“Applicable Taxable Income” Threshold Under UAE Corporate Tax Confirmed

Regardless of how many businesses or commercial activities a taxable person engages in during a tax period, a 0% rate applies to taxable income that doesn’t exceed AED 375,000. Where taxable income for the applicable tax period exceeds AED 375,000, tax applies at 9% on the amount above that threshold. This taxable income threshold was established by the UAE’s Ministry of Finance when Federal Decree-Law No. 47 of 2022, the UAE Corporate Tax Law, was published in December 2022.

Businesses became liable for UAE Corporate Tax from the start of their first fiscal year beginning on or after 1 June 2023. The threshold and rate structure were deliberately chosen to reflect a fair, competitive Corporate Tax policy, and the 9% rate above AED 375,000 remains genuinely competitive compared to many other jurisdictions, reinforcing the UAE’s position as a leading business and investment destination.

Also check: Corporate Tax Services in UAE

To Whom Does Corporate Tax Apply?

The following “Taxable Persons” are generally subject to Corporate Tax:

1. UAE businesses and other legal entities that are incorporated, effectively managed, and controlled in the UAE
2. Natural persons (individuals) conducting business or engaging in commercial activity in the UAE, where their turnover from that activity exceeds AED 1,000,000 in a Gregorian calendar year
3. Non-resident juridical persons with a permanent establishment in the UAE
4. Legal entities established in a UAE Free Zone, also considered Taxable Persons for Corporate Tax purposes and subject to the applicable Corporate Tax Law provisions

A Free Zone Person meeting the requirements to be regarded as a Qualifying Free Zone Person may benefit from a 0% Corporate Tax rate on their qualifying income specifically.

Where a non-resident individual doesn’t have a permanent establishment in the UAE, or receives income from the UAE unrelated to their permanent establishment, withholding tax may apply, currently set at a rate of 0%. Withholding tax is collected by the payer at the source, for the benefit of the income recipient. Many tax systems apply withholding tax, commonly when dividends, interest, royalties, and similar income types are paid internationally.

Must check: Corporate Tax Registration

Worked Example: Applying the AED 375,000 Threshold

A UAE company generates AED 900,000 in taxable income for the tax period, operating across two separate business activities. Regardless of how that income is split between the two activities, the AED 375,000 threshold applies once, at the level of the taxable person overall, not separately per activity. The first AED 375,000 of the combined taxable income is taxed at 0%, and the remaining AED 525,000 is taxed at 9%, giving Corporate Tax payable of AED 47,250. A common misunderstanding is assuming the 0% threshold applies separately to each business activity, it doesn’t, the threshold applies once per taxable person across their combined taxable income for the period.

How Does a Taxable Person Become Liable to Corporate Tax?

The UAE Corporate Tax Law taxes revenue on a residency and source basis, similar to the tax systems of most nations. A taxable person’s categorization determines which taxation basis applies:

• Income from both domestic and foreign sources is taxed for Resident Persons, a residence basis
• Only income sourced from within the UAE is taxed for Non-Resident Persons, a source basis

For Corporate Tax purposes, residence is defined by specific elements set out in the UAE Corporate Tax Law, rather than by a person’s general residence or domicile. A person who doesn’t meet the requirements to be either a Resident Person or a Non-Resident Person isn’t considered a Taxable Person, and isn’t liable to Corporate Tax.

What Is a Business Activity?

The UAE Cabinet defines a “business” as an activity conducted regularly, on an ongoing and independent basis, by any person, in any location, including industrial, commercial, agricultural, vocational, professional, service, or excavation activities, or any other activity related to the use of tangible or intangible property.

A “business activity” is described as any transaction or activity, or series of transactions or activities, conducted by any natural or juridical person in the course of their business.

Frequently Asked Questions (FAQs)

How Farahat & Co. Can Help

Farahat & Co., a trusted Tax Firm in UAE, helps businesses and individuals determine Corporate Tax liability, apply the correct thresholds, and manage tax compliance obligations.

Contact Farahat & Co. today to discuss your Corporate Tax requirements.