Understanding Corporate Tax in the UAE

The United Arab Emirates has been considered as business friendly hub providing great benefits for companies in the thriving economy with a zero tax income. Nevertheless, corporate tax was introduced on June 1, 2023, to match the global tax standards. It will be marked as a new era for businesses operating in the UAE with only 9% rate on profits above AED 375,000.

For small businesses, startups and new companies earning less than AED 375,000 can still benefit the no tax regime. The corporate tax applies to most business entities in the UAE, and even to Foreign companies based on their UAE sourced earning operating in the UAE. The only exemptions are the companies operating the business related to Natural resource extraction like oil, gas, etc., Government-owned entities and certain sovereign wealth funds will continue to follow a separate tax regime.

In support of small companies, Government has introduced Small Business Relief initiative which ease the implementation of Corporate Tax Regime. This is only applicable till 31st December 2026, wherein any company or eligible taxable person resident or non-resident with a total revenue of less than or equal to AED 3,000,000 will not be obliged to calculate its income or pay any tax.

Looking at the economic zones, UAE comprises a variety of designated free zones where businesses enjoy great benefits including tax exemptions. However, businesses under the specific free zone may still be abandoned to file corporate tax only if they meet certain rules and the exemption limit may vary from a period 15 to 50 years after which they may be subject to filing corporate tax. The only important thing to note for businesses to maintain the exemption by not engaging in certain activities outside free zones. If they engage, the corporate tax will be implied only to the income generated outside the free zones.

Talking about the filing and deadlines of the Corporate Tax, UAE’s corporate tax is due annually as per the end of financial year. The filing has to be done within 9 months after fiscal period or the end of financial year of the respective company. If failed to meet the deadlines, it could result in penalties or interest charges, so businesses should ensure they file on time.

Introduction of corporate tax is a game changer for businesses operating in the UAE. Companies can still take advantage of exemptions in designated free zones and tax treaties while also planning for compliance with new Reporting and filing requirements. For businesses in the UAE, this is an opportunity to strengthen their tax strategies, ensure they meet deadlines, and take full advantage of the benefits offered by the UAE’s evolving tax regime.