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The United Arab Emirates is soon starting corporate tax on business profits at rates ranging from 0% to
9%. The UAE has remained a tax-free country for years. But, the taxation policy has been announced for
the first time.
If you are a business owner and unaware of taxation in the UAE, this blog will help you gather suitable
information.
Key takeaways
- Corporate tax
- Qualifying free zone persons
- Who should pay corporate tax
- Who is exempted from corporate tax
What is a corporate tax?
Tax is the direct tax levied on the net income of businesses and corporations. Companies and startups
have to pay corporate tax according to the business type and other factors.
The corporate tax models work under the UAE business laws. These are decided according to the
business types.
Do you need to register for UAE corporate tax?
You are liable to register for corporate tax if you are a taxable person (categorized as resident or non-
resident).
Resident persons
Entities incorporated in the UAE are resident persons (offshore, free zones, or the mainland). Resident
taxpayers have to register by specific deadlines decided by the month of getting a trading license. UAE
residents include:
- Judicial person (in a free zone or other areas in the UAE)
- Individuals conducting business in the UAE
- Foreign judicial person managed in the UAE (POEM)
- Any other person specified according to the law.
Non-resident persons
Companies having permanent establishments in the UAE can be non-resident persons. Their taxation
will apply to the income associated with their UAE permanent establishment. Non-resident persons
include:
Those having permanent establishments in the UAE
- UAE sourced income
- Those having nexus in the UAE
Who is exempted from UAE corporate tax?
Some government entities and government-controlled entities are exempted. The exempted persons
include:
- 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
- UAE subsidiaries (wholly owned and controlled) of some exempt entities
Small businesses
Small business relief is available for businesses having income less than AED 3 million. Small business
owners can enjoy this relief of tax periods that ends before or on 31st December 2026.
Businesses need to meet the following conditions to be eligible:
It must be the resident person in the UAE
The revenue for tax periods should be less than AED 3 million
Financial institutions or holding companies cannot apply for this relief.
Businesses meeting the abovementioned requirements will not have to pay any corporate tax on the
profits. Also, they can enjoy exemptions in some compliance requirements.
Qualifying free zone persons
A taxable person can eliminate the corporate tax rate if he/she meets the requirement of a qualifying
Free Zone Person (QFZP). To qualify, the person, or entity is required to:
- Maintain substance in the UAE
- Get qualifying income
- Follow transfer pricing rules and documentation
- Prepare financial statements
- Have non-qualified income that should be below the deminimis threshold.
There are two main types of qualifying income:
- Income generated from transactions with free zone persons; transactions with other free zone persons except when made from excluded activities.
- Income made from qualifying activities with entities outside the free zone.
- Qualifying activities
The following activities can be considered qualifying:
- Manufacturing and processing of goods
- Shares and other securities
- Owning and managing shops
- Reinsurance services regulated by UAE authorities
- Fund management services functioning under UAE regulatory
- Wealth and investment management services, as overseen by UAE regulators
- Headquarter services
- Aircraft financing and leasing (engines and others)
- Distribution of goods or materials from a designated zone to resellers
- Logistics services
- Any activities that support the abovementioned activities where the supporting activities support the primary qualifying activity.
- Activities subjecting to 9% corporate tax
- Transactions involving natural persons not related to some qualifying activities
- Ownership or exploitation of non-commercial immovable property outside free zones
- Ancillary activities that support the above-mentioned activities.