Who Is Subject to Corporate Income Tax in the UAE?
Corporate Income Tax (CIT) applies to UAE-incorporated companies, foreign legal entities with a permanent establishment (PE) in the UAE, and private individuals engaged in business activities requiring a license. Branches are not treated separately for tax purposes – their results are included in the parent company’s taxable income. UAE group companies can form a tax group (fiscal unity) and file a consolidated tax return for the entire group.
UAE Corporate Tax Rates and Structure
The UAE CIT follows a progressive structure, with a 0% rate applying to the first AED 375,000 of taxable income and a 9% rate applying to any income above that threshold. This approach is designed to ease the burden on start-ups and small businesses, while ensuring that larger profits are taxed at a moderate rate.
Exemptions from Corporate Tax in the UAE
The following entities may qualify for an exemption from CIT: (i) Federal and Emirate government bodies; (ii) companies engaged in extractive or non-extractive natural resource activities that are already subject to Emirate-level taxation; (iii) qualifying investment funds, and (iv) public benefit organizations such as charities and similar entities, provided they meet the regulatory conditions. Free Zone businesses can enjoy a 0% rate on qualifying income, provided they have adequate ‘economic substance’ in the UAE, comply with reporting obligations, and follow transfer pricing rules. Non-qualifying income may be subject to 9% and may disqualify the Free Zone business for the beneficial free zone regime altogether.
How Taxable Income Is Calculated in the UAE
Taxable income starts with accounting net profit or loss as reported under IFRS. Adjustments are then made for exempt income, reliefs, deductions, and non-deductible expenses to arrive at the final taxable base. Dividends and capital gains from qualifying shareholdings are exempt under the participation exemption. To qualify, the UAE company must hold at least 5% of the shares and the foreign subsidiary must meet a subject-to-tax requirement. If tax has already been paid abroad on income that is also taxable in the UAE, a foreign tax credit can be claimed, limited to the amount of UAE CIT payable on that same income.
Transfer Pricing and Related Party Rules
Transactions between related parties and connected persons must follow the arm’s length principle. Larger taxpayers may be required to prepare transfer pricing documentation, including a master file and local file, to demonstrate compliance.
Corporate Tax Compliance and Deadlines in the UAE
All businesses subject to CIT are required to register with the Federal Tax Authority (FTA), submit an annual tax return electronically, and settle any tax due within nine months of the end of their financial year. Administrative penalties may be imposed for late filing, delayed payments, or incorrect disclosures. The regime came into effect for financial years beginning on or after 1 June 2023. For most companies with a calendar year, this means their first taxable period started on 1 January 2024.
Professional Guidance on UAE Corporate Tax
TAXPATRIA® can advise you on the right business setup in the UAE and assist with incorporation, accounting, VAT, and corporate tax compliance.