Free Gratuity Calculator in UAE: A Complete EOSB Guide for Employees and Employers (2025–2026)
22/12/2025
YOUNG AND RIGHT ACCOUNTING & TAX CONSULTANCY
From corporate tax registration to audits and bookkeeping, Young & Right offers personalized solutions that keep your business compliant and stress-free. Let’s take the complexity off your plate—starting with a free consultation.
Book Your Free Consultation
Running a business in the UAE requires managing two distinct regimes: Value Added Tax (VAT) and UAE Corporate Tax (CT). While both are federal taxes administered by the Federal Tax Authority (FTA) via the EmaraTax portal, they serve different purposes.
The fundamental distinction is simple: VAT is a consumption tax levied on transactions (what you sell), whereas Corporate Tax is a direct tax on business profits (what you earn after costs).
Most confusion stems from four overlapping factors:
Administrative Unity: Both are federal taxes and interact with the same overall compliance culture and record-keeping expectations.
Bookkeeping Reliance: Both depend on correct bookkeeping, but for different reasons—VAT for invoice accuracy and corporate tax and value-added tax reconciliation, and Corporate Tax for profit/tax adjustments.
The "375,000" Figure: Both have thresholds involving AED 375,000, but they mean different things in each context.
Digital Filing: Both are filed electronically through the Federal Tax Authority’s systems (now centered around EmaraTax).
VAT is an indirect tax and a consumption-based tax charged on taxable supplies of goods and services and certain imports. The UAE introduced VAT at a rate of 5% on 1 January 2018.
VAT is usually collected from the customer at the point of sale (through your tax invoice). As a business, you must register for VAT if you meet the threshold, and you must submit a vat return periodically to report what you collected.
Corporate Tax is a direct tax on business profits. The UAE Corporate Tax regime applies for financial years starting on or after 1 June 2023. This federal tax on business profits generally applies a 0% rate on taxable profits up to AED 375,000 and a 9% standard rate above that amount.
VAT is on sales: Driven by transactions. It looks at what you sell, whether the supply is taxable, and whether the rate of 5% applies. VAT on sales occurs regardless of whether your business is making a profit.
Corporate Tax is on profit: Driven by taxable income. This involves taking your accounting profit and applying adjustments required by the corporate tax decree law. You could have millions in revenue (high VAT) but zero profit (zero Corporate Tax).
Corporate Tax is driven by profit:
accounting profit in your financials,
plus/minus adjustments required by the Corporate Tax regime,
minus allowable deductions (where applicable),
while considering exemptions, reliefs, and loss rules.
You can have high revenue and low taxable income. You can also have modest revenue and high taxable income. Corporate Tax follows the profit story—VAT follows the transaction story.
The UAE introduced VAT at a standard rate of 5% starting 1 January 2018.
This single line is important because VAT is now embedded into pricing models across retail, services, contracting, and B2B trade.
VAT registration in the UAE is threshold-based for UAE resident businesses:
Mandatory VAT registration when taxable supplies and imports exceed AED 375,000 (past 12 months or expected in the next 30 days).
Voluntary VAT registration may apply when taxable supplies and imports exceed AED 187,500.
This is where many businesses make a costly mistake: VAT thresholds are about taxable turnover and imports, not profit. A business can be loss-making and still be required to register for VAT if it exceeds the turnover threshold.
Once registered, you must file VAT returns and make VAT payments within 28 days from the end of your tax period.
That shorter timeline is why VAT compliance feels “monthly/quarterly operational,” while Corporate Tax compliance feels “annual/financial reporting driven.”
VAT compliance becomes easy when your team understands these concepts:
Output VAT: VAT you charge on taxable sales.
Input VAT: VAT you pay on business expenses/purchases (recoverability depends on the rules).
Taxable supplies: supplies subject to VAT (standard or zero-rated).
Zero-rated vs exempt: both may look like “0% to the customer,” but they can behave differently in VAT recovery and reporting.
Reverse charge mechanism (RCM): VAT accounted for by the recipient in specific cross-border or defined transactions.
If your invoices, contracts, or accounting setup confuse these items, VAT errors multiply quickly—especially during audits.
1. VAT Rate and Scope
The standard VAT rate is 5%. It applies to most services in the UAE and tax on goods and services sold locally.
2. VAT Registration Thresholds
Mandatory: When taxable supplies and imports exceed AED 375,000 (past 12 months or next 30 days).
Voluntary: When supplies exceed AED 187,500.
3. Filing and Terms Registered businesses must file periodic VAT returns (usually quarterly) within 28 days of the period end. Key terms include:
Output VAT: Tax you charge on sales.
Input VAT: Tax you pay on business purchases (often recoverable).
Reverse Charge Mechanism (RCM): Used for certain imports where the recipient accounts for the tax.
A marketing consultancy invoices AED 800,000 per year.
VAT: likely needs registration if taxable supplies exceed AED 375,000. It charges 5% VAT on taxable invoices (where applicable) and files VAT returns.
Corporate Tax: taxable income might be low after salaries, rent, tools, and allowable expenses. Corporate Tax is calculated on taxable profits, not on invoices.
A trading company sells AED 400,000 and earns AED 180,000 profit.
VAT: may still need VAT registration due to taxable supplies exceeding AED 375,000.
Corporate Tax: taxable profit below AED 375,000 may fall within the 0% band (depending on final taxable income calculation).
A tech start-up sells AED 450,000 but spends heavily and makes a loss.
VAT: still may be required to register and file VAT returns because VAT is turnover-driven.
Corporate Tax: if it has no taxable profit, Corporate Tax could be minimal or nil (subject to proper computations and rules).
Corporate Tax can apply to individuals when they are conducting business activities.
The FTA’s guide clarifies that a natural person becomes subject to Corporate Tax where they derive turnover in excess of AED 1 million in a Gregorian calendar year from business or business activities conducted in the UAE.
The same FTA guide also notes that income from wage, personal investment income, and real estate investment income is not subject to Corporate Tax (as these sources are not treated as business/business activities for this purpose) and is not counted toward the AED 1 million turnover test.
This is a critical point for consultants, freelancers, commission-based professionals, and anyone running side ventures.
A free zone entity can still be within the Corporate Tax regime. Being in a free zone does not automatically mean “no tax.” Your treatment depends on whether you meet the criteria for preferential treatment.
FTAs materials explain that the QFZP framework comes with conditions, including (commonly) requirements around:
meeting the arm’s length principle,
maintaining transfer pricing documentation,
maintaining audited financial statements,
and meeting the de minimis requirement (non-qualifying revenue not exceeding the lower of AED 5 million or 5% of total revenue).
The FTA’s bulletin also highlights an important nuance: a QFZP is not eligible to benefit from the general 0% rate band up to AED 375,000 that applies in the standard Corporate Tax system; instead, it applies the free zone regime rules (including 0% on qualifying income and 9% on non-qualifying taxable income).
Free zone structuring is an area where small documentation mistakes can have large consequences—so it’s worth reviewing your fact pattern carefully.
Even though they are different taxes, in daily business they overlap in three areas:
VAT requires clean invoice data and supply classification. Corporate Tax requires financial statements that support taxable income calculations. If your accounting records are inconsistent, both taxes become risky.
The UAE’s tax administration now focuses heavily around EmaraTax for digital services, and the FTA provides information and access points for tax obligations through these platforms.
VAT audits often drill down into invoices and transaction evidence. Corporate Tax audits are likely to focus on the tax computation, financial statements, related party transactions, and the logic behind adjustments.
Navigating the registration for value added tax in uae and the more recent introduction of corporate tax is a streamlined digital experience centered on the Federal Tax Authority's (FTA) EmaraTax portal. Since the UAE introduced a federal tax on corporate profits to complement the existing tax and value added tax framework, businesses must proactively manage their status to ensure compliance. The process begins with creating an integrated FTA account—often using UAE PASS—where entities can simultaneously manage their corporate tax and value added tax obligations. Whether your business is meeting the mandatory threshold of AED 375,000 for VAT or adhering to the newer timelines for taxation in the uae's corporate regime, early registration is critical to obtaining your Tax Registration Number (TRN) and avoiding administrative penalties.
Confirm whether you crossed the VAT registration threshold (AED 375,000) or qualify for voluntary registration (AED 187,500).
Validate supply treatment: standard-rated vs zero-rated vs exempt (and document reasoning).
Ensure tax invoices include correct VAT details and are issued consistently.
File VAT returns and pay VAT within 28 days after tax period end.
Reconcile output VAT and input VAT to your accounts (avoid return-to-ledger mismatches).
Confirm whether your financial year falls within the Corporate Tax regime (financial years starting on/after 1 June 2023).
Prepare proper financial statements (ideally audit-ready where needed).
Build a taxable income computation: accounting profit → tax adjustments → taxable income.
Track related party transactions and maintain transfer pricing support where applicable.
File Corporate Tax return and settle tax liabilities within nine months after tax period end.
Young & Right helps you understand tax in UAE and the key differences between VAT and corporate taxation, so your business stays compliant with UAE tax laws and regulations and avoids costly mistakes.
Explain how corporate tax different rules work vs value-added tax in UAE and why corporate tax different from value-added tax
Clarify how corporate tax and VAT apply in real business scenarios and the differences between corporate tax vs transaction taxes
Support corporate tax registration and guide you on when you need to pay corporate tax under current corporate tax laws
Review your invoicing and reporting for UAE VAT including standard tax rate at the rate of 5 (where applicable)
Align your compliance with VAT and corporate tax laws, including understanding what the UAE government has introduced and how it impacts your business
Help with profit planning where tax applies to the profits, including how the corporate tax rate affects outcomes
Provide practical guidance based on how the UAE introduced in the UAE frameworks and issued the corporate tax decree, ensuring you stay aligned with UAE tax laws
Understanding VAT and corporate tax requirements is essential for maintaining a healthy business landscape in the UAE. While VAT applies to the transaction level, corporate tax is levied on the final success of your business. As tax laws and regulations evolve toward the 2026 updates, staying audit-ready is the best strategy for businesses operating in the UAE.
Whether you’re registering for VAT, preparing for UAE Corporate Tax, or unsure how both apply to your business, expert guidance can prevent costly errors and penalties. Get practical, compliant, and audit-ready support tailored to your business structure.
Speak to a UAE Tax Expert
