UAE Corporate Tax: Complete Guide for Businesses in 2025
Who is in scope, when free zone income qualifies for 0%, how accounting profit is adjusted, and what must be filed
Covers the 0% and 9% rates and the AED 375,000 threshold under Federal Decree-Law No. 47 of 2022, who counts as a resident or taxable non-resident, and the conditions for the free zone 0% rate. It then turns to other exemptions, the adjustments from accounting profit to Taxable Income, tax losses, Tax Groups and transfer pricing, and FTA registration, filing and record-keeping.
Reviewed by Mohamed Noureldin, Founder, Managing Partner & Senior Legal Consultant
The profit in your financial statements is where a UAE corporate tax calculation starts, not where it ends. Tax is levied on Taxable Income, which is accounting net profit after specific adjustments stipulated in Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the Corporate Tax Law). That law introduced a federal tax on the net profits of corporations and unincorporated businesses, effective for financial years commencing on or after 1 June 2023. Determining your tax residency and scope is the foundational step in tax compliance.
The rate turns on AED 375,000 of Taxable Income
The tax applies to all businesses and commercial activities conducted in the UAE, whether by a natural person or a legal entity, with specific exceptions. The regime employs a progressive structure designed to support small and medium-sized enterprises (SMEs).
| Taxable Income Threshold | Corporate Tax Rate |
|---|---|
| Up to AED 375,000 | 0% (Zero Rate) |
| Above AED 375,000 | 9% (Standard Rate) |
| Large Multinational Enterprises (MNEs) | Top-up Tax, so that the total effective tax imposed on them is 15%, where the MNE Group has annual revenue of EUR 750 million or more in at least two of the four Fiscal Years immediately preceding the tested Fiscal Year (Cabinet Decision No. 142 of 2024) |
Who counts as resident, and when a non-resident is taxed
The Corporate Tax Law distinguishes between two main categories of taxable persons. A Resident Person includes:
- a juridical person (a company or corporation) incorporated or recognised in the UAE;
- a juridical person incorporated outside the UAE but effectively managed and controlled in the UAE;
- a natural person who conducts a business activity in the UAE.
The law exempts certain entities, such as a Government Entity, which is nevertheless subject to the law if it conducts a Business or Business Activity under a Licence issued by a Licensing Authority. A Government Controlled Entity is also exempt, but is subject to the law if it conducts a Business or Business Activity that is not its Mandated Activities.
A Non-Resident Person is subject to corporate tax if it:
- has a Permanent Establishment (PE) in the UAE;
- derives UAE-sourced income, as specified in the law, which is not attributable to a PE; or has a nexus in the State as specified in a decision issued by the Cabinet.
The definition of a PE is broad and aligns with international standards. It encompasses fixed places of business and, in some cases, agency relationships. UAE-sourced income of a Non-Resident Person that is not attributable to a PE is subject to Withholding Tax, in the categories a Cabinet decision prescribes. The rate is 0% or any other rate specified by the Cabinet.
In a free zone, the 0% rate attaches to Qualifying Income
The UAE government has maintained its support for specific sectors and economic zones through targeted exemptions. The status of Free Zones has been a major point of inquiry for businesses. The law introduces the concept of a Qualifying Free Zone Person (QFZP). A QFZP can benefit from a 0% rate on its Qualifying Income, provided it meets all the following conditions:
- It maintains adequate substance in the State.
- It derives Qualifying Income. This includes income derived from transactions with a Free Zone Person, except for income derived from Excluded Activities, and income derived from transactions with a Non-Free Zone Person, but only in respect of Qualifying Activities that are not Excluded Activities.
- It does not elect to be subject to the standard 9% rate.
- It complies with transfer pricing rules and documentation requirements.
- Its non-qualifying Revenue does not exceed the de minimis requirements.
- It prepares audited financial statements.
- It meets any other conditions as may be prescribed by the Minister.
A Qualifying Free Zone Person is taxed at 9% on Taxable Income that is not Qualifying Income. This dual-rate system necessitates careful segregation of income streams and sound internal accounting.
Funds, public benefit entities and other exemptions
Key entities and activities exempt from corporate tax include:
- an investment fund that applies to the Federal Tax Authority and meets the conditions of a Qualifying Investment Fund;
- a Qualifying Public Benefit Entity that meets the conditions of the law, from the beginning of the Tax Period in which it is listed in a Cabinet decision, or any other date determined by the Minister;
- a Person engaged in an Extractive Business that holds or has an interest in a right, concession or Licence from a Local Government, is effectively subject to tax under the applicable legislation of an Emirate, and has notified the Ministry.
Accounting profit is adjusted before it is taxed
The calculation begins with financial accounting net profit, prepared in accordance with accounting standards accepted in the State. The law then mandates specific adjustments to arrive at Taxable Income.
Businesses must differentiate between expenses that are fully deductible and those that are partially or wholly disallowed. Generally, expenses incurred wholly and exclusively for the purpose of the business are deductible. Non-deductible expenses include dividends paid, certain fines and penalties, and 50% of entertainment, amusement or recreation expenditure incurred for customers, shareholders, suppliers or other business partners.
Interest deductibility is also subject to specific rules, particularly the "earnings stripping" rule. That rule limits the deduction of Net Interest Expenditure to 30% of accounting EBITDA (earnings before interest, tax, depreciation and amortisation), excluding Exempt Income. The limitation does not apply where Net Interest Expenditure does not exceed an amount specified by the Minister.
Carrying losses forward and moving them within a group
Tax loss relief is a crucial feature for managing volatility in a business's tax position. Tax losses incurred from the effective date of the law can be carried forward indefinitely to offset future Taxable Income. They can be offset against up to 75% of the Taxable Income in any subsequent tax period. Carrying a loss forward depends on ownership. The same Person or Persons must have continuously owned at least 50% of the Taxable Person. Otherwise, following a change in ownership of more than 50%, the Taxable Person must have continued to conduct the same or a similar Business or Business Activity. This condition does not apply to a Taxable Person whose shares are listed on a Recognised Stock Exchange.
Tax losses can be transferred between group companies in the UAE, subject to conditions. These include that both companies are juridical persons and Resident Persons, and that one holds at least 75% of the other or a third Person holds at least 75% of each.
A 95% test for Tax Groups, and arm's length pricing for related parties
The law provides mechanisms for groups of companies to manage their tax compliance efficiently. Two or more Resident Persons can form a Tax Group if they meet the following criteria:
- they are juridical persons, and neither the parent company nor a subsidiary is an Exempt Person or a Qualifying Free Zone Person;
- the parent company owns at least 95% of the share capital of the subsidiaries, holds at least 95% of their voting rights and is entitled to at least 95% of their profits and net assets;
- they have the same financial year and use the same accounting standards.
A Tax Group is treated as a single taxable person. Transactions between group members are disregarded, which simplifies compliance.
In line with global standards, the UAE has adopted Transfer Pricing (TP) rules. These rules ensure that transactions between related parties, such as subsidiaries and parent companies, are conducted at arm's length. Businesses must:
- apply the Arm's Length Principle to all related party transactions;
- maintain specific TP documentation, including a Master File and Local File, if their transactions with Related Parties and Connected Persons meet the conditions prescribed by the Minister.
Failure to comply with TP rules can result in adjustments to Taxable Income and significant penalties.
Nine months to file and pay, seven years to keep records
Every taxable person must register with the Federal Tax Authority (FTA) within the timeline it prescribes and obtain a Tax Registration Number (TRN), except in circumstances prescribed by the Minister. The FTA may also require certain Exempt Persons to register. The standard tax period is 12 months, usually aligning with the business's financial year.
Taxable Persons must file a corporate tax return electronically with the FTA within nine months from the end of the relevant tax period. The tax liability must be paid to the FTA at the same time as the return is filed. Unlike VAT, the regime does not currently mandate periodic provisional returns; compliance is generally annual.
Businesses must maintain all necessary records and documents for a minimum of seven years following the end of the tax period, to substantiate their tax position. These include financial statements.
Our tax consultancy team and our corporate governance advisory practice offer practical legal support in this area.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.
