The introduction of UAE Corporate Tax marks a significant shift in the business landscape of the United Arab Emirates. As the country transitions from a tax-free environment to a structured corporate tax regime, businesses must understand the key features, compliance requirements, and potential implications. The new tax framework, which aligns with international best practices, aims to enhance transparency, attract foreign investments, and diversify the UAE’s revenue sources. In this comprehensive guide, we explore the critical aspects of UAE Corporate Tax in 2025, including tax rates, exemptions, compliance obligations, and its impact on businesses operating in the region.
UAE Corporate Tax is a direct tax levied on the net income or profits of businesses operating within the country. The tax framework, introduced by the Federal Tax Authority (FTA), is designed to create a stable and competitive economy while ensuring compliance with global tax standards, including OECD’s Base Erosion and Profit Shifting (BEPS) initiatives.
Revenue Diversification: Reduce reliance on oil revenues.
Global Compliance: Align with international tax standards.
Encourage Business Growth: Maintain the UAE’s status as a business hub.
Prevent Tax Evasion: Increase transparency in financial reporting.
The UAE Corporate Tax was officially announced in 2022 and became effective from June 1, 2023.
In 2025, the tax framework has been further refined to address compliance concerns and provide clarity on exemptions and deductions.
One of the most crucial aspects of UAE Corporate Tax is the tax rate structure, which is designed to be business-friendly and encourage economic growth.
0% Tax Rate: Applied to taxable profits up to AED 375,000, supporting small businesses and startups.
9% Tax Rate: Standard corporate tax rate applied to taxable income exceeding AED 375,000.
15% Tax Rate: Applicable to multinational corporations (MNCs) that meet the criteria set by the OECD’s Pillar Two Global Minimum Tax Rules.
Businesses and entities operating within the UAE need to determine their tax liability based on their structure and activities.
UAE-registered companies: Including LLCs, PJSCs, and other commercial entities.
Branches of Foreign Companies: Subject to corporate tax on their UAE-generated income.
Freelancers and Sole Proprietors: If their annual income exceeds AED 375,000.
Certain entities are exempt from UAE Corporate Tax to promote key industries and economic sectors:
Government entities and subsidiaries
Public benefit organizations and charities
Investment funds meeting specified conditions
Natural resource extraction businesses (already subject to Emirate-level taxation)
Qualifying Free Zone Companies (subject to specific conditions)
The UAE offers a favorable tax environment for businesses operating in Free Zones. However, certain conditions must be met to maintain tax benefits.
Must derive income from eligible activities.
Cannot conduct business with the UAE mainland.
Subject to a 0% corporate tax rate on qualifying income.
Free Zone businesses earning non-qualifying income (e.g., transactions with the mainland) may be subject to the 9% tax rate.
Taxable income is calculated as the net profit reported in financial statements, adjusted for specific tax exemptions and deductions.
To ensure fair taxation, businesses can deduct legitimate expenses from their taxable income, including:
Employee Salaries & Benefits
Rent and Utilities
Depreciation of Assets
Business-Related Travel Expenses
Interest Payments (Subject to Limitations)
Certain expenses cannot be deducted when calculating taxable income, such as:
Personal Expenses
Fines and Penalties
Bribes or Illicit Payments
Taxes Paid (except UAE Corporate Tax)
Multinational corporations must comply with transfer pricing rules to prevent profit shifting and tax avoidance.
Businesses engaged in related-party transactions must maintain:
Local File & Master File
Country-by-Country Reporting (for large MNCs)
Arm’s Length Principle Compliance
All taxable businesses must register with the Federal Tax Authority (FTA).
Obtain a Tax Registration Number (TRN).
Businesses must file annual tax returns within nine months from the end of their financial year.
Returns must be submitted electronically through the FTA portal.
Companies must maintain accounting records for at least seven years.
Proper documentation of financial transactions and invoices is required for audits.
To encourage investment and economic growth, the UAE provides various tax incentives:
Businesses with revenues below AED 3 million can apply for tax relief.
Companies investing in research and development (R&D) can claim tax credits on eligible expenditures.
UAE businesses can offset foreign taxes paid against their UAE Corporate Tax liability, preventing double taxation.
Increased Compliance Burden: Businesses need to enhance record-keeping and financial reporting.
Operational Adjustments: Companies may need to restructure to optimize tax efficiency.
Foreign Investment Growth: Greater transparency makes the UAE more attractive to global investors.
Enhanced Business Environment: A structured tax system fosters economic stability.