Corporate tax in the UAE was introduced relatively recently, in 2022. This innovation was a response to current international trends in corporate taxation. At the same time, there arose a need to examine in detail how corporate tax in the UAE would affect existing companies and whether its introduction would reduce the attractiveness of the UAE for company registration.
History of the Introduction of Corporate Tax in the UAE
The absence of corporate tax in the UAE had long contributed to attracting foreign investment and economic development, especially in the real estate and tourism sectors. However, as a member of the Organisation for Economic Co-operation and Development (OECD), the UAE undertook a number of obligations in the tax sphere, including within the framework of the plan to establish a global minimum corporate tax.
Thus, in January 2022, a tax reform was announced regarding the implementation of corporate profit tax, and in October, Federal Decree-Law No. 47 of 2022 “On the Taxation of Corporations and Enterprises” (hereinafter referred to as Decree-Law No. 47, as amended in 2023) was enacted. This Decree-Law regulates all aspects of the calculation and collection of corporate profit tax and is applicable to tax periods commencing on 1 June 2023 or later.
Consequently, the introduction of corporate tax in the UAE became an important milestone in the development of the country’s tax system. This move allowed, on the one hand, to strengthen the state’s international standing and, on the other, to maintain an acceptable tax regime for businesses.
Features of Corporate Profit Taxation in the UAE
We have already analysed in detail the specifics of applying profit tax in the UAE, particularly concerning the preservation of exemptions for Free Zone companies. In this section, we will focus on other key issues that need to be considered to form a complete understanding of the new tax regime in the UAE.
Who is Subject to Corporate Tax?
It is important to remember that both residents and non-residents of the UAE can be liable for profit tax. The relevant categories include:
| Category | Includes |
|---|---|
| Residents of the UAE |
For individuals—both residents and non-residents of the UAE—it is further specified that their entrepreneurial activities are taxed only if their annual turnover exceeds 1,000,000 dirhams (as per Cabinet Decision No. 49 of 2023). |
| Non-Residents of the UAE | Non-residents, for corporate tax purposes, are persons not falling under the above categories, who:
|
Thus, the range of entities covered by Decree-Law No. 47 is quite broad: in some cases, profit tax will be levied on both individuals and legal entities registered outside the UAE.
Corporate Tax Rates in the UAE
The general tax rates depend on the amount of income and are as follows:
| Tax Rate | Amount of Income |
|---|---|
| 0% | Taxable income does not exceed:
|
| 9% | Taxable income exceeds the above thresholds. |
Thus, the UAE provides a minimum income threshold for both legal entities and individuals that is exempt from taxation. Additionally, the UAE is among the top five countries globally with one of the lowest corporate tax rates.
Exemptions from Corporation Tax in the UAE
Apart from the specified minimum income that is not subject to tax, and the special regime for Free Zone companies, Decree-Law No. 47 exempts certain types of income from taxation, particularly dividends and other income from participations in legal entities.
Additionally, companies can utilise the Small Business Relief regime if they meet the following conditions:
- The company’s income for the relevant tax period and preceding tax periods does not exceed 3 million dirhams (threshold established by Ministerial Decision No. 73 of 2023); and
- The company meets other conditions outlined in the specified Decision.
It is important to note that this exemption applies to tax periods ending on or before 31 December 2026.
Furthermore, Decree-Law No. 47 provides for the following preferential regimes:
- Profit or loss is disregarded when determining taxable income in connection with the transfer of assets or liabilities between taxable persons who are members of the same Qualifying Group, subject to certain conditions;
- Profit or loss is disregarded when determining taxable income in connection with business restructuring.
Finally, certain categories of legal entities are not subject to the corporate tax provisions. In particular, these include government enterprises and companies engaged in the exploitation of natural resources in the UAE, along with several other organisations.
The availability of exemptions generally means there is no need to calculate taxable income or pay tax on it. Nevertheless, in some cases, it will be necessary to submit a simplified return. Moreover, the requirement to maintain accounting records and financial statements remains.
Thus, alongside the introduction of corporate tax, the UAE provides a range of benefits and exemptions, allowing the jurisdiction to remain attractive to international businesses.
Registration and Submission of Returns
All taxable persons must register on the UAE Federal Tax Authority’s website and obtain a tax number.
Tax returns are filed online through the EmaraTax portal. The form can be completed interactively. The tax is self-assessed, so the taxpayer must duly keep records of their financial transactions.
The return must be submitted, and the tax paid, within nine months after the end of the relevant tax period, which depends on the company’s financial year. To avoid missing the specified deadline, we recommend referring to our compiled tax calendar for companies in the UAE.
It is important to remember that the tax authority may conduct audits to verify the correctness of tax payments and may request documents used to calculate the taxable income. Such documents may include, in particular:
- Financial statements;
- Transfer pricing documentation;
- Cash flow statements;
- Evidence of applicable benefits and exemptions.
Penalties for Violations of Decree-Law No. 47 Provisions
Penalties for violating the corporate tax legislation are established by Ministerial Decision No. 75 of 2023. For illustration, some violations and corresponding penalties are provided in the table below:
| Violation | Penalty (AED) |
|---|---|
| Absence of required documentation and information as specified in the law |
|
| Failure to provide information, documents, or data related to corporate tax in Arabic to the tax authority upon request | 5,000 |
| Failure to submit a tax return within the prescribed period |
|
| Non-payment of tax | A monthly penalty at the rate of 14% per annum on the amount of unpaid tax, starting from the day following the payment due date. |
Recommendations for Businesses Regarding the Introduction of Corporate Tax in the UAE
Structuring tax processes and minimising the risk of errors when calculating and paying corporate tax can be achieved with the following recommendations:
- Determine which category of taxpayer you belong to;
- Establish which income is subject to taxation and whether any exemptions or benefits apply;
- Ensure timely and accurate bookkeeping and financial reporting, as well as the retention of all supporting documentation;
- When registering and submitting returns, verify that all submitted documents (e.g., business licences) are valid and have not expired;
- Regularly monitor deadlines for submitting returns and paying tax;
- Remember that submitting incomplete or inaccurate documentation may lead to additional requests from the tax authority, which can extend the processing time of documents.
If necessary, our company’s experts can advise you on issues related to calculating, submitting returns, and paying corporate tax in the UAE.
Concluding Provisions
The introduction of corporate tax in the UAE has been a significant step in the evolution of the country’s tax system, demonstrating its commitment to aligning with international standards, including in taxation. At the same time, despite this innovation, the UAE’s tax regime continues to attract foreign businesses by offering a relatively low corporate tax rate and a wide range of benefits.
It is important to remember that the obligation to pay corporate tax extends to both residents and non-residents of the UAE under certain conditions, as well as to individuals conducting commercial activities. Therefore, it is crucial to determine your tax status and accurately calculate taxable income to avoid errors and penalties.
- Stable jurisdiction;
- Freezones available;
- 100% foreign ownership.
