UAE Corporate Income Tax

What is corporate tax?

Corporate Income Tax (CIT) is a direct tax levied on the net income or profits generated by corporations and other business entities.

Contributing Advisor

Jacob Thomas

Senior Associate, Corporate Accounting Services

The CIT framework in the UAE is governed primarily by Federal Decree-Law No. (47) of 2022, with subsequent amendments introduced in Federal Decree-Law No. (60) of 2023. Together, these laws set out the detailed requirements for CIT, including its scope, rates, and exemptions. Under these provisions, corporate tax applies to businesses with annual profits above AED 375,000, with taxable profits below this threshold remaining exempt. Additionally, a 9 percent CIT rate applies to eligible profits above AED 375,000, with a specialized, yet-to-be-determined rate for certain large multinational entities that meet criteria related to the OECD’s Pillar Two global minimum tax rule.

The Federal Tax Authority (FTA) is tasked with administering and enforcing CIT, ensuring compliance across all Emirates. The FTA provides businesses with guidelines on registration, tax filing, and payment procedures, further supporting businesses in navigating the new tax requirements.

Effective dates and transitional provisions

The CIT law took effect on June 1, 2023, with its initial application determined by each business’s specific financial year. For example, companies whose fiscal year begins on June 1, 2023, will fall under the CIT regime as of that date, with their first tax filings expected toward the end of 2024. Similarly, companies following a calendar year beginning January 1, 2024, will see their CIT obligations start from that date, with filings likely due by mid-2025.

Corporate tax rates and scope in the UAE

Tax rates

The UAE’s Corporate Income Tax (CIT) system, enacted as of June 1, 2023, implements a progressive tax structure designed to balance growth incentives for small businesses with sustainable revenue generation from larger corporations. Under this framework:

Who are the subjects of Corporate Tax in the UAE?

The UAE’s Corporate Tax (CIT) law, introduced in June 2023, outlines specific categories of “Taxable Persons” required to pay CIT based on their residency status, business activities, and connection to the UAE market. Here’s a breakdown of who falls under the UAE’s CIT obligations.

Resident Persons

Resident Persons are subject to CIT on their global income, which includes both UAE-sourced and foreign-sourced revenue. This category encompasses:

• UAE Incorporated Entities: Companies and other juridical entities incorporated in the UAE are automatically classified as Resident Persons. This includes businesses formed under mainland regulations, free zone authorities, or by special legislative decree.
• Foreign Entities with Effective Management in the UAE: Foreign entities with primary management activities within the UAE—meaning strategic and commercial decisions are largely made within the country—are also considered resident taxpayers and liable for CIT on their worldwide income.
• Natural Persons Conducting Business: Individuals engaged in business activities that generate income within the UAE are also subject to CIT as Resident Persons. However, this only applies to income derived from business activities specifically defined in a Cabinet Decision, excluding personal income from employment or personal investments.

Non-Resident Persons

Non-Resident Persons are foreign juridical entities not incorporated or managed within the UAE but may still have CIT obligations based on certain criteria. Non-residents are taxed only on income sourced from within the UAE. This includes:

• Permanent Establishments (PE): Foreign businesses that establish a Permanent Establishment (PE) in the UAE, such as through a branch, office, or other fixed site, are liable for CIT on UAE-sourced income directly tied to the PE. A PE represents a level of ongoing commercial presence sufficient to trigger taxation in the UAE.
• UAE-Sourced Income: Non-residents who do not have a PE but earn income within the UAE, such as from investments in real estate or royalties, are subject to CIT on this UAE-sourced income. Non-PE UAE-sourced income is generally subject to a withholding tax (WHT) of 0 percent, but certain types of income may incur a tax rate based on future Cabinet decisions.

Corporate tax on free zone entities

Entities established in Free Zones may qualify as Qualifying Free Zone Persons (QFZPs) under specific conditions, including:

• Deriving qualifying income from activities specified in the CT Law.
• Maintaining adequate substance in the UAE.
• Complying with transfer pricing (TP) rules and documentation requirements.
• Preparing audited financial statements.

QFZPs benefit from a 0 percent CT rate during the tax incentive period, provided they comply with the relevant conditions.

Multinational Enterprises (MNEs)

A special consideration applies to large multinational enterprises (MNEs) with global consolidated revenues exceeding AED 3.15 billion, which fall under the OECD’s Base Erosion and Profit Shifting (BEPS) framework’s “Pillar Two” regulations. These MNEs may be subject to an additional “top-up tax,” resulting in a minimum effective tax rate of 15 percent on their UAE income to align with international tax standards on large multinationals.

What constitutes a Permanent Establishment?

The UAE determines whether foreign companies need to pay tax largely based on whether they have a "permanent establishment" (PE) in the country. This concept follows international standards set by the OECD.

There are two main ways a PE can be created:

• Fixed Place PE: This happens when a foreign business has a fixed physical location in the UAE. For example:
• A branch office usually counts as a PE
• A representative office usually does not count, especially if it only does basic support activities
• Agency PE: This occurs when a company has someone in the UAE who regularly makes deals on their behalf. This person must be dependent on the foreign company (not working independently) and able to negotiate or conclude contracts.

Tax implications:

• Foreign companies with a PE must register for UAE Corporate Tax
• If their PE is in a Free Zone and meets certain conditions, they might qualify for a 0 percent tax rate
• Otherwise, they pay normal UAE tax rates on income from the PE
• The first AED 375,000 is taxed at 0 percent
• However, PEs could not claim small business tax relief

Which subjects are exempted and deductions allowed from UAE Corporate Tax?

The UAE Corporate Tax (CIT) regime offers specific exemptions and deductions aimed at promoting investment, reducing tax burdens for essential sectors, and aligning with international standards to avoid double taxation. Below, we’ll cover key exemptions and permissible deductions, emphasizing how they benefit different types of taxpayers in the UAE.

Exempt entities

Exempt income

Deductible expenses

Foreign tax credits

To avoid double taxation, companies paying foreign taxes on overseas income may claim a foreign tax credit (FTC) against their UAE CIT liability. However, the FTC cannot exceed the UAE tax due on the relevant foreign income and is forfeited if unused, aligning UAE tax policy with international practices.

The UAE Corporate Tax framework strategically exempts and deducts certain incomes and expenses to balance tax efficiency, social impact, and economic growth. By focusing on essential exemptions and responsible deductions, the UAE provides a competitive tax regime designed to support both domestic growth and international expansion for businesses operating within its borders.

Filing and compliance requirements

The deadline for applying for CT registration depends on the month in which the taxpayer was issued their business license. Note that the year in which the license was issued does not affect the registration deadline.

In addition to the above deadlines, the FTA’s Decision on timeframes for CT registration sets a range of other registration deadlines depending on the entity’s circumstances:

• Entities that do not have a license by the time the Decision took effect March 1, 2024, must apply to register within three months of this date, that is, May 31, 2024.
• Entities that hold multiple licenses must adhere to the registration deadline that corresponds to the date of their last issued license.
• Resident entities, including Free Zone Persons, and businesses that are incorporated, established, or otherwise recognized under UAE law on or after March 1, 2024, must apply within three months from the date of incorporation, establishment, or recognition.
• Resident entities that are incorporated, established, or otherwise recognized under the laws of another country or foreign jurisdiction, but are effectively managed and controlled in the UAE on or after March 1, 2024, must apply within three months from the end of their financial year.
• Non-resident entities with a permanent establishment in the UAE before March 1, 2024, must apply within nine months from the date of the existence of the permanent establishment, while non-resident entities with a nexus in the country must apply to register by May 31, 2024.
• Entities that are non-resident on or after March 1, 2024, and have a permanent establishment must apply within six months of the existence of the permanent establishment, while entities that are non-resident with a nexus in the UAE on or after March 1, 2024, must apply within three months from the date of establishing the nexus.
• Resident individuals who engage in business or conduct business activities during the 2024 calendar year, and who have exceeded the turnover threshold (AED 375,000), must apply by March 31, 2025.
• Non-resident individuals who engage in business or conduct business activity during the 2024 calendar year 2024 and subsequent years, and whose turnover has exceeded the specified threshold, must apply within three months from the date of fulfilling the conditions to be considered a taxable person.

Taxpayers are required to file CT returns for each tax period within nine months of the end of each tax period. Any CT that taxpayers are liable for must generally also be paid within this timeframe.

The specific deadline for filing and paying CT, as well as the start of the first tax year since the CTL took effect, depends on the company’s financial year, as shown in the table below.

Non-compliance and penalty

Entities that fail to apply for CT registration within the specified deadline will result in a penalty of AED 10,000 (US$2,722), which aligns with penalties imposed for the late registration of excise tax and value-added tax.

Meanwhile, failure to file the CT returns within the specified timeframes will incur a fine of AED 500 (US$136) for each overdue month (or part thereof) for the first 12 months, and AED 1,000 (US$272) for each month from the 13th month onward (or part thereof).

Taxable persons are required to maintain financial statements in accordance with International Financial Reporting Standards (IFRS) and keep supporting documentation for a period of seven years. In addition to the record-keeping, taxable persons with revenues exceeding AED 50 million must prepare audited financial statements.