On June 1, 2023, the United Arab Emirates (UAE) officially entered a new era of fiscal policy by implementing a federal Corporate Tax (CT) regime. Designed to align with international tax standards while supporting the UAE’s vision for economic diversification, the new corporate tax structure brings the country in line with OECD tax principles and global best practices. This blog provides an in-depth look at the key features of the UAE Corporate Tax regime, outlining what businesses need to know to stay compliant and optimize their tax strategies.
1. Scope and Applicability
The UAE Corporate Tax regime applies to all juridical persons (e.g., LLCs, PSCs, PJSCs) that are incorporated or effectively managed and controlled in the UAE. It also applies to foreign entities with a permanent establishment (PE) in the UAE. The tax is levied on the net profits of businesses derived from commercial activities conducted within the UAE.
Natural persons (individuals) are subject to corporate tax only if they are engaged in a business activity under a commercial license. Passive income such as dividends, interest, and capital gains not related to business activity remains outside the scope for individuals.
2. Corporate Tax Rates
The UAE Corporate Tax system adopts a progressive rate structure aimed at supporting small businesses while maintaining competitiveness for large enterprises. The key rates include:
- 0% on taxable income up to AED 375,000
- 9% on taxable income exceeding AED 375,000
- A different rate (yet to be confirmed) may apply to large multinational corporations subject to Pillar Two of the OECD BEPS 2.0 framework
This low rate is among the most competitive globally, reinforcing the UAE’s position as a favorable business hub.
3. Exempt Persons
Certain entities are exempt from UAE Corporate Tax, including:
- Government entities
- Government-controlled entities (subject to conditions)
- Extractive businesses and non-extractive natural resource businesses (if meeting exemption conditions)
- Qualifying public benefit entities
- Qualifying investment funds
- Pension or social security funds
These exemptions ensure that key strategic and social sectors remain supported under the new tax structure.
4. Free Zone Entities
Free zone businesses can benefit from a 0% Corporate Tax rate on “Qualifying Income” provided they meet the conditions of being a “Qualifying Free Zone Person.” These conditions include maintaining adequate substance in the UAE, deriving qualifying income, and complying with transfer pricing rules.
Non-qualifying income earned by free zone entities may be subject to the standard 9% rate. Businesses must carefully assess whether their income and activities qualify to maintain tax benefits.
5. PEAK Business Consultancy Services: Your Tax Compliance Partner
Adapting to the UAE’s new corporate tax environment requires a structured and expert-driven approach. PEAK Business Consultancy Services is a trusted consultancy firm offering end-to-end solutions for VAT, Corporate Tax, and regulatory compliance in the UAE.
Whether you need help registering for corporate tax, preparing financial statements, assessing free zone eligibility, or developing tax planning strategies, PEAK BCS can assist you at every stage.
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6. Taxable Income Calculation
Taxable income is based on the accounting net profit as reported in financial statements prepared under International Financial Reporting Standards (IFRS). Certain adjustments, such as unrealized gains/losses, exempt income, and non-deductible expenses, must be made to arrive at the taxable base.
Businesses must maintain accurate records, prepare audited financial statements, and ensure transparency in revenue and expense recognition.
7. Transfer Pricing and Related Party Transactions
Transfer pricing regulations have been introduced to ensure that transactions between related parties are conducted at arm’s length. Businesses must maintain appropriate documentation, including:
- Transfer Pricing Disclosure Forms
- Master File and Local File (subject to threshold)
- Benchmarking and economic analysis for intercompany transactions
Non-compliance with transfer pricing obligations can lead to penalties, tax reassessments, and reputational damage.
8. Loss Carry Forward and Utilization
Businesses are allowed to carry forward tax losses incurred from the first tax year to future years, subject to certain limitations. Losses can be offset against up to 75% of taxable income in subsequent periods.
Group companies may also be able to transfer tax losses to each other under qualifying conditions, helping optimize tax planning across the group.
9. Tax Groups
UAE Corporate Tax allows the formation of tax groups, whereby two or more UAE-resident companies can file a single consolidated tax return. To form a group, the parent company must hold at least 95% of the shareholding, voting rights, and entitlement to profits.
This simplifies compliance and may allow for intra-group tax planning and offsetting of profits and losses across group entities.
10. General Anti-Avoidance Rules (GAAR)
The law includes General Anti-Avoidance Rules that empower the FTA to disregard or recharacterize transactions that are undertaken primarily for tax avoidance purposes. Businesses must ensure their transactions have genuine commercial substance and not just tax benefits.
Proper documentation and business rationale are critical to defending transactions during audits.
11. Registration and Filing Obligations
All businesses within the scope of Corporate Tax must register with the Federal Tax Authority (FTA), even if they are exempt or have no taxable income. Tax returns must be filed within 9 months of the end of the relevant financial year.
Failure to register or file on time can result in administrative penalties and interest on unpaid taxes.
12. PEAK BCS: End-to-End Tax Support
PEAK Business Consultancy Services provides a full spectrum of Corporate Tax services, including:
- Tax registration and compliance advisory
- Transfer pricing documentation
- Financial statement review and adjustments
- Free zone entity analysis and restructuring
- Tax group formation support
- FTA audit preparation and representation
With deep industry knowledge and a results-oriented approach, PEAK BCS is committed to helping your business thrive in the UAE’s new tax landscape.
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13. Conclusion
The introduction of Corporate Tax marks a transformative step for the UAE’s economy, signaling maturity, transparency, and alignment with global standards. While the regime offers numerous advantages like competitive rates, exemptions, and loss carry-forwards, businesses must invest in proper compliance, planning, and advisory support.
Firms like PEAK Business Consultancy Services are equipped to guide UAE businesses through this transition and help them meet all their corporate tax obligations with confidence.
Prepare today to remain competitive tomorrow. Get in touch with PEAK BCS at https://www.peakbcs.com/ and build your path to tax compliance and success.
