Corporate Tax (CT) is a direct tax on the net income or profit of businesses. The UAE Ministry of Finance introduced it under Federal Decree-Law No. 47 of 2022, which came into effect for financial years starting on or after June 1, 2023.
Corporate tax aims to align the UAE with international standards, increase transparency, and support sustainable economic growth.
Corporate Tax Rates in the UAE
The UAE corporate tax system is among the most competitive globally:
- 0% on taxable income up to AED 375,000
- 9% on taxable income above AED 375,000
- 0% for qualifying free zone entities, subject to meeting regulatory conditions
- Different rates may apply to large multinationals (earning above AED 3.15 billion) under the OECD’s Pillar Two framework
Who Is Liable to Pay Corporate Tax in the UAE?
UAE-Incorporated Juridical Persons
Companies or other legal entities established or incorporated in the UAE (such as LLCs, PSCs, or PJSCs) are automatically considered resident taxable persons and are subject to corporate tax on their worldwide income.
Foreign Juridical Persons Managed and Controlled in the UAE
A foreign legal entity that is effectively managed and controlled within the UAE is also treated as a resident person and must comply with UAE corporate tax obligations.
Non-Resident Juridical Persons with a Permanent Establishment (PE)
Foreign entities that have a Permanent Establishment in the UAE (such as a branch, office, or fixed place of business) are subject to corporate tax on income attributable to that UAE PE.
Non-Resident Persons with State-Sourced Income
Non-resident entities earning UAE-sourced income — such as interest, royalties, or service fees from UAE clients — may be liable to pay corporate tax on that income, even if they don’t have a physical presence in the country.
Non-Resident Juridical Persons with a ‘Nexus’ in the UAE
Foreign entities that derive income from immovable property or real estate located in the UAE are also considered to have a tax nexus and are subject to corporate tax on such income.
Natural Persons (Individuals) Conducting Business in the UAE
Individual entrepreneurs, freelancers, or sole proprietors conducting business or commercial activities in the UAE with an annual turnover exceeding AED 1 million are also required to register for corporate tax and file returns accordingly.
Corporate Tax Compliance Requirements
To stay compliant, every taxable business in the UAE must:
- Register for Corporate Tax with the Federal Tax Authority (FTA)
- Maintain proper accounting records and prepare audited financial statements
- File Corporate Tax Returns electronically within 9 months from the end of the financial year
- Pay Corporate Tax liability within the same 9-month period
Failure to comply may result in administrative penalties and fines.
1. Qualifying Free Zone Persons (QFZP)
A Qualifying Free Zone Person is a company registered in a UAE Free Zone that meets all of the following conditions:
- Maintains adequate economic substance in the UAE (real operations, office, and employees).
- Derives income only from “Qualifying Activities” as defined by the Cabinet Decision (such as manufacturing, warehousing, logistics, distribution, reinsurance, or specific financial and holding activities).
- Does not earn income from Mainland UAE unless it is limited to permitted transactions (like trading through a distributor or group service center).
- Complies with transfer pricing rules and documentation requirements.
- Has not elected to be subject to the standard 9% corporate tax rate.
✅ Tax Benefit:
Qualifying Free Zone Persons are taxed at 0% on qualifying income, while non-qualifying income may be subject to 9% corporate tax.
2. Non-Qualifying Free Zone Persons
A Non-Qualifying Free Zone Person is a Free Zone business that fails to meet any of the qualifying conditions mentioned above. For example:
- Earning income from non-qualifying activities, such as retail sales to Mainland UAE customers.
- Lacking adequate economic substance or proper accounting records.
- Not complying with transfer pricing documentation requirements.
❌ Tax Impact:
Once a Free Zone entity is considered non-qualifying, its entire income becomes subject to the standard 9% corporate tax rate — just like any Mainland company.
How to Calculate Corporate Tax in the UAE
Calculating Corporate Tax in the UAE is based on the taxable income (net profit) your business earns during the financial year, as shown in your audited financial statements — after making certain adjustments as required by the Federal Tax Authority (FTA).
In simple terms, it’s the profit your company makes after deducting allowable expenses, adjusted for any exempt income or disallowed deductions.
Step-by-Step Guide to Calculate Corporate Tax
Step 1: Determine Your Accounting Profit
Start with your net profit or loss as per your financial statements prepared in accordance with International Financial Reporting Standards (IFRS).
Step 2: Make Adjustments for Tax Purposes
Adjust your accounting profit by:
- Adding back non-deductible expenses (e.g., fines, penalties, or donations not approved by authorities).
- Subtracting exempt income (e.g., dividends or capital gains from qualifying shareholdings).
- Adjusting for unrealized gains/losses if applicable.
This gives you your Taxable Income.
Step 3: Apply the Corporate Tax Rates
Once you have your taxable income:
- 0% tax on income up to AED 375,000
- 9% tax on income above AED 375,000
Formula: Corporate Tax Payable=(Taxable Income−375,000)×9%
Example Calculation
Let’s say your business has taxable profits of AED 800,000 after adjustments:
- 0% on the first AED 375,000 → AED 0
- 9% on the remaining AED 425,000 → AED 38,250
Total Corporate Tax Payable = AED 38,250
How Finexus Advisory Helps
Navigating corporate tax regulations can be complex. At Finexus Advisory, we provide comprehensive corporate tax consulting and compliance services tailored to your business needs.
Our services include:
- Corporate Tax registration
- Corporate Tax filing
- Corporate Tax De-registration
- Tax planning and impact assessment
- Reviewing free zone entity qualifications
- Preparation of financial statements and audit coordination
- Ongoing compliance and advisory support
We ensure your business remains compliant, optimized, and ready for the future of taxation in the UAE.
Your Business Needs Corporate Tax Compliance – Your Solution is Finexus.
Contact Finexus Advisory today and stay compliant with UAE laws while improving your financial performance.
