With the start of the federal corporate tax (CT) in the middle of 2023, the United Arab Emirates (UAE) has made a big change to its tax system. With no corporate income tax for most companies, the UAE was known around the world for decades as a tax-friendly place to do business. But the new law changes everything. What is corporate tax in UAE today? This guide helps you understand new corporate tax in UAE –
A Look at the UAE’s Business Tax
The UAE Corporate Tax system was set up by Federal Decree-Law No. 47 of 2022 and later changed by Decree-Law No. 60 of 2023. It is a big change in the taxable income for workers in the country. The government taxes businesses’ net income or profit made in the UAE. All businesses, including foreign branches and fixed establishments, have to follow the rules. The tax system is meant to give the government more ways to make money and bring the UAE in line with international tax standards while still making the country a good place to conduct business.
Tax Rates and Limits for Businesses
The tax system is set up with different levels of responsibility to help small businesses and encourage people to start their trade or business with effective tax management:
- Corporate tax rate of 0% on income earned up to AED 375,000*.
- Income over AED 375,000* is taxed at a rate of 9%.
- Multinational enterprises or MNEs with global consolidated reviews of EUR 750* or more
- Large multinational companies (MNEs) with annual sales of more than EUR 750 million* – please cross check this
- Under OECD Pillar Two rules, there is a 15% global minimum tax.
UAE Corporate Tax gets applied to taxable net profit, and not gross sales, permitting businesses to deduct the eligible expenses before tax liability calculation. This structure support small as well as medium-sized businesses while making sure major MNCs pay a fair minimum level of tax globally.
How And Where It Applies?
To understand what is corporate tax in UAE, it is important to understand where it applies. Corporate tax affects a lot of different types of UAE businesses and organizations, such as companies based in the UAE, foreign companies with stable global business, and branches of foreign companies doing business in the UAE. However, the following groups of businesses and types of income are not subject to corporate tax:
- Government and public bodies
- Extractions of natural resources (with taxes applied at the emirate level)
- Investment funds that qualify
- Not-for-profit groups
The tax does not apply to personal income, capital gains from selling certain assets, or income from dividends and capital gains from owning other businesses, as long as certain conditions are met.
Compliance and Filing
Corporate tax registration, filing, and regulation are all handled by the Federal Tax Authority (FTA). As of the beginning of their first fiscal year after 1 June 2023, businesses must sign up for company tax through the FTA portal (EmaratTax). Tax returns must be made every year, and the due date depends on the end of the business’s financial year. Payments are also due soon after. To minimize their tax obligations and maintain tax transparency, businesses must keep accurate books and records, show that they accurately report their income or profit of corporations, and claim all benefits that are allowed.
Xpert Tax & Accounting help businesses with registration, compliance, and planning by offering specialized corporate tax advice and accounting services that help them minimize risks and ensure they file their taxes on time. Get in touch with our experts for a hassle-free tax filing and compliance.
What OECD Pillar Two Means and What the Future Holds?
The UAE corporate tax law has been using the OECD Pillar Two global minimum tax structure since January 1, 2025. This requires a Domestic Minimum Top-Up Tax (DMTT) of 15% for multinational businesses with consolidated sales of more than EUR 750 million*. This makes sure that these big companies pay at least this minimum effective tax rate around the world, even if domestic rates are lower. The UAE is now in line with international tax rules and efforts for greater transparency, and preventing harmful tax practices. These are meant to stop tax base erosion and profit shifting.
The UAE’s main corporate tax rate is still a competitive 9%, but the addition of Pillar Two makes sure that the country is in line with global norms and keeps the region’s appeal to businesses and investors from around the world.
Final Takeaway
This guide summarises what is corporate tax in UAE. It talks about rates, scope, compliance, and the impact of global tax changes. This guide is important for companies that conduct business in or want to invest in the UAE market.
Businesses and their commercial activities can run smoothly even as foreign tax rules change thanks to clear exemptions, help for small and medium-sized businesses, and a structured compliance framework overseen by the Federal Tax Authority. Working with professionals like Xpert Tax & Accounting makes sure that registration, reporting, and optimization go smoothly, which helps business owners and investors do well in this ever-changing world.
FAQs
If A Business Doesn’t File Its Taxes On Time In The UAE, What Are The Penalties?
Businesses that don’t register for corporate tax by the due date will have to pay an administrative fine of up to AED 10,000*. In some cases, this fine may not apply because of FTA efforts.
How Does The UAE Handle Tax Fines For Businesses That Pay Late?
Corporate tax that isn’t paid on time is subject to a monthly penalty of 14% per year on the amount that hasn’t been paid. This penalty is estimated from the day after the due date until full payment is made.
Are There Consequences For Not Keeping Good Tax Records?
If you don’t keep the records that the Corporate Tax Law says you have to, you will be fined AED 10,000* for each offence. If you break the law again within 24 months, you will be fined AED 20,000*.
What Will Happen If One Doesn’t Cooperate With A Tax Audit?
A flat fine of AED 20,000* is given to taxpayers who don’t help a tax inspector.
