Corporate Tax In The UAE: New Business Tax Regulations

Corporate Tax is a form of direct tax levied in over 90% of the countries across the world. As the name suggests, it is tax imposed on businesses in proportion to the profits earned in each assessment year. This blog aims to analyze the corporate tax regulations in the UAE and its recent amendments.

Why has corporate tax been introduced in the UAE?

The Ministry of Finance introduced the corporate tax in the UAE to underscore the country's commitment to global tax standards, bolster transparency, and counter harmful profit‑shifting practices. The reform is designed to support the nation's development agenda and accelerate its strategic transformation. By instituting a clear, competitive tax regime, the UAE aims to reinforce its status as a premier destination for business and investment.

Who pays corporate tax in the UAE?

Introduced by the Ministry of Finance in 2023, corporate tax in the UAE is levied on taxable persons i.e., businesses or individuals conducting licensed business activities, not on company directors personally.

Tax regulations are applied across all of the Emirates and are determined based on a UAE Corporate Tax return. Taxable persons must obtain a tax registration number (TRN) and all tax payments must be made within 9 months of the end of the relevant tax period.

Corporate tax is governed by Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses ("Corporate Tax Law") and its amendment via Federal Decree-Law No.60 of 2023. Subject to the conditions set out in these laws, the following entities will be liable to pay corporate taxes:

1. Businesses and individuals completing business activities under a commercial license in the UAE;
2. Businesses operating within a UAE Free Zone, unless otherwise exempted;
3. Foreign entities and individuals who trade or do business in the UAE on a regular or ongoing basis;
4. Banks, often large multinational enterprises, that may have consolidated global revenues; and
5. Real estate, construction, development, agency or brokerage businesses.

Who is exempt from corporate tax?

The corporate tax is only charged on business activities and not on individual salaries, savings or personal investments. However, individuals conducting licensed business activities in the UAE may be subject to corporate tax.

Similarly, Non-residents conducting business activities in the UAE will be subject to tax charges if they have a Permanent Establishment, state-sourced income or nexus in the UAE.

Other exempt persons include the following.

1. Federal & Local Government;
2. Government-owned and controlled companies carrying out mandated activities;
3. Businesses engaging in the extraction of UAE natural resources that are subject to Emirate-level tax;
4. Qualifying public benefit entity, subject to conditions set out in Article 9 of the Corporate Tax Law;
5. Qualifying investment fund, subject to conditions set out in Article 10 of the Corporate Tax Law;
6. Public or private pensions and social security funds under regulatory oversight as prescribed by the State; and
7. A legal entity wholly owned & controlled by an 'exempt person', exclusively engaged in holding assets or investing funds for an exempt person or conducting only those activities that are ancillary to the operation of an exempt person.
8. Any other such business activity as may be prescribed by the Ministry.

What are corporate tax rates in the UAE?

Currently, the following rates apply for UAE Corporate Tax:

1. 0% for taxable income up to AED 375,000; or
2. 9% for annual taxable profits above AED 375,000

In essence, corporate tax is only applicable to those legal entities that accrue a profit of over AED 375,000 annually. All taxable income will be enforced and collected by the Federal Tax Authority (FTA) in the UAE. Read more about UAE Corporate Tax Treatment of Family Wealth Structures.

Examples of non-deductible expenditure for UAE corporate tax

Before being instructed to pay corporate tax in the UAE, the FTA will outline which aspects need to be included in the fees. There are some non-deductible expenditures, which include the following.

1. Fines, penalties or damages imposed;
2. Donations or grants not made to a qualifying public benefit entity;
3. Illicit payments such as bribes;
4. Profits or dividends paid to the owner of a taxable person;
5. Corporate Tax and foreign taxes paid
6. Withdrawals from business – dividends or profit distributions;
7. Recoverable VAT; and
8. Any other such expenditure as prescribed by the Ministry.

Permanent establishments

The existence of a Permanent Establishment ("PE") in the UAE is a prominent way to subject a non-resident to the UAE tax regime. In this regard, a non-resident may be considered to have a PE may in the following circumstances:

1. If it has a fixed or permanent place in the State through which the Business of the Non-Resident Person, or any part thereof, is conducted;
2. If a Person has and habitually exercises an authority to conduct a Business or Business Activity in the State on behalf of the Non-Resident Person; and/or
3. If it has any other form of nexus in the State as specified in a decision issued by the Council of Ministers upon the proposal of the Minister.

A dependent agent PE is a person who habitually either concludes contracts on behalf of a non-resident or negotiates contracts to be concluded by a non-resident, without the need for modification by the non-resident person. This definition excludes independent agents acting in the ordinary course of business.

Exceptional circumstances for some businesses

Small Business Relief

Some small businesses operating in the UAE can benefit from Small Business Relief (SBR). This taxable income relief can be claimed by a resident taxable person whose revenue does not exceed AED 3 million each tax period and who is not a qualifying free zone person or member of an MNE Group.

Carry forward of tax losses

In some cases, a person or business can carry an unadjusted loss forward to future years. These taxes can be set off up to a maximum of 75% of the taxable income in each future period. A Taxable Person may claim Tax Loss relief for losses incurred prior to the imposition of Corporate Tax, before becoming a Taxable Person under the Decree-Law or from assets or activities whose income is exempt or otherwise not taken into account for tax purposes.

Transfer of tax loss

This model enables businesses in the same group to share tax losses and reduce their overall liabilities. It can only be used when both taxable persons are juridical persons (companies) and residents. Either person must have an ownership interest of at least 75% in the other. This provision, detailed under Article 38 of the Corporate Tax Law, is not applicable to exempt persons, qualifying free zone persons, if their fiscal years end on different dates or if they use different accounting standards.

Free Zone Businesses & Corporate Tax

Pursuant to the UAE's goal to encourage business and industrial growth, free zone persons have been exempted from corporate tax on income from qualifying activities and transactions. This exemption is subject to the free zone persons meeting the criteria set out in Article 18 (1) (A) of the Corporate Tax Law, which states that the free zone person must:

1. Maintains adequate presence in the State;
2. Has not elected to be subject to Corporate Tax;
3. Complies with the arm's length principle and regulations regarding transfer pricing;
4. Deriving 'qualifying income'; and
5. Meets other conditions as prescribed.

What is a qualifying income from free zones?

The meaning of qualifying income has been outlined in the Cabinet Decision No. 100 of 2023. Article 3 of the Decision defines qualifying income as:

1. Income from transactions with Free Zone persons (except 'excluded activities');
2. Income from non-Free Zone persons, but only from 'qualifying activities';
3. Income from ownership or exploitation of Qualifying Intellectual Property; or
4. Any other income, subject to De Minimis requirements,

provided that such income does not fall within the definition of income attributable to a domestic or foreign PE (Article 5), income derived from the ownership or exploitation of immovable property in accordance with Article (6) of the Decision, or considered Taxable Income under Article 7 (2) of the Decision.

Further, a free zone person's 'non-qualifying revenue' must not exceed 5% of their total turnover or AED 5 million, whichever is lower. They must also ensure that they prepare and maintain audited financial statements. If a free zone person fails to meet these conditions, then it shall cease to be a qualifying Free Zone person for that tax period. Read our introduction to corporate tax law.

Conclusion

The UAE's new corporate tax regime marks a clear strategic shift: by introducing a 0 % rate up to AED 375,000 and 9 % thereafter the country balances competitiveness with alignment to global tax norms. The regime's exemption of certain entities and free-zone incentives reflects its dual aim of preserving business-friendly frameworks while enhancing tax transparency. For businesses, the implications are both operational and strategic – they must revisit their structures, accounting and governance to ensure they leverage the new rules (such as loss-carry-forward and intra-group loss transfer provisions) and manage the risks posed by evolving global minimum tax pressures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.