The New Era of Taxation: Understanding the Introduction of UAE Corporate Tax

The United Arab Emirates has embarked on a fundamental shift in its fiscal policy with the introduction of a federal Corporate Tax (CT) regime. Effective for financial years commencing on or after June 1, 2023, this landmark move aligns the UAE with global standards for tax transparency and fairness, and marks a significant step in diversifying government revenue beyond oil. 
The Corporate Tax is levied on the net income or profits of corporations and other entities derived from their business activities. 
Key Features and Rates
The UAE’s Corporate Tax regime is characterized by a globally competitive, tiered rate structure designed to support small and medium enterprises (SMEs). 

1. The Rate Structure
   The statutory tax rates are applied to a business’s Taxable Income (net profit):
   Taxable Income Threshold Corporate Tax Rate Notes
   Up to AED 375,000 0% Supports start-ups and small businesses.
   Exceeding 9% The standard
   Large Multinational Enterprises (MNEs) 15% Applicable to MNEs meeting specific criteria related to the OECD’s Pillar Two initiative (Global Minimum Tax).
2. Implementation Timeline:
   The FCT applies to the financial year that starts on or after June 1, 2023. 
3. Taxable Persons
   The FCT generally applies to two main categories of taxable persons:

• Resident Juridical Persons: Companies and other legal entities established or incorporated in the UAE (including Free Zones). 
• Non-Resident Juridical Persons: Foreign companies that have a Permanent Establishment (PE) in the UAE or derive income from real estate located in the UAE. 
• Natural Persons (Individuals): Individuals are subject to FCT only if they conduct a business or business activity in the UAE and their total annual turnover from such activities exceeds AED 1 million. 
  Key Exemptions and Reliefs
  The new law includes several provisions to maintain the UAE’s competitive edge and encourage specific types of investment. 

1. Free Zone Persons (Qualifying)
   Free Zone entities can benefit from a 0% Corporate Tax rate on Qualifying Income if they meet certain criteria, including:

• Maintaining adequate substance in the UAE. 
• Deriving “Qualifying Income” (as defined by the Cabinet). 
• Not having elected to be subject to the standard 9% rate. 
  Income derived from transactions with UAE mainland entities or real estate may be subject to the standard 9% rate.

1. Exempt Entities and Income
   A number of entities and types of income are specifically exempted:
   Exempt Entity Category Exempt Income Category
   Government Entities and Government-Controlled Entities. Dividends and Capital Gains from qualifying shareholdings.
   Extractive and Non-Extractive Natural Resource Businesses (if subject to Emirate-level tax). Personal Income (salaries, wages, employment income, personal investments).
   Qualifying Public Benefit Entities (charities, non-profits). Income derived from real estate investment by individuals in their personal capacity.
   Qualifying Investment Funds and Regulated Public/Private Pension Funds. Qualifying Intra-Group transactions and reorganizations.
2. Small Business Relief
   Small businesses that meet certain revenue thresholds (less than AED million in a relevant tax period) may elect to be treated as having zero taxable income and a 0% FCT rate. This is designed to reduce the compliance burden for the smallest businesses. 
   Compliance and Administration
   The Federal Tax Authority (FTA) is responsible for the administration, collection, and enforcement of the Corporate Tax. 

• Registration: All taxable persons, including Qualifying Free Zone Persons, must register with the FTA and obtain a Corporate Tax Registration Number. 
• Tax Return Filing: A single Corporate Tax return must be filed annually within nine months from the end of the relevant tax period. 
• Payment: The deadline for payment of any FCT liability is generally the same as the tax return filing deadline (nine months from the end of the tax period). 
• Transfer Pricing: The law introduces Transfer Pricing rules that require transactions between Related Parties to adhere to the “arm’s length principle.” 
• Basis of Taxation: The tax is calculated on the accounting net profit, based on financial statements prepared in accordance with International Financial Reporting Standards (IFRS), with specific adjustments mandated by the FCT Law. 
  The introduction of the Corporate Tax solidifies the UAE’s standing as a major global business hub, demonstrating its commitment to international fiscal governance while maintaining a highly competitive and investor-friendly environment.