Corporate income tax UAE is a form of direct tax which was introduced by the Ministry of Finance in January 2022 on the net profit or income of businesses. A 9% effective tax rate (ETR) is applicable on profits or income above AED 375,000, and 0% if taxable income is up to AED 375,000. A different tax rate is also applicable for large multinational companies that meet the specific criteria of the authorities.
Corporate tax (CT) becomes applicable depending on the financial year followed by the company. The tax will be applied across the UAE. The UAE’s Federal Tax Authority (FTA) is responsible for administrating, collecting and enforcing the corporate tax. FTA’s official website provides all the guidelines about how to register and file tax returns.
What is Corporate Income Tax (CT) in UAE?
Corporate tax is a direct levy applied to the net income of businesses and corporations. In other jurisdictions, corporate tax is also called Corporate Income Tax/Business Profits Tax.
What is the Objective of Corporate Income Tax in UAE?
By introducing the corporate tax, the UAE’s objective is to,
- Become the leading global hub for investment and business.
- Make advancements and transformations to achieve its strategic goals.
- Committing to international standards of tax accountability and prevention of harmful tax procedures.
What is the Scope of Corporate Income Tax in UAE?
Corporate tax applies to:
- All types of businesses and individuals conducting business activities under a commercial trade license in the UAE.
- Foreign companies and individuals can only do so if they regularly conduct business or trade in the UAE.
- Freezone companies (the CT incentives applied to free zone companies will be observed, given that they fulfill the regulatory requirements and do not run their business on the mainland of UAE)
- All banking operations
- Businesses involved in construction, real estate management, agency, and brokerage services.
Who is Exempt from Corporate Tax in UAE?
Here are the rules regarding the exemption from CT:
- Businesses related to the extraction of natural resources are exempt from corporate tax because these companies will remain liable to the current Emirates corporate tax laws.
- All capital gains and dividends of a UAE company earned by its shareholdings will be exempt.
- If certain conditions of the regulatory authority are fulfilled, qualifying intra-group reorganizations and transactions will not be subject to corporate tax.
Additional Exemptions
Additional corporate tax exemptions are as follows,
- An individual’s salary and other income earned from private or public sector employment.
- Investment in real estate made by an individual.
- Any interest and income earned through bank deposits and savings programs.
- The income of a foreign investor is earned through capital gains, interest, dividends, investment returns, and royalties.
- Any income, capital gains, dividends earned by an individual from their securities, and owning shares in a company.
- UAE government entity
- Government-controlled entity in the UAE
- Certified public benefit company
- Certified investment fund
- A person exempted by the Cabinet at the Minister’s suggestion.
| Taxable Income | UAE Corporate Tax Rate |
| Taxable income is not more than AED 375,000 | 0% |
| Qualifying income of a qualifying freezone person | 0% |
| Taxable income is more than AED 375,000 | 9% |
| Non-qualifying income of a qualifying freezone person (QFZP) | 9% |
What is Domestic Top-up Tax (DMTT)?
After issuing the Federal Decree Law number 60 in 2023, a Domestic Minimum Top-up Tax is effective in the UAE for the financial year starting on/after 1 January 2025. The United Arab Emirates is implementing the OECD Two-pillar Solution to establish a fair and transparent tax system according to global standards.
The main purpose of the two-pillar rule is to mandate the multinational companies to pay 15% minimum effective tax rate on profits of every branch in different countries. UAE is implementing DMTT on MNEs with global revenue of EUR 750 million or more in two out of four financial years of the company after the financial year in which DMTT is applied. The UAE’s DMTT implementation is following the OECD’s GloBE Model Rules.
For more information regarding OECD, visit PwC’s Two-pillar Country Tracker.
What are the implications of Transfer Pricing Rules in the UAE?
The OECD’s transfer pricing rules are now applied in the UAE which mandates all businesses to follow the requirements of Transfer Pricing Rules and documents. These transfer pricing rules are also applied to the domestic transactions in the UAE.
Transfer pricing rules will help companies keep intercompany transactions and documentation in check. It will also help them to assess their current settings and the effect of local and international transactions.
Is Tax Grouping Allowed?
Tax grouping and group relief provisions are permitted in the UAE, while group offsetting tax losses might be allowed. The UAE tax groups may also file consolidated tax returns.
What are Foreign Tax Credits in CT?
Taxable companies can take as a credit the foreign corporate tax paid on their UAE taxable income against their annual tax obligation.
Are Accumulated Taxable Losses Allowed?
These losses are allowed to make up for future taxable profits.
What is Small Business Relief and What Are Its Conditions?
There is small business corporate tax relief for a resident person from corporate tax ( juridical persons and natural persons)
Conditions for Relief Corporate Income Tax UAE
Small businesses can get relief from corporate tax on the following conditions,
- Election for every Tax Period
- If the revenue is AED 3,000,000 or less in the current and all previous Tax periods.
What’s the Relief?
The relief given is as follows,
- Considered as not having obtained any taxable income in the tax period.
- No other exemptions and reliefs are given.
- No transfer pricing documents are required; however, they must comply with the arm’s length principle.
Implications of CT on GCC Nationals and UAE Owned Entities
The GCC Nationals and the UAE companies owned by the UAE will be subject to UAE CT because the CT law does not differentiate between nationality and residence. Juridical persons with a permanent branch office in the UAE or incorporated or resident will be subject to the corporate tax. The law applies irrespective of the nationality and residence of the owner (s) of the company.
Deductible Expenditure for Calculating Taxable Income
All legal business expenses incurred to obtain taxable income will be deductible. Although the timing for deductions can be different for every expense, and the method of accounting used. The expenditure of capital assets is recognized by depreciation over the economic life of the benefit or asset.
For dual purpose expenditures like personal and business expenses, the position related to the business can be treated as exclusively incurred for the business of the taxable person.
Final Words
A competitive corporate income tax regime that meets international standards will help the UAE become a global leader in business and investment. The regime also affirms the commitment of the UAE to fulfill the international standards of transparency and avoid harmful tax practices.
Contact Al Riyady for more information regarding Corporate Tax in UAE. Let our expert team guide you through the whole process and save your time and money. We can also help you with Auditing, Accounting, Business Liquidation and more.
