The UAE introduced a federal corporate tax in June 2023, ending the long-standing zero-tax environment for most businesses. The headline rate is 9%, but the practical picture is more nuanced: a zero-rate band for the first AED 375,000 of profit, Small Business Relief for revenues under AED 3 million, and a separate 0% regime for qualifying free zone companies.
The UAE introduced a federal corporate tax in June 2023, ending the long-standing zero-tax environment for most businesses. The headline rate is 9%, but the practical picture is more nuanced: a zero-rate band on the first AED 375,000 of taxable income, Small Business Relief for revenues under AED 3 million, and a separate 0% regime for qualifying free zone companies.
The Legal Framework
Corporate tax was enacted under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. It applies to financial years starting on or after 1 June 2023. For a company with a calendar financial year (1 January to 31 December), the first taxable period was 1 January 2024 to 31 December 2024, with the first corporate tax return due by 30 September 2025.
Tax Rates
| Taxable Income | Rate |
|---|---|
| AED 0 to AED 375,000 | 0% |
| Above AED 375,000 | 9% |
| Qualifying Free Zone income (QFZP) | 0% |
| Large multinationals (Pillar Two) | 15% (DMTT, effective 2025) |
Domestic Minimum Top-up Tax (DMTT)
The UAE enacted a Domestic Minimum Top-up Tax of 15% effective for financial years starting 1 January 2025, applicable to UAE-headquartered members of large multinational enterprise (MNE) groups with consolidated annual revenues of at least EUR 750 million. This affects very large groups only and is not relevant to most SMEs or startups.
Who Must Register
All juridical persons (companies) incorporated in the UAE are required to register for corporate tax with the Federal Tax Authority (FTA), regardless of whether they have taxable income. This includes free zone companies, mainland companies, and branches of foreign companies. Natural persons (individuals) conducting business activities with annual revenues exceeding AED 1 million are also subject to corporate tax.
Registration is completed through the FTA's EmaraTax portal. Failure to register on time attracts administrative penalties.
Small Business Relief
Businesses with annual revenues of AED 3 million or less can elect for Small Business Relief, which treats taxable income as nil for that tax period, effectively a 0% rate for eligible small businesses. This election is available for tax periods ending on or before 31 December 2026.
- Revenues must not exceed AED 3 million in the relevant period and all prior periods from 1 June 2023.
- The election must be made in the corporate tax return for the relevant period.
- Qualifying Free Zone Persons and members of multinational enterprise groups cannot elect for Small Business Relief.
- Even if you elect for Small Business Relief, you are still required to register for corporate tax and file a return.
Practical impact for startups
If your company's annual revenue is under AED 3 million (approximately USD 820,000) and you are not a free zone company, electing Small Business Relief means no corporate tax liability at all for periods up to 31 December 2026. You still must register, maintain books, and file a return. From 2027, the standard rates will apply regardless of revenue.
Free Zone Companies: The QFZP Regime
Free zone companies can potentially benefit from a 0% corporate tax rate on 'Qualifying Income' if they meet the criteria to be a Qualifying Free Zone Person (QFZP). This is the key incentive that free zones have always offered, now formalised within the UAE CT law.
To qualify as a QFZP, a free zone company must:
- Maintain adequate substance in a UAE free zone (physical premises, qualified employees, core income-generating activities conducted in the free zone).
- Derive income that qualifies as 'Qualifying Income', broadly, income from transactions with other free zone persons and income from international transactions. Income from UAE mainland customers is generally non-qualifying and taxed at 9%.
- Prepare audited financial statements.
- Not elect to be subject to the standard corporate tax regime.
- Comply with transfer pricing rules and arm's length requirements for transactions with related parties.
The substance requirement
A free zone company that simply has a registered address and flexi-desk with no employees or real operations may struggle to demonstrate adequate substance for QFZP status. The FTA and OECD-aligned guidance are increasingly focused on ensuring substance is genuine. Companies relying on the 0% free zone rate should take specific advice on their fact pattern.
VAT vs Corporate Tax: The Key Difference
VAT (5%, introduced January 2018) and corporate tax are separate obligations. VAT is a transaction tax on goods and services, collected from customers and paid to the FTA. Corporate tax is a tax on business profits. Mandatory VAT registration applies when taxable turnover in the preceding 12 months exceeds AED 375,000. Voluntary registration is available above AED 187,500. Being below the VAT threshold does not exempt you from corporate tax registration.
Filing and Payment
- Corporate tax returns are filed annually via EmaraTax.
- The return and tax payment are due within 9 months of the end of the company's financial year.
- For a December 31 year-end company, the first CT return (for the 2024 period) was due 30 September 2025.
- No advance payments or quarterly instalments are currently required for most UAE businesses (unlike many other jurisdictions).
- Late filing and late payment penalties apply and can be substantial.
Exempt Entities
- UAE federal and emirate government entities and their wholly owned subsidiaries.
- Extractive businesses (oil and gas, mining) that are subject to emirate-level taxation.
- Qualifying public benefit entities (charities and non-profits listed by the Ministry of Finance).
- Investment funds meeting specific criteria.
- Pension funds and social security funds.
Get registered now if you haven't
Corporate tax registration is mandatory for all UAE businesses. If your company is not yet registered with the FTA, do it now, penalties for late registration are applied per company, regardless of whether any tax is actually owed.
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