A first in its history, the United Arab Emirates (UAE) will start taxing business profits with statutory rates of 0% and 9%. While this development is a notable shift from the UAE’s long-standing reputation as a tax-friendly environment, the rates are on the lower end compared to global standards, reflecting the country’s commitment to maintaining its appeal as a premier business hub.

As eligible companies will need to start registering and filing for corporate tax, this article will offer a clear guide for compliance in the UAE.  

What is corporate tax?

Also referred to as corporate income tax or business profits tax, corporate tax is a direct tax levied on the net income of corporations and businesses. By adopting this taxation model, the UAE joins many countries worldwide that already have established corporate tax frameworks. The UAE issued the Corporate Tax Law on 9 December 2022, which provided the legislative basis for the introduction and implementation of a federal corporate tax effective for financial years starting on or after 1 June 2023.In a nutshell, unless exempted, taxable income above AED375,000 will incur a 9% statutory tax rate. Income below this threshold will not be taxed.

Who needs to register for UAE corporate tax?

Taxable persons, categorized as residents or non-residents with permanent establishment or nexus in the UAE, will need to first register and get a corporate tax registration number.

Resident persons

Resident persons include entities incorporated in the UAE, whether offshore, in free zones or on the mainland. Foreign entities effectively managed and controlled in the UAE, along with individuals conducting business in the UAE, are also considered resident persons. All are taxed on their worldwide income. Resident taxpayers are required to register by specific deadlines determined by the month of trade license issuance. This is irrespective of the year the license was issued.

Non-resident persons

Non-resident persons include companies with a permanent establishment in the UAE. Also in this category are those deriving UAE-sourced income not attributable to the permanent establishment or having a nexus in the UAE.

Who is exempted from UAE corporate tax?

There are, however, some that are automatically exempt from corporate tax in the UAE. This includes government entities and government-controlled entities. The following may also be considered as Exempt Persons:

• Extractive businesses in the UAE
• Non-extractive natural resource businesses in the UAE
• Qualifying public benefit entities
• Qualifying investment funds
• Pension or social security funds, both public and private
• Wholly-owned and controlled UAE subsidiaries of certain exempt entities