The UAE Is No Longer a Zero-Tax Jurisdiction

For decades, the pitch for setting up in UAE was simple: no corporate tax. That ended with Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, which introduced a federal corporate tax applying to financial years beginning on or after 1 June 2023.

A company with a calendar financial year entered its first tax period on 1 January 2024. A company with a June year-end entered it a full seven months earlier.

The law is not punitive by international standards – the headline rate of 9% remains one of the lowest anywhere – but it is administratively demanding.

Every taxable person in UAE must register with the Federal Tax Authority, maintain accounting records to a standard that supports a tax computation, determine taxable income under statutory adjustment rules, assess whether related-party dealings meet the arm’s length principle, and file a return within nine months of the end of the tax period.

Missing any of those steps carries a penalty, and the penalties apply whether or not any tax is actually due.

This is where most businesses discover the gap between having an accountant and having a corporate tax consultant. Bookkeeping produces financial statements. Corporate tax compliance requires a separate technical exercise on top of them – and one where the errors are expensive and often invisible until the FTA asks a question.

The Rates: 0%, 9% and 15% Explained

The UAE operates a tiered structure, and understanding which tier applies is the single most common source of confusion we resolve for businesses in UAE.

0% Corporate Tax Rate

The 0% rate applies to taxable income up to AED 375,000. It also applies to the Qualifying Income of a Qualifying Free Zone Person.

This is a genuine nil rate applied to the first slice of taxable income, not an exemption from the corporate tax regime.

A business earning AED 500,000 in taxable income pays nothing on the first AED 375,000 and 9% on the remaining AED 125,000. Its resulting corporate tax liability would be AED 11,250. Being below the AED 375,000 threshold does not remove the obligation to register and file.

9% Corporate Tax Rate

The standard 9% rate applies to taxable income above AED 375,000. It applies to mainland companies, non-qualifying free zone income, free zone entities that do not satisfy the Qualifying Free Zone Person conditions, and UAE permanent establishments of foreign companies.

15% Domestic Minimum Top-up Tax

A 15% Domestic Minimum Top-up Tax applies to multinational enterprise groups with consolidated global revenues of at least EUR 750 million in at least two of the four preceding financial years. It applies to financial years starting on or after 1 January 2025. The measure is aligned with the OECD Pillar Two framework.

Small Business Relief

Under Ministerial Decision No. 73 of 2023, a resident taxable person with revenue of AED 3 million or less in the current and all previous relevant tax periods may elect to be treated as having no taxable income. The relief is available for tax periods ending on or before 31 December 2026. Small Business Relief must be claimed through an election in the corporate tax return. It is not automatic. It is not available to free zone persons claiming the 0% qualifying rate or to members of large multinational groups.

Taxable Income Is Not Accounting Profit

Taxable income begins with accounting profit but is adjusted under the corporate tax rules. Potential adjustments include:

• Unrealised gains and losses.
• Exempt income, including qualifying dividends and gains covered by the participation exemption.
• Non-deductible expenditure.
• Interest expenses affected by the general interest deduction limitation, which is broadly based on 30% of adjusted EBITDA and is subject to a de minimis threshold.
• Entertainment expenditure, which is generally restricted to a 50% deduction.
• Transfer pricing adjustments.

Tax losses may generally be carried forward indefinitely. However, they can normally offset only up to 75% of taxable income in a later tax period and remain subject to applicable continuity-of-ownership conditions.

Free Zone Companies: The QFZP Conditions Most Businesses Fail

Free zone companies in UAE can retain a 0% corporate tax rate, but only on Qualifying Income and only while they satisfy the conditions for Qualifying Free Zone Person status. This is the area where we see the most misplaced confidence. A trade licence issued by a free zone authority does not, by itself, confer Qualifying Free Zone Person status.

To be treated as a Qualifying Free Zone Person under Article 18 of the Decree-Law and supporting Cabinet and Ministerial Decisions, an entity must satisfy all relevant conditions:

Maintain Adequate Substance in the Free Zone

Core income-generating activities must be conducted in a free zone. The entity must maintain adequate assets, an adequate number of qualified full-time employees and adequate operating expenditure in relation to the activities it carries out. Outsourcing may be permitted within a free zone, but the entity must be able to demonstrate adequate supervision of the outsourced activities.

Derive Qualifying Income

Qualifying Income can include income from transactions with other free zone persons where the recipient is the beneficial recipient of the relevant goods or services. It can also include income derived from Qualifying Activities conducted with a free zone person or another person. Qualifying Activities include:

• Manufacturing of goods or materials.
• Processing of goods or materials.
• Holding shares and other securities for investment purposes.
• Ownership, management and operation of ships.
• Reinsurance services.
• Fund management services.
• Wealth and investment management services.
• Headquarter services provided to related parties.
• Treasury and financing services provided to related parties.
• Financing and leasing of aircraft.
• Distribution of goods or materials in or from a Designated Zone.
• Logistics services.

Avoid Excluded Activities

Excluded Activities can include:

• Transactions with natural persons, subject to limited exceptions.
• Banking activities.
• Most insurance activities.
• Most financing and leasing activities.
• Ownership or exploitation of immovable property, other than qualifying commercial property located in a free zone and transacted with another free zone person.

Do Not Elect Into the Standard Corporate Tax Regime

A free zone entity that elects to be subject to the standard corporate tax regime cannot claim the 0% rate as a Qualifying Free Zone Person for the relevant period.

Comply With Transfer Pricing Requirements

The entity must comply with the arm’s length principle for transactions with Related Parties and Connected Persons. It must also maintain the required transfer pricing documentation.

Satisfy the De Minimis Requirement

Non-qualifying revenue must not exceed the lower of 5% of the entity’s total revenue or AED 5 million.

Prepare Audited Financial Statements

A Qualifying Free Zone Person must prepare audited financial statements in accordance with applicable corporate tax requirements.

Transfer Pricing and the Master File Requirement

Article 34 requires transactions with Related Parties and Connected Persons to satisfy the arm’s length standard. Article 55 imposes transfer pricing documentation obligations. Under Ministerial Decision No. 97 of 2023, a taxable person must maintain both a Master File and a Local File where either of the following conditions applies:

• Its revenue in the relevant tax period is AED 200 million or more.
• It is a constituent entity of a multinational group with total consolidated group revenue of AED 3.15 billion or more in the relevant tax period.

Both files must be submitted to the Federal Tax Authority within 30 days of a request. Thirty days is not enough time to build reliable transfer pricing documentation from scratch.

Master File & Local File Specifications

The Master File provides a group-level overview covering organisational structure, key value drivers, intangible assets, intercompany financial activities, and tax positions. The Local File focuses specifically on the UAE taxable person, covering management structure, controlled transactions, functional analysis, transfer pricing methodology, and economic benchmarking analysis.

Connected Persons & Remuneration Benchmarking

Connected Persons include owners, directors, officers and their related parties. Payments and benefits provided to Connected Persons are deductible only to the extent that they correspond to market value. Owner and director remuneration that has never been benchmarked is one of the most frequently adjusted items we encounter.

What Our Corporate Tax Consultants in UAE Deliver

• Corporate Tax Registration: We assess your taxable person status, prepare and submit the registration application through EmaraTax, and confirm your Corporate Tax Registration Number and first tax period.
• Tax Computation and Return Filing: We convert audited or management accounts into a compliant taxable income computation with complete schedules of adjustments, elections, exemptions and reliefs before your nine-month deadline.
• Free Zone QFZP Assessment: We test revenue streams, monitor de minimis headroom, assess substance and prepare a written corporate tax position paper for auditors or the FTA.
• Transfer Pricing Services: Related-party transaction mapping, method selection, benchmarking studies, Master File, Local File, disclosure forms and intercompany agreements.
• Tax Group Formation: Reviewing eligibility under the 95% ownership requirement and tax consolidation mechanics.
• Health Checks and Second Opinions: Independent review of filed returns or in-house tax computations to prioritize risk remedial actions.
• Ongoing Corporate Tax Advisory: Business restructuring, permanent establishment risk, cross-border payments, double tax treaties and foreign tax credits.

Deadlines and Penalties

Late corporate tax registration can attract an administrative penalty of AED 10,000. Corporate tax returns and any resulting tax payments are generally due within nine months of the end of the relevant tax period. For a financial year ending on 31 December 2025, the return and any corporate tax payment are due by 30 September 2026.

Late filing penalties accrue monthly and increase after the first year. Additional penalties apply for record-keeping failures, incorrect returns, and errors in voluntary disclosures. Corporate tax records must generally be retained for seven years.

Corporate Tax in the UAE – Frequently Asked Questions