Ask any UAE business owner what they know about Corporate Tax, and the first thing they can usually tell you is “0% and 9%.” That much is broadly right, but the details of how those two Corporate Tax rates actually apply, where the threshold sits, how Free Zone businesses are treated differently, and where genuine confusion tends to creep in, are worth getting precisely right rather than roughly right.
What Is the UAE Corporate Tax Rate?
The UAE applies a two-tier Corporate Tax rate structure to most taxable persons: a 0 percent rate on taxable income up to AED 375,000, and a 9 percent rate on taxable income above that threshold. This structure applies to standard taxable persons, UAE companies, foreign companies with a UAE Permanent Establishment, and individuals conducting business above the relevant threshold, under Federal Decree-Law No. 47 of 2022.
A separate rate structure applies specifically to Qualifying Free Zone Persons, covered later in this guide, and a distinct top-up tax applies to a small number of very large multinational groups under the UAE’s implementation of the OECD’s global minimum tax framework, which does not affect the standard 0 percent/9 percent structure for the vast majority of UAE businesses.
Also check: Corporate Tax Audit in UAE
The 0% Corporate Tax Rate
A 0 percent Corporate Tax rate applies to the portion of a taxable person’s taxable income up to AED 375,000. This is not an exemption or a relief that needs to be separately claimed; it is simply the rate that applies to income within that band, built into the standard rate structure itself.
Every taxable person, regardless of size, benefits from this 0 percent band on the first AED 375,000 of taxable income. A large, highly profitable company and a small business both pay 0 percent on that same initial portion of their taxable income; the 0 percent band is not a small-business-only feature, even though it is often discussed in that context.
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The 9% Corporate Tax Rate
A 9 percent Corporate Tax rate applies to taxable income above AED 375,000. This is the standard rate for the portion of a business’s taxable income that exceeds the 0 percent threshold, and it is generally regarded as a competitive rate relative to corporate tax rates in many other jurisdictions internationally.
The 9 percent rate applies only to the excess above AED 375,000, not to a business’s entire taxable income once that threshold is crossed. This distinction, between a rate that applies to all income once a threshold is exceeded and a rate that applies only to the portion above the threshold, is the single most common point of confusion in how UAE Corporate Tax rates actually work.
Check: Corporate Tax Audit Services
How the Corporate Tax Rates Work Together
UAE Corporate Tax rates apply progressively, meaning the 0 percent and 9 percent rates are layered on top of each other rather than one rate applying to a business’s entire taxable income based on which band it falls into. The first AED 375,000 of taxable income is always taxed at 0 percent, and only the amount above that figure is taxed at 9 percent, regardless of how large a business’s total taxable income turns out to be.
| Taxable Income Band | Rate |
|---|---|
| AED 0 to AED 375,000 | 0% |
| Above AED 375,000 | 9% |
Examples of Corporate Tax Rate Application
A few simple examples make the progressive structure concrete.
Example 1. A business has taxable income of AED 300,000 for the period. Since this falls entirely within the 0 percent band, the business owes AED 0 in Corporate Tax.
Example 2. A business has taxable income of AED 375,000 exactly. The entire amount falls within the 0 percent band, so the business owes AED 0 in Corporate Tax.
Example 3. A business has taxable income of AED 700,000 for the period. The first AED 375,000 is taxed at 0 percent, producing AED 0. The remaining AED 325,000 is taxed at 9 percent, producing AED 29,250. The business’s total Corporate Tax liability for the period is AED 29,250.
Example 4. A business has taxable income of AED 2,000,000 for the period. The first AED 375,000 is taxed at 0 percent, producing AED 0. The remaining AED 1,625,000 is taxed at 9 percent, producing AED 146,250. The business’s total Corporate Tax liability for the period is AED 146,250.
These examples apply the rates directly to a given taxable income figure. Arriving at taxable income itself, starting from accounting profit and applying tax adjustments, exemptions, and reliefs, is a separate calculation covered in full in our complete Corporate Tax guide.
Free Zone Corporate Tax Rates
Free Zone companies are subject to UAE Corporate Tax, but they are not automatically taxed under the same 0 percent/9 percent structure that applies to standard taxable persons. A Free Zone business that does not meet the conditions to be treated as a Qualifying Free Zone Person is generally taxed under the standard rate structure like any other taxable person, the same 0 percent up to AED 375,000, 9 percent above it, rather than benefiting from any separate Free Zone rate.
A Free Zone business that does meet the required conditions, however, is taxed under an entirely separate rate structure specific to Qualifying Free Zone Persons, described below.
Qualifying Free Zone Person Tax Treatment
A Qualifying Free Zone Person is subject to a 0 percent Corporate Tax rate on its Qualifying Income, and the standard 9 percent rate on any Taxable Income that does not meet the definition of Qualifying Income. This is a materially different structure from the standard 0 percent/9 percent bands: there is no AED 375,000 threshold involved in the QFZP rate structure at all. A Qualifying Free Zone Person’s Qualifying Income is taxed at 0 percent regardless of how large that income is, while any non-qualifying income is taxed at the full 9 percent rate from the first dirham, without a separate 0 percent band applying to it.
| Income Type | Standard Taxable Person | Qualifying Free Zone Person |
|---|---|---|
| Income up to AED 375,000 | 0% | 0% if Qualifying Income; 9% if not |
| Income above AED 375,000 | 9% | 0% if Qualifying Income; 9% if not |
Maintaining QFZP status requires meeting a specific set of ongoing conditions covering substance, qualifying income categories, audited financial statements, and transfer pricing compliance, covered in full in our dedicated guide to Qualifying Free Zone Person status.
Also check: Corporate Tax Services in UAE
Small Business Relief and Corporate Tax Rates
Small Business Relief is often confused with the 0 percent rate band, but the two are distinct mechanisms with different thresholds. The standard 0 percent band applies automatically to the first AED 375,000 of taxable income, for any taxable person, with no election required. Small Business Relief, by contrast, is an elective relief available to eligible Resident Persons with revenue at or below AED 3,000,000, that treats a business as having no taxable income at all for the period, effectively producing a 0 percent outcome on its entire revenue, not just the first AED 375,000.
Small Business Relief must be actively elected within the Corporate Tax return for each eligible period and is only available for Tax Periods ending on or before 31 December 2026, making it a temporary relief rather than a permanent feature of the rate structure. A business does not need Small Business Relief to benefit from the standard 0 percent band; that band applies regardless. A full discussion of Small Business Relief eligibility and trade-offs is covered separately in our complete Corporate Tax guide.
Common Corporate Tax Rate Misconceptions
Several misunderstandings about UAE Corporate Tax rates recur often enough to be worth addressing directly. The most common is assuming that once taxable income exceeds AED 375,000, the entire amount is taxed at 9 percent. In reality, only the portion above AED 375,000 is taxed at 9 percent; the first AED 375,000 always remains at 0 percent regardless of total taxable income.
Another frequent misconception treats the AED 375,000 threshold and the AED 3,000,000 Small Business Relief threshold as the same figure or the same mechanism. They are entirely separate: AED 375,000 is the taxable income band that determines which rate applies under the standard structure, while AED 3,000,000 is a revenue threshold that determines eligibility for a separate, elective, and temporary relief. A business can be well below AED 3,000,000 in revenue and still owe Corporate Tax if it has taxable income above AED 375,000 without electing Small Business Relief.
A third misconception assumes that Free Zone incorporation automatically means a 0 percent rate on all income. Free Zone status alone does not create any special rate treatment; only meeting the specific QFZP conditions does, and even then, only Qualifying Income benefits from the 0 percent rate, with non-qualifying income taxed at 9 percent. Finally, some businesses assume the 0 percent band is a benefit reserved for small businesses specifically, when in fact every standard taxable person, regardless of size, benefits from the same 0 percent treatment on their first AED 375,000 of taxable income.
Frequently Asked Questions (FAQs)
What is the Corporate Tax rate in the UAE?
Does the 9% Corporate Tax rate apply to all income once the threshold is exceeded?
Is the AED 375,000 threshold the same as the Small Business Relief threshold?
What Corporate Tax rate applies to Free Zone companies?
Does the 0% rate only apply to small businesses?
How is Corporate Tax calculated using the rates?
Do Qualifying Free Zone Persons get the AED 375,000 threshold too?
Need Expert Advice?
Contact the team at Farahat & Co. for professional support and expert insights for businesses operating in the UAE.
How Farahat & Co. Can Help
Understanding the rates is one part of the full Corporate Tax picture. For a complete overview of taxable income, deductions, registration, and filing, see our complete UAE Corporate Tax guide.
Farahat & Co. helps UAE businesses apply the correct Corporate Tax rate structure, including Qualifying Free Zone Person and Small Business Relief eligibility, to their specific position.
Contact Farahat & Co. today to discuss your Corporate Tax requirements.
