The introduction of Corporate Tax in the UAE has significant implications for professional services firms, including legal consultancies, accounting firms, marketing agencies, architecture and engineering consultancies, IT service providers, and management consultants. These businesses, which operate on intellectual capital and service-based revenue, must now align their financial and operational systems with the new corporate tax compliance framework introduced by Federal Decree-Law No. 47 of 2022.
This blog offers a comprehensive look into how Corporate Tax affects professional services firms, including registration requirements, taxable income, deductions, recordkeeping, and compliance strategies.
Need professional guidance to navigate UAE Corporate Tax rules for your services firm? PEAK Business Consultancy Services provides expert VAT and Corporate Tax consulting to ensure your business is fully compliant and tax-efficient.
Who Is Subject to Corporate Tax?
Professional services firms operating under a commercial license—whether as sole proprietorships, civil companies, or limited liability companies (LLCs)—are subject to UAE Corporate Tax if their annual taxable income exceeds AED 375,000.
This includes firms engaged in:
- Legal and compliance advisory
- Audit, bookkeeping, and tax consultancy
- Software development and IT consulting
- Management and HR consultancy
- Architecture and interior design
- Marketing, advertising, and PR services
Entities not engaged in business, such as freelancers without a license or purely personal investments, are not subject to Corporate Tax.
Tax Rate and Threshold
The standard Corporate Tax structure is as follows:
- 0% on taxable income up to AED 375,000
- 9% on taxable income above AED 375,000
The threshold provides relief to small service providers and startups but requires larger or established firms to file and pay tax on net profits.
Taxable Income for Services Firms
For professional services firms, taxable income includes:
- Service fees and retainers
- Hourly consulting charges
- Commission or incentive-based income
- Licensing or IP-based income (e.g., software rights)
- Reimbursement of project-related expenses (unless excluded)
It’s important to correctly classify and recognize revenue under IFRS-compliant accounting methods, as financial statements form the base for tax computation.
PEAK Business Consultancy Services helps firms structure their chart of accounts and reporting for seamless Corporate Tax filing.
Deductible Business Expenses
Firms can reduce their taxable income by claiming legitimate business expenses, such as:
- Employee salaries and benefits
- Office rent and utilities
- Professional indemnity insurance
- Marketing and client acquisition costs
- Legal and accounting fees
- Training and certification expenses
Capital expenditures are subject to depreciation (capital allowances), and certain non-deductible expenses—like personal expenses and fines—must be excluded.
Corporate Tax and Freelancers
Freelancers and consultants operating under a sole proprietorship or freelancer license are considered natural persons. They are liable to register and file Corporate Tax returns only if their revenue from business activities exceeds AED 1 million annually.
This threshold ensures small, independent professionals aren’t overburdened with compliance obligations unless they cross a meaningful revenue level.
Free Zones and Qualifying Income
Some professional services firms are registered in UAE Free Zones. If they meet the criteria to be classified as a “Qualifying Free Zone Person” and earn “Qualifying Income,” they may benefit from a 0% Corporate Tax rate.
However, if the firm earns income from mainland UAE customers or fails to meet substance requirements, it will be subject to the standard 9% tax on all profits.
Understanding whether your services fall under qualifying income is crucial—and PEAK Business Consultancy Services can help assess this and structure your business accordingly.
Transfer Pricing and Related Party Rules
If your firm deals with related parties—such as directors’ personal companies or international group entities—you must comply with Transfer Pricing (TP) regulations. TP documentation is mandatory for larger firms with AED 50 million or more in revenue or cross-border arrangements.
Required documentation includes:
- Transfer Pricing Disclosure Form
- Local File and Master File (for larger firms)
- Arm’s Length pricing justifications
Bookkeeping and Audit Requirements
All professional services firms subject to Corporate Tax must:
- Maintain accounting records for 7 years
- Prepare annual financial statements
- Submit returns via the EmaraTax portal within 9 months of financial year-end
While audit is not mandatory for all firms, having audited financials enhances credibility and reduces FTA scrutiny.
Let PEAK Business Consultancy Services manage your bookkeeping, compliance, and audit coordination to ensure you meet all legal requirements.
Filing Process and Timeline
Corporate Tax Returns are submitted online through the FTA’s EmaraTax platform. The return includes details of income, expenses, adjustments, and final tax liability. Returns must be filed and paid within 9 months from the end of the financial year.
Example: For a firm with a financial year ending 31 December 2024, the return and tax must be filed by 30 September 2025.
Penalties and Non-Compliance Risks
Failure to register, file, or pay Corporate Tax may attract penalties, including:
- AED 10,000 for non-registration
- Monthly late filing penalties
- Interest on delayed payments
- FTA audits and reputational risk
Conclusion
The Corporate Tax regime in the UAE has ushered in a new era of financial accountability for professional services firms. From sole practitioners to large consulting groups, all entities must adopt compliant structures, track income and expenses accurately, and file timely tax returns. Failure to comply can be costly—not just in monetary terms but also in client trust and operational disruptions.
Don’t let Corporate Tax regulations overwhelm your professional practice. Get expert assistance from PEAK Business Consultancy Services—your trusted partner for VAT and Corporate Tax solutions in the UAE. We tailor our services to meet the unique needs of professional firms across all sectors.
Visit PEAKBCS.com to book your consultation and simplify your tax compliance journey.
