“The UAE Corporate Tax regime, effective June 1 2023, taxes net profits over AED 375,000 at 9%, while profits below this threshold and qualifying Free Zone income enjoy a 0% rate.”
1. Introduction
Corporate Tax in Dubai, UAE, marks a major shift from its historically zero-tax environment. Under Federal Decree-Law No. 47 of 2022, most entities now face a 9% tax on annual taxable profits exceeding AED 375,000, with a 0% rate applied below that threshold and for qualifying Free Zone income. Businesses must register, file annual returns, and comply with transfer pricing and anti-abuse rules as set by the Federal Tax Authority (FTA).
2. What Is UAE Corporate Tax?
2.1 Legal Framework
The UAE Corporate Tax (CT) regime was enacted via Federal Decree-Law 47/2022 and applies to all “taxable persons,” including UAE-incorporated companies, branches of foreign firms, and non-residents with a UAE permanent establishment.
2.2 Scope & Rates
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0% Rate on net profits up to AED 375,000—designed to support SMEs and startups.
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9% Rate on net profits above AED 375,000.
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0% Rate for qualifying Free Zone Persons on “qualifying income,” subject to economic substance requirements.
3. Who Must Register & File?
All taxable persons must register on the FTA portal within 90 days of the start of their first CT financial year (i.e., by late August 2023 for a June 1 start). Registration yields a Corporate Tax Registration Number, used for annual CT return filings.
4. Free Zone Relief
4.1 Qualifying Conditions
Free Zone entities can benefit from a 0% CT rate on “qualifying income” if they:
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Maintain adequate economic substance (staff, premises, governance).
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Submit required substance notifications and reports to the FTA.
4.2 Interaction with Mainland
Non–Free Zone income or activities outside a zone revert to the standard CT rates. Entities must carefully segregate qualifying and non-qualifying income.
5. Transfer Pricing & Anti-Abuse Rules
5.1 Arm’s-Length Principle
Related-party transactions must follow the arm’s-length principle; businesses must prepare:
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A Master File (group-wide TP policies).
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A Local File (detailed country-specific transactions).
5.2 Penalties
Failure to maintain TP documentation or comply with anti-abuse provisions can attract penalties of up to 2% of the under-reported tax per month.
6. Filing & Compliance Timeline
| Milestone | Deadline |
|---|---|
| CT Registration | Within 90 days of FY start |
| Annual CT Return Filing | Within 9 months of FY end |
| TP Documentation Submission | With CT return or upon FTA request |
| Economic Substance Notification | Annually, per zone’s deadline |
Most companies conclude their first CT cycle within 12 months, aligning CT filings with audited financial statements.
7. Common Exemptions & Deductions
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Natural resource extraction income remains under Emirate-level taxation.
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Dividend income and capital gains from shareholdings in qualifying UAE companies are typically exempt.
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Charitable contributions to approved UAE charities may be deductible, subject to a 10% of taxable income cap.
8. Tips for a Smooth Transition
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Early Registration: Don’t wait—secure your CT number well before deadlines.
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System Readiness: Update your ERP or accounting software to handle CT calculations and reporting.
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Review Corporate Structure: Optimize Free Zone vs. mainland operations to maximize reliefs.
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Engage Experts: Work with a CT advisor to navigate complex TP and AEoI rules.
Navigating corporate tax in Dubai, UAE can be complex. Book an appointment with StandardMe’s CT specialists today to ensure seamless compliance, strategic planning, and optimal tax efficiency.
