Regulatory Overview
The UAE introduced its federal Corporate Tax regime through Federal Decree-Law No. 47 of 2022, effective for financial years beginning on or after June 1, 2023. This marked a historic shift for a nation that had long been associated with a zero-tax environment for most businesses. The Corporate Tax law applies to all businesses and commercial activities conducted in the UAE, subject to specific exemptions.
The Federal Tax Authority administers the Corporate Tax regime, leveraging the institutional infrastructure established during the implementation of Value Added Tax in 2018. The Ministry of Finance sets policy direction, while the FTA handles registration, filing, assessment, and enforcement.
The introduction of Corporate Tax was driven by multiple factors, including the UAE’s commitment to the OECD Base Erosion and Profit Shifting framework, the global movement toward a minimum corporate tax rate, and the desire to diversify government revenue sources. The regime was designed to be competitive while meeting international standards of tax transparency.
Key Provisions
The Corporate Tax law establishes a tiered rate structure. Taxable income up to AED 375,000 is taxed at zero percent, providing relief for small businesses and startups. Taxable income exceeding AED 375,000 is subject to a standard rate of nine percent. A different rate may apply to large multinationals that meet the criteria under the OECD Pillar Two global minimum tax framework.
Free zone entities that meet the conditions of a Qualifying Free Zone Person benefit from a zero percent rate on qualifying income, which includes income from transactions with other free zone entities and certain income from transactions with mainland entities that does not constitute excluded activity. Non-qualifying income of free zone entities is taxed at the standard nine percent rate.
The law provides exemptions for government entities, government-controlled entities engaged in mandated activities, extractive industries subject to emirate-level taxation, qualifying public benefit entities, and qualifying investment funds. Dividends and capital gains from qualifying shareholdings are generally exempt from Corporate Tax.
Transfer pricing rules require that transactions between related parties and connected persons be conducted on an arm’s length basis. Taxpayers must maintain transfer pricing documentation, including a master file and a local file, where applicable thresholds are met.
Enforcement
The Federal Tax Authority has broad enforcement powers, including the authority to conduct tax audits, issue assessments, impose penalties, and collect tax debts. The FTA may request information and documents from taxpayers and third parties in the course of an audit or investigation.
Penalties for non-compliance include fines for late registration, late filing, late payment, failure to maintain required records, and submission of incorrect tax returns. Penalty amounts are specified in Cabinet Decision No. 75 of 2023 and range from fixed amounts to percentage-based calculations depending on the nature of the violation.
Taxpayers have the right to object to FTA decisions through a formal reconsideration process. If the reconsideration does not resolve the dispute, the taxpayer may appeal to the Tax Disputes Resolution Committee and subsequently to the Federal Court.
Voluntary disclosure provisions allow taxpayers to correct errors in previously filed returns. Timely voluntary disclosures may result in reduced penalties, incentivizing proactive compliance.
Compliance Requirements
All taxable persons must register for Corporate Tax with the Federal Tax Authority and obtain a Tax Registration Number. Registration deadlines are specified based on the type of entity and the date of incorporation or licensing.
Taxpayers must file an annual Corporate Tax return within nine months of the end of the relevant tax period. The return must report taxable income, claim applicable exemptions and reliefs, and calculate the Corporate Tax liability. Payment of tax due must accompany the filing.
Businesses must maintain financial records and supporting documents for a minimum of seven years from the end of the relevant tax period. Records must be sufficient to enable the FTA to verify the taxpayer’s Corporate Tax position and must be maintained in the UAE or made accessible to the FTA.
Tax groups may be formed by UAE resident companies where a parent holds at least 95 percent ownership of each subsidiary. Tax grouping allows the consolidation of taxable income and losses across group members, reducing administrative burden and enabling efficient tax planning.
Impact on Business
The introduction of Corporate Tax required substantial preparation across the UAE business community. Companies invested in accounting system upgrades, tax advisory services, transfer pricing studies, and internal training to build compliance capabilities.
For small and medium enterprises, the AED 375,000 zero-rate threshold and simplified compliance options under the small business relief provisions have mitigated the administrative burden. Many smaller businesses face minimal or no Corporate Tax liability under the current framework.
Free zone entities have undergone careful analysis to determine their qualification status and the treatment of various income streams. The distinction between qualifying and non-qualifying income has introduced new complexity to free zone operations, requiring detailed record-keeping and income segregation.
International businesses have found that the nine percent rate maintains the UAE’s competitiveness relative to other regional and global jurisdictions. The alignment with OECD standards has also facilitated the UAE’s inclusion in international tax cooperation frameworks, enhancing its credibility with multinational investors.
Vision 2031 Alignment
The Corporate Tax regime supports Vision 2031 by diversifying government revenue, reducing dependence on hydrocarbon income, and establishing a sustainable fiscal foundation for long-term economic development. Tax revenues contribute to funding public services, infrastructure, and national development initiatives.
The competitive tax rate preserves the UAE’s attractiveness as a business destination while meeting the international community’s expectations for tax transparency and fairness. This balance is essential to sustaining foreign investment inflows and supporting the diversification of the economic base.
The free zone tax benefits ensure that these economic engines continue to attract investment and drive innovation in priority sectors including technology, logistics, and financial services. The framework incentivizes genuine economic activity while discouraging artificial profit-shifting arrangements.
As the global tax landscape continues to evolve under the OECD Inclusive Framework, the UAE’s Corporate Tax regime positions the country as a responsible participant in international tax governance while preserving the competitive advantages that have driven its economic success.