As the global economy shifts towards transparency, responsible financial governance, and fair taxation, corporate tax laws are becoming a critical part of doing business internationally. Traditionally, many jurisdictions, including the United Arab Emirates (UAE), attracted foreign investors by offering minimal or zero direct tax burdens. However, the international push for fair tax competition—exemplified by the global star rating system and OECD initiatives—has prompted significant changes.

In alignment with these evolving global standards, the UAE has introduced a corporate income tax framework, formally implementing a direct tax levied on business profits. This marks a pivotal change in the UAE’s economic strategy, transitioning from a tax-free image to a more regulated, transparent, and compliant jurisdiction. The newly introduced Corporate Tax Law brings the UAE in line with global norms while still preserving its competitive appeal through specific reliefs and categories, such as certain exempt persons, exempt income, and the classification of a qualifying free zone person.

This guide provides a comprehensive breakdown of the UAE corporate tax law, explaining how the business profits tax applies to different entities, who qualifies as exempt persons, and what this means for companies operating in both mainland and free zones. Whether you're a multinational, an SME, or a startup, understanding your tax obligations under the new regime is vital for compliance and strategic planning.

Understanding Corporate Tax Law: A Global Snapshot

Corporate tax law refers to the body of rules and regulations governing how companies are taxed on their profits. These laws dictate what income is taxable, how profits are calculated, which deductions are permitted, and the procedures for compliance.

Globally, corporate tax rates range from 9% in Hungary to over 30% in countries like Japan and India. Recent global initiatives, such as the OECD's Base Erosion and Profit Shifting (BEPS) framework and the Global Minimum Tax, have encouraged countries to adopt uniform standards that prevent tax evasion and profit shifting.

Against this backdrop, the UAE introduced its federal corporate tax regime under Federal Decree Law No. 47 of 2022, which took effect on 1 June 2023. The goal is to ensure economic sustainability, meet international standards, and establish a clear, fair system for taxing corporate profits.

The New UAE Corporate Tax Law: What You Need to Know

The UAE has introduced a new corporate tax framework to align with international standards while maintaining its appeal as a global business hub. This law is a key part of the evolving UAE CT regime, providing clarity for businesses operating across sectors.

1. Scope and Applicability

The corporate tax applies to a wide range of taxable persons. This includes mainland companies, free zone entities (subject to specific conditions for qualifying income), and foreign companies with a permanent establishment in the UAE. Additionally, individuals holding commercial licenses who earn business income are within scope. A taxable person's business refers to any ongoing activity intended to generate profit, and proper classification is essential for corporate tax purposes.

2. Corporate Tax Rates

The UAE applies a tiered corporate tax system. Net income or taxable income up to AED 375,000 is taxed at 0%, while income above that is taxed at 9%. Large multinational enterprise groups with consolidated global revenues above EUR 750 million are taxed at 15% under OECD’s Pillar Two rules. The applicable rate is determined by the relevant tax period, and income must be computed accurately.

3. Exemptions

Certain entities are fully exempt from corporate tax upon FTA approval. These include government entities, government-controlled entities, extractive businesses, and non-extractive natural resource businesses. Additional exemptions apply to public benefit organizations, pension funds, and qualifying investment funds. Eligibility depends on meeting FTA criteria within the given tax period.

4. Taxable Income and Deductions

Taxable income is based on financial reporting prepared under International Financial Reporting Standards (IFRS), with adjustments for corporate tax purposes. Deductions are allowed for business-related costs such as salaries, rent, and interest on loans (within limits). Depreciation, amortization, and certain capital gains may also be considered. Capital expenditures, however, are generally non-deductible.

5. FTA Corporate Tax Registration

All entities subject to the law must register with the FTA and obtain a Corporate Tax Registration Number, even if their income is below AED 375,000. This obligation applies from the beginning of the tax period. Early registration helps avoid penalties and ensures compliance with FTA requirements.

6. Filing, Compliance, and Tax Groups

Businesses must file a corporate tax return within nine months after their financial year ends. Documents such as financial statements, ledgers, and tax records must be kept for at least seven years. Companies may also form a tax group if they meet ownership and control conditions, enabling consolidated filing and intra-group loss adjustments, subject to FTA approval.

Good financial practices are essential under the new regime. Engaging professional bookkeeping services, working with trusted accounting firms, and obtaining a Tax Residency Certificate when needed are key steps to remain compliant. Businesses can also benefit from expert corporate tax services, especially when navigating issues like capital gains, qualifying income, or classification under the UAE CT regime.

Impact on Free Zones and SMEs

One of the central elements of the UAE Corporate Tax Law is its impact on juridical persons operating in free zones and as small and medium-sized enterprises (SMEs). Free zone entities remain eligible for a 0% corporate tax rate on qualifying income, as long as they maintain adequate economic substance, comply with the arm’s length principle, and avoid conducting domestic transactions with the mainland. Income derived from non-qualifying activities or UAE-sourced income earned from the mainland will be subject to the standard 9% rate, potentially triggering a top-up tax where applicable. These businesses must also adhere to transfer pricing requirements, especially in cases involving intra-group transactions and dealings with a parent company.

SMEs, particularly those with annual net profits below AED 375,000, benefit from a 0% tax rate. However, they still remain subject to corporate tax obligations such as registration, financial reporting, and filing tax returns under the same accounting standards applied to larger corporations. This has led to an increased demand for bookkeeping services, assistance from accounting firms, and specialized corporate tax services to ensure compliance with the Federal Tax Authority (FTA) guidelines.

Moreover, even though many SMEs may not face immediate tax liability, the necessity to calculate tax losses, monitor net assets, and navigate the taxation of corporations highlights the importance of adopting robust accounting practices. The application of the arm's length principle in related-party transactions and the risk of taxation as a non-resident person for cross-border activities further complicate compliance.

The UAE government has provided clarifications through Cabinet Decisions to ensure that corporations and businesses fully understand their obligations under UAE CT. Whether operating in a free zone or on the mainland, entities must now evaluate how global tax practices influence their structures, especially as they seek to obtain a Tax Residency Certificate or restructure in line with international norms.

In summary, UAE businesses must align their operations with CT law requirements to remain compliant, competitive, and tax-efficient in a rapidly evolving regulatory environment.

The Role of Transfer Pricing and International Compliance

One of the key pillars of UAE corporate tax law is the enforcement of transfer pricing rules, especially for businesses conducting transactions with related parties within the same financial year. These rules are particularly important for entities operating in an international business hub like the UAE, where foreign banks, free zone persons, and UAE resident persons often engage in complex cross-border transactions.

Under the OECD-aligned framework adopted by the Ministry of Finance, companies must now ensure that inter-company pricing arrangements reflect an arm’s-length standard. This is especially relevant for natural persons acting in a personal capacity, who may have ownership in multiple entities across jurisdictions. To comply with FTA corporate tax requirements, businesses involved in cross-border trade or inter-company services must maintain robust documentation, including transfer pricing master files and local files.

Proper documentation is vital not only for audit readiness but also for qualifying for certain tax benefits, such as the participation exemption. Companies subject to tax decrees, or those contributing to a social security fund or managing a private pension, must ensure transparency in their pricing strategies to avoid the perception of profit shifting.

Failure to comply could result in significant penalties, especially as corporate tax enforcement becomes stricter. Therefore, businesses seeking to thrive in the UAE's evolving tax landscape must prioritize transfer pricing compliance as part of their broader financial reporting and tax planning strategy.

Benefits and Challenges of the New System

Benefits:

→ Increased Global Credibility: Aligning with international tax norms makes the UAE more attractive to institutional investors and multinational companies.

→ Fair Business Practices: A formal tax system levels the playing field and promotes ethical business conduct.

→ Financial Discipline: Businesses are encouraged to improve their internal processes, especially financial reporting and governance structures.

Challenges:

→ Transition Burden: Businesses previously unfamiliar with taxation must now adapt quickly, implementing systems for tax tracking and compliance.

→ Training and Awareness: Staff must be educated on corporate tax implications, compliance duties, and reporting deadlines.

→ Cost of Compliance: Smaller firms may need to hire accounting firms or tax advisors to navigate the complexities of the law.

Strategic Tax Planning and the Importance of Advisory Services

Implementing corporate tax in the UAE isn't merely about paying taxes—it’s about strategic compliance. Businesses now need forward-looking financial management to assess tax impact, explore available exemptions, and avoid penalties.

Professional corporate tax services are essential in this regard. These services assist with everything from tax registration, return filing, and FTA correspondence to strategic restructuring and legal compliance.

Moreover, many firms are seeking a Tax Residency Certificate to clarify their tax position locally and internationally. This document is vital for accessing double taxation relief under UAE treaties with other countries.

How Young & Right Supports Your Corporate Tax Journey

At Young & Right, we recognize that adapting to the evolving landscape of UAE Corporate Tax (UAE CT) can be complex. As one of the top-rated accounting firms in Dubai, we align our services with best practices globally, offering tailored solutions based on your industry, size, and operational structure.

1. Customized Tax Registration and Filing

We handle your FTA corporate tax registration and filing from start to finish. Our team ensures your tax returns reflect accurate UAE taxable income, with all documentation meeting legal standards and filing deadlines. We also help you maintain adequate substance in your UAE operations to meet regulatory expectations.

2. Business Structuring and Advisory

Our corporate tax advisors assess your current structure and suggest operational models that minimize tax burdens—while staying fully compliant. Whether you're dealing with capital gains earned from asset disposals or restructuring for better tax efficiency, we guide you every step of the way.

3. Technology Integration

We implement cloud-based accounting systems that automate data capture, monitor UAE CT liabilities, and generate FTA-compliant reports. These tools improve accuracy, reduce manual work, and offer a transparent rating system for services, helping you evaluate performance in real time.

4. Transfer Pricing and Compliance Audits

We support businesses with inter-company transactions, ensuring full adherence to OECD-aligned transfer pricing requirements. Our team assists with documentation, reporting, and audit assistance to help you remain compliant both locally and globally.

5. Bookkeeping Services and Financial Reporting

High-quality bookkeeping lays the foundation for effective tax compliance. We maintain precise financial records that meet UAE CT regulations, ensuring audit readiness and supporting strategic planning.

Conclusion

The introduction of corporate tax in the UAE marks a historic shift in the country’s financial landscape. Businesses can no longer operate under the assumption of tax neutrality. Instead, they must embrace a new era of accountability, documentation, and strategic planning.

While the law introduces new responsibilities, it also brings long-term benefits. It enhances business credibility, aligns the UAE with global norms, and creates opportunities for sustainable growth backed by clear regulations.

For companies operating in Dubai and across the UAE, now is the time to invest in corporate tax services, robust financial systems, and reliable tax advisory. At Young & Right, we stand ready to guide you through every stage—from registration to reporting—ensuring that your journey through the corporate tax era is not only compliant but successful.