Audit Assistance for RERA Compliance Dubai: The Complete Guide for Builders and Developers
13/01/2026
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The introduction of the federal corporate tax regime in the United Arab Emirates (UAE), effective from June 1, 2023, marks a significant transformation in the country’s financial and regulatory landscape. This direct tax levied on the net profits of businesses aligns the nation with global tax standards.
For UAE companies and individuals engaged in business, understanding the corporate tax threshold is paramount. This guide breaks down the core elements of the UAE corporate tax law and its impact on businesses of all sizes, ensuring compliance and optimal positioning for growth.
The corporate tax system applies to taxable persons, which include:
Resident juridical persons (businesses incorporated in the UAE).
• Resident natural persons (individuals conducting business in the UAE as freelancers or sole proprietors).
• Non-resident persons with a Permanent Establishment (PE) in the UAE or those earning UAE-sourced income.
The tax applies to the business profits tax earned in a specific tax period (the financial year).
The Core Corporate Tax Rate
The tax rate in the UAE follows a tiered structure:
• 0% tax rate on taxable income up to AED 375,000.
• 9% tax rate on taxable income exceeding AED 375,000.
• A different percentage of profit as tax may apply to large multinational enterprises meeting specific global criteria (related to the OECD’s Pillar Two initiative, which involves a domestic minimum top-up tax).
The Corporate Tax Threshold Explained:
The corporate tax threshold is the income level at which different tax rates apply. In the UAE, businesses are taxed based on their profits, with two key thresholds:
• 0% tax rate on taxable income up to AED 375,000.
• 9% tax rate on taxable income exceeding AED 375,000.
This means that businesses earning below AED 375,000 annually will pay no corporate tax on their profits, making it easier for small businesses, startups, and freelancers to operate without the burden of tax. However, businesses with profits exceeding AED 375,000 will pay the standard 9% tax rate on the excess amount.
The corporate tax in the UAE operates on a competitive, tiered structure designed to maintain the country's appeal as a global business hub while adhering to international tax standards. The standard UAE tax rate is 9%, which is charged on taxable income that exceeds AED 375,000 for a given tax period. Crucially, taxable profits up to this threshold are subject to a 0% tax rate, a measure aimed at supporting small businesses and startups.
This dual-tier system applies broadly to persons incorporated in the UAE, including resident juridical persons and natural persons conducting business activities if their turnover exceeds a specific threshold (AED 1 million for natural persons). All taxable entities must complete the corporate tax registration process and obtain a unique corporate tax registration number via a corporate tax registration application with the Federal Tax Authority (FTA).
• Small and Medium Enterprises (SMEs): The 0% tax rate is a significant incentive, reducing the tax liability for businesses whose profits are below AED 375,000.
• Larger Enterprises: Must accurately forecast their taxable income and plan for the 9% rate on excess profits.
• Small and Medium Enterprises (SMEs): The 0% tax rate is a significant incentive, reducing the tax liability for businesses whose profits are below AED 375,000.
• Larger Enterprises: Must accurately forecast their taxable income and plan for the 9% rate on excess profits.
Understanding the corporate tax threshold is crucial for businesses of all sizes. Here’s how it applies to different entities:
Resident Juridical Persons (Companies)
• Resident juridical persons include all companies incorporated under UAE mainland law or within free zones.
• They are taxed on their worldwide income, meaning their profits from both within the UAE and outside the UAE are subject to tax.
• Tax Rates:
• 0% on taxable income up to AED 375,000.
• 9% on taxable income above AED 375,000.
Resident Natural Persons (Freelancers and Sole Proprietors)
• Resident natural persons conducting business activities in the UAE, such as freelancers or sole proprietors, are taxed if their annual business turnover exceeds AED 1,000,000.
• Freelancers or business owners whose income is below the threshold of AED 375,000 will pay no tax, while those above will pay the 9% tax on profits exceeding that amount.
Non-Resident Persons (Foreign Companies)
• Non-resident entities with a Permanent Establishment (PE) in the UAE are taxed on their UAE-sourced income.
• If a non-resident company has a PE in the UAE or receives income from UAE sources (e.g., sales of goods/services or a permanent business presence), it will be subject to the corporate tax regime.
Qualifying Free Zone Persons (QFZP)
• Qualifying Free Zone Persons (QFZPs) are businesses registered in the UAE free zones.
• Free zone entities benefit from a 0% tax rate on qualifying income and 9% on non-qualifying income, provided they meet certain conditions such as maintaining adequate substance in the UAE.
• Eligibility for 0% tax: Businesses in free zones can apply the 0% tax rate as long as their income qualifies under the law (e.g., business operations or activities directly tied to the UAE).
Corporate tax is imposed on Taxable Income for the relevant tax period.
Taxable Income Formula:
Taxable Income = Accounting Profit +/- Tax Adjustments
Adjustments are necessary to account for income exempt from corporate tax (like qualifying dividends) and non-deductible expenses.
Example Calculation:
If a company's taxable income is AED 500,000:
Tax on the first AED 375,000 is 0%.
Tax on the excess (AED 500,000 – AED 375,000 = AED 125,000) is 9%.
Tax Due $= \text{AED } 125,000 \times 9\% = \text{AED } 11,250$.
Taxable Income = Accounting Profit ± Tax Adjustments
Once the taxable income is determined, the applicable tax rate is applied:
• 0% on profits up to AED 375,000.
• 9% on profits exceeding AED 375,000.
Example:
If a business has an accounting profit of AED 500,000, the calculation would look like:
• Taxable income = AED 500,000.
• Tax due = AED 375,000 * 0% (tax on first AED 375,000) + (AED 500,000 - AED 375,000) * 9% = AED 11,250.
The UAE Ministry of Finance has introduced several reliefs to promote business growth and ensure fairness under the new tax regulations.
• Small Business Relief: Businesses with annual revenue less than a threshold of AED 3 million can elect for this relief, allowing them to be exempt from paying corporate tax on their taxable income for the tax period. This relief effectively treats the income as zero.
• Qualifying Free Zone Persons (QFZP): Free zone companies can benefit from a 0% tax rate on qualifying income, provided they adhere to specific regulations.
• Tax Group Relief: Allows a group of UAE residents to be treated as a single taxable person for tax purposes, filing one consolidated annual corporate tax return. This requires a parent company to own 95% or more of the subsidiaries, and all members must be subject to corporate tax.
• Transfer Pricing Reliefs: Ensures transactions between related parties are conducted at arm’s length. The rules include provisions for using tax losses to offset future profits.
The mandatory corporate tax registration process is conducted digitally via the FTA’s EmaraTax portal. Businesses must log in (or create an account), select the Corporate Tax service, and submit the corporate tax registration application by providing entity details, trade license information, and authorized signatory details to obtain a corporate tax registration number. Registration is required for all taxable entities, even if corporate tax will be charged at a 0% rate. Upon successful registration, the entity is obligated to perform corporate tax filing within nine months after the end of their tax period, reporting profits for the relevant and previous tax periods. This process ensures the UAE has an extensive network of compliant taxpayers.
The main categories of entities exempt from corporate tax are:
• Government and Government-Controlled Entities: Federal and Emirate-level government bodies and specific government-controlled entities listed in a Cabinet Decision.
• Natural Resource Businesses: Companies involved in the extraction or non-extractive use of natural resources (like oil and gas) remain subject to Emirate-level taxation instead of the Federal corporate tax.
• Non-Profit Entities: Qualifying Public Benefit Entities, Public or Private Pension Funds, and Social Security Funds (subject to approval and listing).
• Qualifying Investment Funds that meet specific regulatory criteria.
Corporate Tax Registration
• All taxable businesses must register with the Federal Tax Authority (FTA).
• Deadlines for registration vary depending on when the business is licensed or incorporated.
Filing Corporate Tax Returns
• Taxable persons must file their annual tax returns by the deadline, typically within 9 months of the end of the financial year.
• The return must include details of taxable income, exemptions, and supporting documents.
Penalties for Non-Compliance
• Late registration: AED 10,000.
• Late filing or payment: Escalating fines depending on the delay.
All UAE businesses must register and comply with corporate tax laws.
Corporate Tax Registration
Every taxable person must register for corporate tax with the Federal Tax Authority (FTA) to obtain a Tax Registration Number (TRN). A penalty of AED 10,000 is imposed for late registration.
Key Registration Deadlines (As per FTA Decision No. 3 of 2024):
• Resident Juridical Persons (Before March 1, 2024): Deadlines are staggered based on the month of the company's trade license issuance, ranging from May 31, 2024, to December 31, 2024.
• Resident Juridical Persons (On or After March 1, 2024): Within 3 months from the date of incorporation/establishment.
• Resident Natural Persons (Freelancers/Sole Proprietors): If the turnover exceeds the AED 1 million threshold in the 2024 calendar year, the registration deadline is March 31, 2025.
Filing and Payment :
• Annual Corporate Tax Return: Taxable persons are required to file an annual corporate tax return within 9 months from the end of the tax period (financial year). The tax liability must be settled by the same deadline.
• Example: For a company with a tax year ending December 31, 2024, the filing and payment deadline is September 30, 2025.
• Penalties for Non-Compliance:
• Late Filing: AED 500 per month for the first 12 months, escalating thereafter.
• Late Payment: A daily penalty of 14% per annum on the unpaid tax.
Understanding the corporate tax threshold is now critical for every company in the UAE—and this is exactly where Young & Right steps in as your specialist partner.
The UAE has introduced a federal corporate tax regime where corporate tax is a direct tax on business profits. In simple terms, this tax is a direct tax on the net income of a company in the UAE, as well as certain persons incorporated outside the UAE but effectively managed or controlled outside the UAE but controlled from here, or those with a permanent establishment in the UAE. With the federal corporate tax effective and linked to an AED 3 million revenue threshold (and evolving rules over time), businesses must correctly determine when corporate tax applies, how tax applies to all UAE taxable persons, and whether it applies to all UAE businesses operating in the UAE in their specific case.
The new corporate tax effective date has been a catalyst for change. For any company in the UAE—whether incorporated in the UAE or a non-resident entity—mastering the corporate tax threshold is crucial for strategic planning.
By ensuring timely UAE corporate tax registration, calculating taxable income accurately, and staying updated on the latest tax incentives and regulations of the UAE, businesses can ensure full compliance in the UAE and continue their successful journey in this competitive market. While the UAE also has a separate Value Added Tax (VAT) system, the new corporate income tax or business profits tax demands a distinct focus on structuring business operations for tax efficiency.
