Understanding Corporate Tax in Dubai: Implications for Your Business

Written By Akshaya Ashok, Reviewed By Reyees K P

Published on 17/03/2025

If you're a business owner or investor in Dubai, you're likely aware of the emirate's reputation as a tax-friendly environment. However, significant changes are on the horizon. The United Arab Emirates (UAE) has announced the implementation of a federal Corporate Tax (CT) effective for financial years starting on or after June 1, 2023.

In this article, we'll delve into the specifics of Corporate Tax in Dubai, providing a comprehensive overview to help you navigate this new landscape. By the end of this article, you'll have a thorough understanding of Dubai's Corporate Tax system, enabling you to make informed decisions and ensure compliance with the new regulations.

What is Corporate Tax in Dubai?

Corporate Tax is a direct tax levied on the net income of businesses. It ensures fair taxation across all business entities and applies to both resident and non-resident persons conducting business activities in Dubai.

In the UAE, Who is Responsible for Paying Corporate Taxes?

Corporate Tax applies to Taxable Persons, which include natural and juridical persons with business operations in Dubai.

Taxable Person

• Natural Persons: Individuals conducting business activities in the UAE and earning a turnover exceeding AED 1 million per year are subject to Corporate Tax.
• Juridical Persons: Companies and other legal entities incorporated in the UAE or effectively managed and controlled within the UAE are taxable.

Resident vs. Non-Resident Taxable Persons

Resident Taxable Persons:

• Companies incorporated in the UAE.
• Foreign companies are effectively managed and controlled in the UAE.

Non-Resident Taxable Persons:

• Foreign businesses with a Permanent Establishment (PE) in the UAE.
• Entities earning UAE-sourced income.
• Foreign entities with UAE immovable property income.

What is the Corporate Tax Rate in Dubai?

0% Tax Rate:

• Taxable income up to AED 375,000.
• Qualifying Free Zone Persons on Qualifying Income.

9% Tax Rate:

• Taxable income exceeding AED 375,000.

15% Tax Rate:

• Applies to Multinational Enterprises (MNEs) with global revenue exceeding EUR 750 million under the OECD Pillar Two Framework.

Who is Exempted from UAE Corporate Tax?

• Government Entities and Controlled Entities: Government entities and wholly owned subsidiaries performing mandated activities are exempt.
• Extractive and Non-Extractive Natural Resource Businesses: Companies engaged in oil & gas and natural resource extraction taxed at the Emirate level are exempt.
• Qualifying Public Benefit Entities and Investment Funds: Entities involved in charitable and public benefit activities are exempt.
• Free Zone Entities: Qualifying Free Zone Persons benefit from a 0% tax rate on Qualifying Income.

What is a Tax-Free Salary in the UAE?

Employment income (salaries, wages, bonuses) is not subject to Corporate Tax. Dubai does not impose personal income taxes

Compliance and Filing Requirements

• Registration: All taxable persons must register for Corporate Tax and obtain a Tax Registration Number (TRN).
• Tax Period: The standard tax period is one financial year.
• Filing Deadline: From the end of the financial year, corporate tax returns must be filed within nine months.
• Financial Records: Businesses must maintain audited financial statements and relevant records for 7 years.

Corporate Tax Free Zone Person

Qualifying vs. Non-Qualifying Income

• Qualifying Income: Income from Free Zone transactions, excluding Excluded Activities.
• Non-Qualifying Income: Income from mainland UAE transactions and certain other activities.

What are Excluded Activities?

Excluded activities include:

• Transactions with natural persons.
• Banking, insurance, and leasing businesses.
• Ownership of UAE immovable property.
• Intellectual property exploitation.

What are Qualifying and Non-Qualifying Activities?

• Qualifying Activities: Manufacturing, ship management, investment fund management, aircraft leasing, etc.
• Non-Qualifying Activities: Activities outside the defined list that generate taxable income.

Adequate Substance Requirements:

Free Zone Persons must demonstrate substantial economic activity within the Free Zone, including office space, employees, and operational expenses.

The De Minimis Requirement:

A Free Zone Person can earn a limited amount of Non-Qualifying Income, provided it does not exceed AED 5 million or 5% of total revenue.

Election to be Taxed at General Corporate Tax Rates:

Free Zone entities can elect to be taxed at standard rates (9%) instead of benefiting from the 0% Qualifying Income incentive.

Transfer Pricing and Documentation

Arm's Length Principle:

Transactions between Related Parties must be conducted at market value, ensuring fair pricing.

Documentation:

Taxable persons must maintain Transfer Pricing documentation for compliance with international tax regulations.

Small Business Relief in Corporate Tax

Small Business Relief is a provision under the UAE Corporate Tax framework designed to support small businesses by reducing their tax burden and compliance costs. This relief allows eligible businesses to avoid the obligation of calculating and paying Corporate Tax for a specific period, thereby simplifying the tax filing process.

Eligibility for Small Business Relief

To qualify for Small Business Relief, a taxable entity must meet the following conditions:

• The business's revenue must be equal to or below AED 3,000,000 in a relevant Tax Period and all previous Tax Periods ending on or before 31 December 2026.
• The business must not be a constituent company of a Multinational Enterprise Group that is required to submit a Country-by-Country Report in the UAE.
• A Qualifying Free Zone Person is not eligible to claim this relief​

Tax Group and Corporate Tax

A Tax Group allows multiple companies under common ownership to be treated as a single Taxable Person for Corporate Tax purposes​.

Eligibility Criteria

• The Parent Company must directly or indirectly:
  • Own at least 95% of share capital of each subsidiary.
  • Hold at least 95% of voting rights in the subsidiary.
  • Be entitled to at least 95% of the subsidiary’s profits and net assets​.
• All members must have the same financial year and follow the same accounting standards.
• The group cannot include Exempt Persons or Qualifying Free Zone Persons​.

Formation and Cessation

• A Tax Group is formed at the beginning of the Tax Period as specified in the application submitted to the FTA (Federal Tax Authority).
• It ceases to exist if:
  • The FTA dissolves the Tax Group upon request.
  • The Parent Company no longer meets eligibility conditions​.

Joining or Leaving a Tax Group

• A subsidiary can join an existing Tax Group by applying to the FTA with the Parent Company.
• A subsidiary must leave the Tax Group if:
  • The Parent Company and subsidiary apply for separation.
  • It no longer meets the conditions to remain in the group.
• A new Parent Company can replace the old one without discontinuing the Tax Group, subject to FTA approval​.

Tax Compliance & Responsibilities

• The Parent Company is responsible for:
  • Filing Corporate Tax returns on behalf of the entire group.
  • Ensuring compliance with tax obligations.
• All members are jointly and severally liable for Corporate Tax liabilities unless limited by the FTA​.

Calculation of Taxable Income

• The Parent Company must consolidate the financial accounts of all subsidiaries.
• Intra-group transactions must be eliminated to avoid double counting.
• Pre-existing Tax Losses from subsidiaries become part of the Tax Group’s carry-forward Tax Losses, subject to restrictions​.

Key Benefits of a Tax Group

• Simplifies tax filing by consolidating accounts into one return.
• Eliminates intra-group transactions to reduce tax burden.
• Allows utilization of Tax Losses within the group to offset profits​.

How to Calculate UAE Corporate Tax?

Corporate Tax is calculated as follows:

• Compute accounting net profit.
• Adjust for non-deductible expenses and exempt income.
• Apply the applicable Corporate Tax rate (0%, 9%, or 15%).

Corporate Tax Deadlines

The filing deadline is within 9 months after the end of the financial year.

Penalties for Corporate Tax Non-Compliance

Failure to register, file, or pay taxes on time can result in penalties imposed by the Federal Tax Authority (FTA).

Corporate Tax in Dubai

Corporate Tax in Dubai aligns the UAE with global tax standards while maintaining an attractive business environment. Businesses must comply with registration, filing, and record-keeping requirements to avoid penalties. The tax regime ensures fairness and economic growth while providing exemptions and incentives for Free Zone entities, small businesses, and government-linked entities. Reyson Badger offers expert corporate tax services tailored to your business needs, ensuring adherence to regulations while maximizing available exemptions and incentives.

Contact Reyson Badger today to ensure your business thrives within Dubai's evolving tax landscape.

Written By

Akshaya Ashok

Akshaya Ashok is a content writer specializing in creating content focused on accounting and auditing. With over two years of experience, she has developed expertise in crafting professional content for the financial sector.