 15% Domestic Minimum Top-up Tax (DMTT), effective from 1 January 2025. This aligns with OECD’s Pillar 2 and aims to set a minimum tax level for MNEs, thereby preventing harmful tax practices and tax avoidance strategies.

Key Aspects of UAE Corporate Tax Regulations

1. Taxable Persons

A taxable person in the UAE is any business entity or individual that meets the tax criteria. This includes:

• Resident Juridical Persons: Businesses or companies registered in the UAE.

• Natural Persons: Individuals with turnover exceeding AED 1 million.

• Non-Resident Persons: Foreign businesses with a PE in the UAE or earning UAE-sourced income.

These entities must register with the FTA, maintain records, file returns, and comply with corporate tax laws.

2. Tax Registration Requirement

• Businesses that meet the criteria for a taxable person must register with the FTA within the prescribed deadline.

• After registration, businesses must file tax returns and make tax payments according to the taxable income for the relevant tax period.

3. Permanent Establishment (PE)

• A Permanent Establishment (PE) refers to a fixed place of business, such as an office or factory, in the UAE through which a non-resident entity operates.

• Non-resident businesses with a PE are subject to corporate tax on income derived from that PE.

4. Free Zone Companies

• The UAE offers free zones with special tax exemptions, but these exemptions are conditional. Free zone businesses can enjoy a 0% corporate tax rate on qualifying income if they meet certain conditions:

• Maintaining a physical presence in the UAE.

• Engaging in substantive business operations.

• Complying with transfer pricing and economic substance regulations.

Non-qualifying income generated by free zone businesses, such as income from activities outside the free zone, will be taxed at the standard 9% rate.

Corporate Tax Filing and Payment

Filing Deadlines

• Businesses must file their tax returns with the FTA within 9 months from the end of the tax period. The most common tax period is the calendar year (1 January to 31 December), meaning that tax returns for 2023 are due by 30 September 2024.

Payment Deadlines

• Tax payments are also due within 9 months of the end of the tax period. The tax amount is based on the taxable income calculated in the return.

Record-Keeping Requirements

• All businesses are required to maintain proper records, including:

• Profit and loss statements.

• Balance sheets.

• Invoices and receipts for all transactions.

These records must be available for inspection by the FTA and should be kept for 5 years.

Exemptions Under UAE Corporate Tax Regulations

Several entities are exempt from paying corporate tax under the UAE tax laws, including:

• Government Entities: Businesses controlled by the UAE government.

• Investment Funds: Sovereign wealth funds and qualifying investment funds.

• Public Benefit Entities: Charitable organizations and public-benefit bodies.

• Extractive Industries: Companies in the oil and gas sector may be exempt or taxed at the emirate level.

These exemptions help maintain the UAE’s tax neutrality while supporting its key sectors.

How Small Businesses Can Benefit from Corporate Tax Relief

Small businesses in the UAE with annual revenues of AED 3 million or less can benefit from small business relief under the UAE CT regime. This provision allows them to treat their taxable income as zero for corporate income tax purposes. This exemption is available until 2026, providing startups and SMEs with a tax-free environment to grow. Under the CT law outlined in the Federal Decree-Law No. 47 of 2022 and as specified in Public Clarifications 60 of 2023, businesses that qualify as entities subject to CT are exempted from tax liability for business profits under this threshold. However, the rate of 9% applies to income above AED 375,000, and businesses must comply with registration and filing requirements by 31 December 2024 to avoid penalties. This relief plays a crucial role in promoting corporations and other entities, including branches of foreign banks, especially during their early growth phase. For multinational enterprises (MNEs), the Pillar Two rules and four financial years under the UAE’s tax framework also come into play, affecting how tax is applied to global profits from UAE operations.

Transfer Pricing Regulations in the UAE

The UAE has introduced transfer pricing rules to ensure that transactions between related parties are conducted at arm’s length (i.e., the same terms as transactions between independent parties). Businesses engaged in related-party transactions must comply with these rules.

Entities with revenues exceeding AED 200 million or MNE groups with consolidated global revenue exceeding €750 million must maintain local and master files to document their transfer pricing practices. Non-compliance with these rules could result in significant penalties.

Penalties for Non-Compliance

Businesses that fail to comply with corporate tax regulations in the UAE may face penalties for:

• Late Registration: Penalties for failing to register within the required timeframe.

• Late Filing: Penalties for not filing tax returns by the deadline.

• Incorrect Returns: Penalties for submitting false or inaccurate tax returns.

To avoid these penalties, businesses should ensure they maintain accurate records and file timely returns with the FTA.

How Young & Right Can Help You with Corporate Tax Regulations in UAE

Navigating the complexities of corporate tax regulations in the UAE can be daunting, especially with the introduction of new laws and compliance requirements. At Young & Right, we specialize in providing businesses with expert guidance and practical solutions to ensure full compliance with the UAE's corporate tax framework.

Here’s how Young & Right can assist you:

• Corporate Tax Registration: We guide you through the process of corporate tax registration with the FTA, ensuring your tax registration application is completed accurately and promptly.

• Corporate Tax Filing and Compliance: Our team ensures that your business meets filing deadlines, maintains proper financial records, and submits tax returns on time.

• Tax Planning and Strategy: We help businesses optimize their tax strategies, ensuring compliance while minimizing tax liabilities.

• Transfer Pricing Compliance: We assist with transfer pricing regulations, ensuring that related-party transactions are conducted at arm’s length and properly documented.

• Corporate Tax Exemptions and Relief: We guide businesses in qualifying for corporate tax exemptions and small business relief, helping you make the most of available tax benefits.

Conclusion: Navigating the New Corporate Tax Landscape in the UAE

The introduction of corporate tax in the UAE represents a significant shift in the business landscape. While businesses must adapt to new compliance obligations, the new tax system provides a more transparent and predictable environment. By understanding the corporate tax rates, exemptions, and filing requirements, businesses can stay compliant and avoid penalties.

For businesses operating in the UAE, staying proactive in understanding and meeting corporate tax regulations is key to long-term success. Whether you are a small business or a multinational enterprise, ensuring proper tax planning and compliance will help your business thrive in the UAE.

At Young & Right, we are here to help your business navigate the complexities of the UAE corporate tax system. Contact us today to learn how we can assist with your corporate tax registration, compliance, and planning.