For most of its history, the UAE was known for one thing above all else: no corporate tax. That changed on 1 June 2023, when the federal UAE Corporate Tax law came into effect. Two years on, many businesses are still catching up — and some are making costly assumptions based on outdated information.

This is not a complicated law, but it does require business owners to understand where they stand, what applies to them, and what needs to be done before the next financial year ends.

What Is UAE Corporate Tax?

UAE Corporate Tax is a federal tax on the net profits of businesses operating in the UAE. It is administered by the Federal Tax Authority (FTA) and applies to financial years starting on or after 1 June 2023.

The rates are:

• 0% on taxable income up to AED 375,000
• 9% on taxable income above AED 375,000
• A separate minimum rate of 15% applies to large multinationals under the OECD  Pillar Two framework

For most SMEs, the effective rate is 9% on profits above AED 375,000, while income below that threshold remains tax-free.

Note: 

OECD= The Organisation for Economic Co-operation and Development is an international body that develops global tax standards, economic policies, and guidelines used by tax authorities worldwide, including the UAE Federal Tax Authority.

Who Does Corporate Tax Apply To?

The law applies to:

• UAE companies and legal entities incorporated in the country
• Foreign businesses effectively managed and controlled from the UAE
• Individuals conducting licensed business activities, including sole establishments and civil companies

Free zone businesses may still qualify for a 0% rate on qualifying income, but only if they meet the conditions set by the FTA. Simply holding a free zone licence is no longer enough.

Certain types of income are generally exempt, including salary income, employment income, dividends from qualifying UAE subsidiaries, and some capital gains.

When Does It Apply?

Your tax period depends on your financial year, not the calendar year.

For example:

• Businesses operating on a January–December financial year entered their first tax period on 1 January 2024
• Businesses with a June–May year began on 1 June 2023

Returns must generally be filed within nine months after the end of the relevant financial year.

Is Registration Mandatory?

Yes. Businesses that fall within the scope of UAE Corporate Tax must register with the FTA and obtain a Corporate Tax Registration Number (CTRN), even if no tax is payable.

This means that companies earning below AED 375,000 are still required to register and file returns.

Registration takes place through the EmaraTax portal. Missing the assigned registration deadline can result in penalties of AED 10,000.

How Is Taxable Income Calculated?

Taxable income starts with accounting profit, after which adjustments are made under the law.

Common adjustments include:

• Entertainment expenses: only 50% deductible
• Certain interest expenses: limited for larger businesses
• Government fines and penalties: not deductible
• Related party transactions: must follow arm’s-length pricing principles

Maintaining accurate accounting records is essential. Poor bookkeeping can create reporting issues and increase the risk of errors during an FTA review.

Small Business Relief

The FTA introduced Small Business Relief for companies with revenue of AED 3 million or less.

Eligible businesses that elect for this relief can treat taxable income as zero for the relevant tax period. The relief is currently available until 31 December 2026.

It is important to note that this relief is not automatic and must be selected when filing the return.

What Businesses Should Do Now

Businesses should ensure they have the following in place:

• Corporate Tax registration completed through EmaraTax
• Financial year dates confirmed
• Proper accounting records maintained under IFRS or another accepted standard
• Related party transactions reviewed carefully
• Eligibility for Small Business Relief assessed
• Free zone qualification reviewed, where applicable

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Penalties for Non-Compliance

Non-compliance can result in significant penalties, including:

• AED 10,000 for failure to register
• Monthly penalties for late filing
• Penalties for failing to maintain proper records
• Additional penalties for understating taxable income

The FTA has broad authority to review records and issue assessments where necessary.

Frequently Asked Questions

Q1: Do free zone companies pay corporate tax?

Free zone companies can still benefit from a 0% rate on qualifying income if they meet the requirements for Qualifying Free Zone Person (QFZP) status. Businesses should assess their activities carefully before filing.

Q2: What is the registration deadline?

The FTA assigned registration deadlines based on licence issuance dates. Some deadlines have already passed, so businesses that have not registered should act immediately to avoid penalties.

Q3: Do loss-making businesses still need to file returns?

Yes. Filing remains mandatory even if the business made a loss. Losses may also be carried forward to offset future taxable income, provided returns are submitted correctly.

Q4: Can individuals be subject to corporate tax?

Yes. Individuals earning income through business activities, sole establishments, or civil companies may fall within the scope of the law. Employment and most personal investment income generally remain outside the scope.

Need Help Staying Compliant?

Compliance is not just about filing a return. Businesses also need accurate records, proper reporting processes, and a clear understanding of available exemptions and reliefs.

At Financial Vision UAE, we assist SMEs with registration, return preparation, and ongoing advisory support. We work with trading companies, service providers, startups, and family-owned businesses across the UAE.

If you are unsure whether your business is fully compliant, a professional review before your next filing deadline can help avoid unnecessary penalties and reporting issues.