UAE Corporate Tax has moved from a headline to a routine. For financial years starting on or after 1 June 2023, business profits in the UAE are subject to tax under Federal Decree-Law No. 47 of 2022. The mechanics are simpler than many expected, but the detail is where positions are won or lost. This is the map: who pays, what is taxed, and the rules that decide most companies' outcome.
The rate, and the band that matters
The standard rate is 9%, and it applies only to taxable income above AED 375,000. Up to that figure the rate is 0%. So a company with AED 500,000 of taxable income pays 9% on AED 125,000, not on the whole amount. The 0% band is a genuine relief for smaller businesses, not a rounding point. A separate, higher rate is reserved for large multinationals within the scope of the global minimum tax, which is a different regime from the one most UAE businesses deal with.
Who pays
Corporate Tax reaches juridical persons incorporated in the UAE, foreign companies effectively managed and controlled here, and natural persons carrying on a business or business activity in the UAE. That last point catches many sole establishments and freelancers who assumed the tax was only for companies. Government entities, extractive businesses, and certain public benefit and investment vehicles sit outside the charge or are exempt, but exemption is rarely automatic. Most require registration and, in several cases, an application.
What is taxed
The starting point is accounting profit, prepared under the applicable accounting standards, adjusted for the specific rules in the law. Some income is removed from the base rather than taxed. Dividends and other profit distributions from UAE companies are exempt. Qualifying shareholdings can bring the participation exemption into play, and income from a foreign permanent establishment can be excluded by election. What remains, after allowable deductions, is the taxable income the 9% applies to.
Free zones are inside the tax, not outside it
A common misconception is that free zone companies are exempt. They are not. A free zone company is within Corporate Tax, but a Qualifying Free Zone Person can access a 0% rate on its qualifying income, provided it meets a set of conditions on substance, income type, transfer pricing and audited accounts. Fail a condition and the 0% is lost, often for the whole period. Free zone status is an opportunity that has to be maintained, not a shield that sits in the background.
What to do about it
For most businesses the practical work is straightforward and worth doing early. Register with the Federal Tax Authority within the applicable deadline. Keep books that can move from accounting profit to a defensible tax figure. Understand which reliefs and exemptions you can rely on, and which you must elect for. And treat related-party pricing as a live compliance point, because the arm's length principle now runs through the whole regime.
Corporate Tax rewards businesses that treat it as an ordinary part of running the company, prepared through the year rather than assembled at the deadline. The rate is modest. The cost of getting the base, the reliefs, and the registration wrong is not.
This article is general information on UAE Corporate Tax and is not tax advice. Figures and thresholds should be confirmed against current legislation. We would be glad to review your position.