The introduction of corporate tax in the UAE marks a major shift in the country’s fiscal framework, aiming to align with international standards while maintaining a business-friendly environment. As of June 1, 2023, companies in the UAE are subject to federal corporate tax, making it essential for businesses to understand the new regulations and ensure full compliance. At Clearpath Legal Advisors & Consultants, we help businesses navigate these changes through strategic legal and tax planning.
1. What Is UAE Corporate Tax?
The UAE corporate tax is a direct tax imposed on the net profit of businesses. Governed by Federal Decree-Law No. 47 of 2022, it applies to taxable income generated from business activities across the Emirates.
2. Who Is Subject to Corporate Tax?
Corporate tax applies to:
- UAE-based companies (mainland and most free zones)
- Foreign entities with a permanent establishment in the UAE
- Individuals conducting business in the UAE under a commercial license
Exemptions include:
- Government entities
- Certain investment funds
- Natural resource extraction businesses (already taxed at the emirate level)
3. Corporate Tax Rates
- 0% on annual taxable income up to AED 375,000
- 9% on income above AED 375,000
- A higher rate (to be defined) may apply to large multinational enterprises under the OECD’s Pillar Two rules
4. Free Zone Businesses
Free zone entities can benefit from 0% corporate tax, provided they:
- Maintain adequate economic substance in the UAE
- Derive income from qualifying activities (e.g., manufacturing, trading with overseas markets)
- Do not earn income from mainland UAE unless subject to special rules
Failing to meet these conditions may result in the standard 9% tax rate being applied.
5. Taxable Income & Deductions
Corporate tax is levied on accounting net profit, adjusted for:
- Non-deductible expenses (e.g., personal expenses, fines)
- Transfer pricing compliance
- Adjustments for intra-group transactions
Proper financial recordkeeping is mandatory, and businesses must retain records for at least 7 years.
6. Transfer Pricing & Documentation
Businesses must comply with OECD-aligned transfer pricing rules, ensuring transactions between related parties are conducted at arm’s length. This includes:
- Maintaining a Master File and Local File
- Filing disclosure forms with the tax return
Non-compliance may lead to penalties or audits.
7. Tax Registration & Filing
- All taxable entities must register with the UAE Federal Tax Authority (FTA)
- Annual tax returns must be filed within 9 months of the end of the financial year
- There is no advance tax payment required
8. Penalties for Non-Compliance
Failure to comply with corporate tax obligations can result in administrative penalties, including:
- Fines for late registration or filing
- Penalties for incorrect tax returns
- Sanctions for inadequate recordkeeping
9. How Clearpath Legal Can Help
At Clearpath Legal Advisors & Consultants, we provide:
- Corporate tax registration and compliance assistance
- Strategic tax planning and structuring
- Legal reviews of contracts and business models for tax efficiency
- Support with transfer pricing and audit readiness
The UAE’s corporate tax regime is designed to support business growth while ensuring transparency and alignment with global tax standards. Whether you’re a startup, SME, or multinational, proactive tax planning is crucial.
Clearpath Legal Advisors & Consultants offers comprehensive legal and tax guidance to keep your business compliant, efficient, and prepared for the future.
