UAE’s New Corporate Tax Policy on Entities – An Overview

UAE Corporate Tax: An Overview of the Current Regime

For decades, the UAE was known for a zero personal and corporate tax environment, one of the main draws for individuals and businesses evaluating the market. That changed when the Ministry of Finance (MoF) introduced a federal Corporate Tax regime, which is now fully in effect and shapes how nearly every business in the country operates and reports its income.

One of the main objectives behind the change was aligning the UAE with the OECD’s (Organisation for Economic Co-operation and Development) framework for international tax coordination, a body built around member states collaborating on sustainable, equitable economic growth.

The OECD’s Two-Pillar Framework Behind UAE Corporate Tax

Following the OECD’s “Two-Pillar” statement, more than 130 countries representing over 90% of global GDP agreed to reform international tax rules so that multinational enterprises pay a fair share of tax regardless of where they operate. The two pillars are:

1. Pillar One. Reallocates taxing rights over more than USD 100 billion in profits to market jurisdictions each year.
2. Pillar Two. Establishes a global minimum tax rate of 15% for large multinational enterprise groups.

The goal of the reform was to stop large multinational groups from shifting profits into low-tax jurisdictions purely to minimize their overall liability, and instead have them pay tax where genuine economic activity takes place.

UAE Corporate Tax Law and Who It Applies To

The Ministry of Finance officially announced the Corporate Tax regime on 31 January 2022, and it came into force for financial years beginning on or after 1 June 2023. Under Federal Decree-Law No. 47 of 2022, Corporate Tax is the governing law for UAE businesses, with the Federal Tax Authority (FTA) responsible for its implementation, collection, and administration.

Corporate Tax applies to commercial and business entities, as well as individuals earning income as freelancers or through other business activity above the AED 1,000,000 annual turnover threshold. In practice, any legal entity carrying out commercial activity is generally within scope, and an individual operating through a registered business entity is liable in the same way a company is.

The regime also extends to entities operating in free zones, though whether a free zone business actually pays 0% depends on whether it meets the Qualifying Free Zone Person (QFZP) conditions under the framework that applies to its specific free zone, covered in more detail below.

UAE Corporate Tax Rates Explained

Entities with annual taxable income of AED 375,000 or below are taxed at 0%. Taxable income above AED 375,000 is taxed at 9% on the excess only, not on the full amount. This tiered structure means every taxable entity benefits from the 0% band on its first AED 375,000, regardless of overall size.

The Domestic Minimum Top-Up Tax for Large Multinationals

Large multinational enterprise groups sit under a separate, confirmed rate structure. Under Cabinet Decision No. 142 of 2024, the UAE’s Domestic Minimum Top-Up Tax (DMTT) took effect on 1 January 2025, applying a 15% minimum tax rate to multinational groups with consolidated global revenue of EUR 750,000,000 or more, in line with the OECD’s Pillar Two framework. This is not a future proposal, it is a confirmed, currently effective rule aimed specifically at the large multinational groups the OECD reform was designed to capture.

Categories Generally Exempt From UAE Corporate Tax

• Employment income of an individual, including salary, whether from the public or private sector
• Real estate investment carried out by an individual in a personal capacity, unless a commercial or business license is genuinely required for that activity
• Dividends and similar income individuals earn from personal shareholding in corporations
• Income earned through bank deposits or other personal savings products
• Businesses engaged in the extraction of natural resources, which instead fall under a separate scheme governed by the applicable law of the relevant emirate

Loss Utilization Under the UAE Corporate Tax Regime

Businesses can use losses they have incurred to offset taxable income when calculating Corporate Tax payable. A loss arises, for this purpose, where total deductions exceed income for the relevant period, subject to the carry-forward conditions and limitations set out in Corporate Tax law and its implementing decisions.

Related: Corporate Tax Audit in UAE

UAE Corporate Tax Registration, Filing, and Record-Keeping Deadlines

Registration is not optional and is not tied to whether a business expects to owe any tax. Every taxable person, including entities that ultimately fall within the 0% band, must register for Corporate Tax within 3 months of incorporation and obtain a Tax Registration Number from the FTA. Missing this step has consequences even if no tax is actually due for the period.

Once registered, the Corporate Tax return is due within 9 months of the end of the relevant financial year. A business with a financial year ending 31 December, for example, has until 30 September of the following year to file and settle any liability. Businesses should keep accounting and supporting records for 7 years from the end of the relevant tax period. Where a tax refund request is pending, that retention period extends by an additional 2 years, to 9 years in total, under Cabinet Decision No. 17 of 2026, effective 1 April 2026.

Audited financial statements are also mandatory, regardless of revenue, for all Qualifying Free Zone Persons, for any taxable person with revenue above AED 50,000,000, and for all Tax Groups, under Ministerial Decision No. 84 of 2025, effective for tax periods starting from 1 January 2025. Businesses outside those categories can still be required to prepare audited or reviewed accounts depending on their free zone’s own rules or the FTA’s request during an audit.

Also check: Corporate Tax Registration Services

Penalties for Late Corporate Tax Registration and Filing

Under Cabinet Decision No. 129 of 2025, late payment of Corporate Tax carries interest of 14% per annum, calculated on the outstanding amount. Late filing of the Corporate Tax return is penalized separately, starting at AED 500 per month and rising to AED 1,000 per month for continued non-compliance. These penalties apply in addition to, not instead of, the tax actually owed, and they accrue from the missed deadline regardless of whether the delay was intentional.

Because registration itself has a fixed 3-month deadline from incorporation, businesses that assume they can register “closer to filing time” are already exposed to a penalty before their first return is even due. The safest approach is to treat registration as a day-one compliance task, not a pre-filing formality.

Must check: Corporate Tax filling in UAE

Small Business Relief, Qualifying Free Zone Persons, and a Worked Example

Not every entity pays Corporate Tax under the standard 0%/9% split described above. Two other categories change the calculation significantly:

• Small Business Relief. Resident taxable persons with revenue under AED 3,000,000 in the relevant and prior tax periods can elect to be treated as having no taxable income for Corporate Tax purposes. This is an election, not an automatic status, and it comes with trade-offs, including giving up the ability to carry forward tax losses generated during an elected period. A business with strong margins but limited revenue can genuinely benefit here; one expecting to report losses may be better off staying in the standard regime.
• Qualifying Free Zone Person (QFZP). A free zone entity only reaches the 0% rate on qualifying income if it meets five conditions: maintaining adequate substance in the UAE, earning qualifying income as defined for its activity, keeping non-qualifying revenue under the lower of AED 5,000,000 or 5% of total revenue, preparing audited financial statements, and complying with transfer pricing rules. Breaching any one of these conditions means QFZP status is lost for that period and the following 4 periods, five periods in total, during which the entity is taxed at standard rates rather than the 0% qualifying rate.

To see how the standard rate actually plays out, take a mainland trading company with AED 900,000 in taxable income for the year. The first AED 375,000 is taxed at 0%, leaving AED 525,000 taxed at 9%, for a Corporate Tax liability of AED 47,250. If that same company instead had annual revenue under AED 3,000,000 and elected for Small Business Relief, it would owe no Corporate Tax for that period at all, though it would also forgo carrying forward any losses from that year.

How Farahat & Co. Can Help

Farahat & Co. supports UAE businesses with Corporate Tax registration, return preparation and filing, Small Business Relief and QFZP eligibility assessments, and audit readiness under the current Corporate Tax and Domestic Minimum Top-Up Tax rules.

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