The UAE has introduced a federal corporate tax on business profits, effective for financial years starting on or after June 1, 2023. This law is a strategic move to solidify the country’s position as a global business and investment hub, while also meeting international standards for tax transparency.
This new tax applies to a taxable person or business with a net profit of more than AED 375,000. The UAE is the fourth GCC country to implement this federal corporate tax.
Key Questions and Answers
Corporate tax is a direct tax levied on the net profit or income of corporations and other business entities. It’s also known as “Corporate Income Tax” or “Business Profits Tax.”
All businesses with a taxable net profit exceeding AED 375,000 must pay corporate tax. This includes both mainland and free zone businesses that do not qualify for a 0% rate.
The corporate tax rate is 9% on net profit. To support small businesses and startups, a 0% tax rate applies to net profit up to AED 375,000.
The corporate tax is effective from the financial year beginning on or after June 1, 2023.
- Example 1: For a business with a financial year ending on June 30, the first tax period is July 1, 2023, to June 30, 2024.
- Example 2: For a business with a financial year ending on December 31, the first tax period is January 1, 2024, to December 31, 2024.
The FTA requires all businesses subject to corporate tax to register and obtain a Tax Registration Number (TRN) within a prescribed period. The FTA can automatically register businesses that fail to do so. Businesses must also notify the FTA within three months of ceasing their corporate tax registration (e.g., due to liquidation).
Certain income and entities are exempt from corporate tax:
- Employment income and other personal income unrelated to a UAE business.
- Income of foreign investors who do not carry on a business in the UAE.
- Capital gains and dividends received by UAE businesses from qualifying shareholdings.
- Qualifying intra-group transactions and restructurings.
- The tax incentives for free zone businesses will continue if they comply with all regulatory requirements.
The tax is calculated at 9% on the net profit exceeding AED 375,000. The net profit up to this threshold is taxed at 0%.
- Example: If the net profit is AED 475,000, the corporate tax will be AED 9,000 (AED 475,000 – AED 375,000) x 9%.
Corporate tax does not apply to:
- Employee salaries and income.
- Dividends, capital gains, and other income from personal ownership of shares or assets.
- Income from real estate investments by individuals without a business license.
- Interest and other income from bank accounts or savings plans.
- Qualifying intra-group transactions and reorganizations.
- Income of a foreign investor from dividends, capital gains, etc., unless it’s generated through a business activity.
The law states that all businesses will become subject to corporate tax from the beginning of their first financial year that starts on or after June 1, 2023.
Before implementation, businesses should:
- Determine if they are subject to the tax and from what date.
- Understand the registration and return filing deadlines.
- Assess the impact on their business operations and cash flow.
- Ensure their financial records are in order and compliant with the new law.
The financial year for most companies in the UAE starts on January 1, 2024.
A legal entity incorporated and managed outside the UAE is considered a non-resident. A natural person who is not engaged in a taxable business activity in the UAE is also a non-resident for corporate tax purposes.
No. Salaries and other employment income are not subject to the UAE corporate tax. This applies to both the public and private sectors.
Yes, self-employed persons (freelancers) will be subject to corporate tax if their activities are considered a taxable business. However, their profit is taxed at 0% if it does not exceed AED 375,000.