Corporate tax at 9% has been in force in the UAE since June 2023. Yet a significant number of UAE businesses — particularly SMEs and free zone companies — remain unclear on exactly what applies to them, when to file, and how to optimise their position.
What Is UAE Corporate Tax?
The UAE Federal Corporate Tax (CT) applies to the taxable income of UAE-resident businesses and foreign businesses with a UAE permanent establishment. The rate is 0% on the first AED 375,000 of taxable income and 9% on everything above. All entities — including free zone companies — must register regardless of profit level.
Who Must Register?
Every juridical person incorporated in the UAE, every individual conducting business in the UAE, and every foreign entity with a UAE permanent establishment must register for corporate tax. Registration is mandatory even if your income falls below the taxable threshold. Failure to register carries administrative penalties under Cabinet Decision No. 75 of 2023.
The Tax Period and Return Filing
The first tax period for most businesses began on the date the new law took effect for their financial year. Returns must be filed within nine months of the end of the tax period. The FTA has been phasing in enforcement, but all companies with a financial year ending in 2024 or later are now in scope for filing.
Small Business Relief
Businesses with revenue of AED 3 million or less in the current and previous tax periods can elect for Small Business Relief — effectively paying 0% tax. This election must be made in the tax return. PRF assesses eligibility and files the election where it applies.
Free Zone Companies: The QFZP Regime
Free zone companies that qualify as Qualifying Free Zone Persons (QFZP) can access a 0% tax rate on their qualifying income. Eligibility requires: maintaining adequate substance in the free zone, deriving qualifying income from qualifying activities, meeting the de minimis threshold (less than 5% or AED 5 million of total revenue from non-qualifying income), and filing correctly. The conditions are strict. PRF conducts annual QFZP assessments.
Transfer Pricing Obligations
UAE businesses with related-party transactions must price them at arm's length and maintain supporting documentation. Groups with revenues exceeding AED 3.15 billion must also file Country-by-Country reports. PRF prepares master files, local files and disclosure forms.
Common Mistakes UAE Businesses Make
Not registering on time. Filing a return based on management accounts rather than audited financials. Missing the QFZP election window. Not adjusting for non-deductible expenses. Failing to identify related-party transactions requiring disclosure. PRF's tax review catches these before they become FTA queries.