Corporate Tax in UAE Explained: Who Pays, the Rates, and What's Exempt

For decades the UAE was known as a no-corporate-tax jurisdiction. That changed when the federal government introduced a tax on business profits, and many founders, freelancers, and free-zone companies are still working out exactly how it applies to them. If you run a business here, you need a clear picture of who pays, how much, and what stays outside the net.

Direct answer. Corporate tax in UAE is governed by Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, administered by the Federal Tax Authority (FTA). The standard rate is 9% on taxable income, with a 0% rate applied to taxable income up to AED 375,000 to support small businesses and startups. It took effect for financial years starting on or after 1 June 2023. It is a tax on business profit, not on individual salaries, and it is separate from VAT. Always confirm the figures that apply to your situation on tax.gov.ae before relying on them.

Who pays corporate tax in the UAE

Corporate tax applies to "taxable persons," a category broader than just incorporated companies. In broad terms, it reaches:

• UAE companies and other juridical persons incorporated in the country, including those in free zones.
• Foreign companies that are effectively managed and controlled in the UAE, or that have a permanent establishment here.
• Individuals (natural persons) who conduct a business or business activity in the UAE, where their relevant turnover crosses a threshold set by the law. A salaried employee's wage is not business income, and personal investment or real-estate income held in a private capacity is generally outside the scope.

The practical takeaway: if you earn a salary, corporate tax does not touch your paycheque. If you run a trade, a consultancy, an agency, or an online business through a licence, you likely fall within the regime and should check your registration obligations. The exact turnover threshold for individuals and the registration deadlines change with FTA guidance, so confirm the current figure on tax.gov.ae before relying on it.

If you are unsure whether your structure is a taxable person, this is a good moment to browse verified UAE lawyers who handle corporate and tax matters, or to ask a quick question through the free legal AI assistant before booking a consultation.

The rates: 9%, 0%, and the small-business floor

The headline numbers are straightforward:

• 0% on taxable income up to AED 375,000.
• 9% on taxable income above AED 375,000.

So a company with AED 500,000 of taxable income is taxed at 0% on the first AED 375,000 and 9% on the remaining AED 125,000 — not 9% on the whole amount. The zero-rate band is deliberately set to keep small businesses and early-stage startups out of a cash-tax position while they grow.

A separate, higher rate framework exists for very large multinational groups that fall under global minimum-tax rules. Most local SMEs will never touch that tier, but if your group has substantial global revenue, treat the multinational rules as a specialist question and verify the current thresholds on tax.gov.ae.

How corporate tax differs from VAT

People often blur the two, but they are different taxes that can apply to the same business at the same time.

VAT is charged on most goods and services at a standard rate of 5%, and a business registers for VAT once its taxable supplies cross the registration threshold. Corporate tax, by contrast, is charged on the profit left after deductible expenses at the end of your financial year. A profitable company can owe both: it collects and remits VAT on its sales throughout the year, and separately pays corporate tax on its annual profit. The two have different registrations, different returns, and different deadlines — keep them in separate mental boxes.

Exempt income and exempt persons

Not everything a business receives is taxed, and not every entity is a taxable person. The law carves out several categories. Subject to conditions in the Decree-Law and FTA guidance, exemptions and exclusions can include:

• Dividends and other profit distributions received from a UAE company.
• Income from qualifying shareholdings under the participation exemption, where ownership and holding-period conditions are met.
• Government entities and government-controlled entities, and certain qualifying public-benefit entities.
• Qualifying investment funds and pension or social security funds that meet the prescribed conditions.
• Income earned by an individual from employment, personal investments, and personal real estate held outside a business activity.

Each of these comes with conditions, and the wrong assumption is expensive. Treat the bullet list as a map, not a ruling, and confirm whether your specific income stream qualifies on tax.gov.ae or with a tax adviser before you exclude it from a return.

Free-zone companies and "qualifying income"

This is where most free-zone founders get confused. Being in a free zone does not automatically mean 0% corporate tax. The law creates a category called a Qualifying Free Zone Person, and only the qualifying income of such a person benefits from a 0% rate; income that does not qualify is taxed at 9%.

In broad terms, to access the 0% rate a free-zone business generally needs to:

• Maintain adequate substance in the UAE (real activity, people, and premises — not just a licence).
• Earn income that meets the definition of qualifying income under the Decree-Law and the relevant Cabinet and Ministerial decisions.
• Not earn more than a permitted amount of non-qualifying ("excluded") income, and comply with transfer-pricing and documentation rules.
• Refrain from electing to be taxed at the standard rate.

If a free-zone company breaches the conditions, it can lose qualifying status — sometimes for multiple years — and be taxed at 9% on its income. The detailed definition of qualifying income is set out in Cabinet and Ministerial decisions that are updated over time, so confirm the current criteria on tax.gov.ae before relying on a 0% expectation. If your business model spans the mainland and a free zone, it is worth reading how the two regimes compare in our guide to mainland vs free zone company setup in the UAE.

Taxable income: how the number is built

Corporate tax is charged on taxable income, which starts from your accounting profit and is then adjusted. In practice that means:

1. Start with the net profit (or loss) shown in financial statements prepared under acceptable accounting standards.
2. Add back items the law does not allow as deductions (for example, certain fines, and a portion of entertainment expenses).
3. Apply specific rules for interest deductibility, related-party transactions, and exempt income.
4. Apply any available reliefs, such as relief for small businesses, group relief, or the carry-forward of tax losses, where the conditions are met.

Because the starting point is your accounts, clean bookkeeping is the single most valuable thing a small business can do before its first return. Poor records turn a simple filing into an expensive reconstruction exercise.

Registration, filing, and record-keeping

Every taxable person generally needs to register for corporate tax with the FTA and obtain a Tax Registration Number, then file a corporate tax return for each tax period — even in a year where no tax is due. Key habits to build in:

• Register within the window the FTA sets for your category; deadlines have been published in stages, so confirm yours on tax.gov.ae.
• Keep records and supporting documents for the period required by law, so you can defend the figures in your return.
• File and pay (if applicable) by the deadline for your tax period; one return generally covers your financial year.

Penalties apply for late registration, late filing, and inaccurate returns. The amounts and trigger points are set by Cabinet decision and are updated periodically, so confirm the current penalty figures on tax.gov.ae before relying on them rather than working from an old summary.

It also helps to think of the timeline in three stages. First, registration: you sign up with the FTA and receive a Tax Registration Number once your obligation begins. Second, the tax period itself: you trade through your financial year while keeping the bookkeeping that will support your eventual return. Third, the return: after the period closes you compute taxable income, file, and pay anything due within the deadline. Each stage has its own date, and missing the first does not pause the others — late registration can sit alongside a late return, compounding the exposure. Map all three dates for your own financial year at the start, rather than discovering them at the end.

Common mistakes to avoid

• Assuming a free-zone licence equals 0%. It does not — qualifying status and qualifying income are tested every year.
• Confusing VAT registration with corporate tax registration. They are separate filings with separate numbers.
• Treating turnover as taxable income. Tax is on profit after allowable deductions, not on revenue.
• Skipping a return because no tax is due. A nil return is still a return; not filing can trigger penalties.
• Mixing personal and business income. Personal salary, personal investments, and privately held property generally sit outside the regime; running them through a business licence can change that.

When to talk to a lawyer

General guidance like this helps you understand the shape of corporate tax in UAE, but it cannot tell you how the rules land on your specific structure. Consider getting professional advice when you are setting up or restructuring a company, when you are unsure whether your free-zone income qualifies for the 0% rate, when you receive an FTA notice or penalty, or when a cross-border arrangement makes residence and permanent-establishment questions complex.

A tax-focused corporate lawyer or licensed tax agent can map your facts to the Decree-Law, confirm the current thresholds and deadlines, and keep your filings defensible. You can browse verified UAE lawyers who work on corporate and tax matters, and read related guides on what an LLC means in the UAE and UAE trademark registration in 2026 as you build out the legal side of your business. For the official position on rates, registration, and deadlines, the primary source is always the Federal Tax Authority at tax.gov.ae.