The introduction of the UAE Corporate Tax regime from June 1, 2023, has brought significant changes to how businesses evaluate their legal structures. While previously business owners focused primarily on operational ease and regulatory benefits when choosing a legal form, corporate tax now adds another crucial layer of consideration. The type of legal structure directly affects taxability, filing obligations, access to exemptions, and eligibility for group relief. In this comprehensive guide, we’ll explore the major legal structures in the UAE and their tax implications under the new corporate tax regime.
1. Overview of the UAE Corporate Tax Regime
The UAE Corporate Tax regime applies to juridical persons incorporated or effectively managed in the UAE and natural persons (individuals) conducting a business under a license. The general tax rate is 9% on taxable income exceeding AED 375,000. Certain exemptions and reliefs are available depending on the entity type and activity. The Federal Tax Authority (FTA) oversees administration and compliance.
Understanding your entity’s legal classification is critical, as it determines your corporate tax obligations, exemptions, and documentation requirements.
2. Limited Liability Company (LLC)
LLCs are among the most common legal forms in the UAE mainland. They are treated as separate juridical persons and are fully subject to corporate tax on their taxable income.
Tax Implications:
- Subject to 9% corporate tax on income above AED 375,000
- Required to register with the FTA and file annual returns
- Eligible for tax group formation and intra-group reliefs (if part of a group)
- Must maintain IFRS-based financial statements
LLCs with related-party transactions must also comply with transfer pricing rules and maintain documentation accordingly.
3. Free Zone Company (FZC / FZE / FZ-LLC)
Entities established in UAE Free Zones enjoy special tax incentives. However, under the corporate tax regime, only “Qualifying Free Zone Persons” (QFZPs) are eligible for the 0% tax rate on qualifying income.
Tax Implications:
- 0% tax on qualifying income (e.g., income from other Free Zone entities or international customers)
- 9% tax on non-qualifying income (e.g., income from mainland UAE customers)
- Must maintain adequate substance in the UAE
- Subject to transfer pricing and reporting requirements
- Obliged to prepare audited financial statements
Businesses must carefully structure operations and transactions to retain QFZP status and related tax benefits.
4. Sole Establishment
A sole establishment is owned by a single individual who is personally liable for business obligations. If the individual is conducting a licensed business activity in the UAE, they may fall within the scope of corporate tax.
Tax Implications:
- Taxable if gross income from business exceeds AED 1 million annually
- Income is treated as business income, not personal income
- Subject to standard 9% tax above the AED 375,000 threshold
- Individual must register for tax and maintain proper financial records
Passive income (such as dividends and rental income) outside a commercial license is not subject to corporate tax for natural persons.
5. Civil Company / Professional License
Civil companies and individuals practicing professions (e.g., doctors, lawyers, consultants) under professional licenses may be classified as natural persons or juridical persons depending on the business structure.
Tax Implications:
- If treated as a natural person: taxed if business income exceeds AED 1 million
- If incorporated as a juridical person: taxed under the standard corporate tax regime
- Transfer pricing may apply for related-party services
Professional firms must evaluate whether incorporation is beneficial for liability protection and tax planning.
6. Branch of a Foreign Company
Branches of foreign companies operating in the UAE are considered extensions of the parent company and are generally subject to corporate tax on UAE-sourced income. However, foreign-source income may be exempt depending on tax treaties.
Tax Implications:
- Taxable on income generated within the UAE
- Eligible for deductions as per UAE tax laws
- May need to apply double tax treaties to avoid taxation in the parent jurisdiction
- Transfer pricing rules apply to cross-border transactions with the head office
Branches of foreign banks and oil companies may be subject to separate sector-specific tax regimes.
7. Private Joint Stock Company (PJSC) / Public Joint Stock Company
These are complex corporate structures commonly used by large enterprises and listed entities. They are treated as resident juridical persons and fully fall under the corporate tax regime.
Tax Implications:
- Fully subject to UAE Corporate Tax
- Required to comply with public reporting and audit obligations
- Often involved in cross-border transactions—transfer pricing compliance is crucial
- May benefit from tax group relief and intra-group transactions exemption
8. PEAK Business Consultancy Services: Strategic Tax Structuring
Choosing the right legal structure is more important than ever under the UAE Corporate Tax regime. PEAK Business Consultancy Services is a trusted VAT and Corporate Tax consultancy helping UAE businesses select optimal legal forms, restructure entities, and comply with new tax rules.
Whether you’re setting up a new company, restructuring an existing group, or looking to maximize tax efficiency, PEAK BCS provides expert, customized solutions to meet your needs.
Learn more at https://www.peakbcs.com/ and schedule a consultation today.
9. Key Considerations When Choosing or Reviewing Legal Structure
- Tax efficiency: Determine whether the structure qualifies for exemptions or 0% tax
- Compliance burden: Understand the reporting, audit, and documentation requirements
- Transfer pricing obligations: Evaluate related-party exposure
- Access to tax groups: Ensure eligibility for consolidated filing and loss sharing
- Legal liability and governance: Consider the owner’s exposure to legal claims
These elements should be reviewed regularly, especially when expanding operations or entering new markets.
10. Conclusion
Each legal structure in the UAE carries specific tax implications under the new Corporate Tax regime. Businesses must now factor tax compliance, eligibility for incentives, and operational realities into their entity formation and restructuring decisions. Ignoring these elements could lead to higher tax burdens, missed reliefs, and costly penalties.
By working with experts like PEAK Business Consultancy Services, companies can align their legal structure with strategic tax goals while staying fully compliant with the law. Whether you’re a startup, SME, or multinational, PEAK BCS has the knowledge and experience to guide your entity toward a more tax-efficient future.
Get in touch with PEAK BCS at https://www.peakbcs.com/ and future-proof your business under the UAE Corporate Tax system.
