Corporate tax in the UAE applies to the taxable income of businesses and certain individuals conducting business activities, with the regime effective for tax periods starting on or after June 1, 2023. New founders face this obligation from incorporation onward, regardless of jurisdiction in most cases, though outcomes vary by structure, revenue scale, activity type, and compliance approach. The system imposes a standard rate structure but includes reliefs and preferences that depend on meeting precise conditions. Treating tax as an ongoing operational system rather than a periodic filing prevents exposure to penalties, strained banking relationships, or rework in audits.
Who Falls Under Corporate Tax Scope
Juridical persons such as companies incorporated in mainland or free zones become taxable persons unless specifically exempt. Natural persons conducting business under a commercial license or with turnover exceeding AED 1 million in a calendar year may also register and comply. Exempt entities include government bodies, certain public benefit organizations, and qualifying investment funds upon approval. A software startup registered in a free zone enters the regime automatically, while an individual consultant billing internationally without a license might avoid it until thresholds trigger. Registration occurs through the Federal Tax Authority portal once liability arises, typically within three months of becoming subject or upon exceeding relevant limits.
Standard Rate Structure and Threshold
Taxable income faces 0 percent up to AED 375,000 and 9 percent on the portion exceeding that amount. This progressive band supports smaller operations by zero-rating the initial profit slice. The threshold applies per tax period, usually aligning with the financial year. A consulting firm with taxable income of AED 500,000 pays 0 percent on the first AED 375,000 and 9 percent on the remaining AED 125,000. Calculations follow accounting standards adjusted for tax-specific additions, deductions, and reliefs. Outcomes depend on accurate profit determination from books maintained in compliance with IFRS or IFRS for SMEs.
Small Business Relief Opportunity Through 2026
Resident persons with revenue at or below AED 3 million in the current tax period and all prior periods ending on or before December 31, 2026, can elect small business relief. This treats taxable income as zero for the period, eliminating tax liability even if profits exceed AED 375,000, provided the election appears in the tax return. Qualifying Free Zone Persons and members of multinational groups with consolidated revenue above AED 3.15 billion cannot elect this relief. A new e-commerce entity projecting AED 2.5 million revenue in its first years elects to preserve cash flow, but exceeding the threshold in any period disqualifies future eligibility under the rule. This temporary measure ends for periods after December 31, 2026, requiring preparation for standard application thereafter.
Qualifying Free Zone Person Preference for 0 Percent on Qualifying Income
Free zone entities meeting strict conditions qualify as Qualifying Free Zone Persons and apply 0 percent to qualifying income, with non-qualifying income taxed at 9 percent above the AED 375,000 threshold. Core requirements include registration in a designated free zone, deriving qualifying income from permitted activities such as manufacturing, distribution to foreign persons, or certain services, maintaining adequate substance through assets, qualified employees, and operating expenditures in the zone, complying with transfer pricing rules, preparing audited financials where required, and not electing the standard regime. Non-qualifying revenue must stay de minimis, the lower of 5 percent of total revenue or AED 5 million. A digital marketing agency serving mostly foreign clients structures operations to meet substance and income tests for 0 percent treatment on qualifying streams, but mainland-derived sales or related-party transactions without arm's-length pricing risk disqualification. The preference rewards disciplined international focus but demands segregation of income streams and robust documentation.
Registration, Filing, and Payment Mechanics
Taxable persons register for a Tax Registration Number via the FTA portal, maintaining records that support accurate taxable income computation. Tax returns file annually within nine months of the tax period end, with payments due concurrently unless installments apply. Penalties arise from late registration, filing, or payment, or inaccurate declarations. A trading company importing goods tracks costs, revenues, and adjustments meticulously to avoid underpayment flags during audits. First-time filers benefit from aligning financial years early to simplify compliance cycles.
Bookkeeping, Invoicing, and Substance Discipline
Corporate tax compliance builds on clean financial records distinguishing taxable and exempt supplies, proper expense allocation, and evidence of UAE decision-making where substance matters. Invoicing hygiene supports VAT overlap and transfer pricing defense. A subscription software business retains contracts, payment proofs, and operational logs to demonstrate activity alignment. Inadequate records trigger adjustments or disallowances during FTA reviews.
Interaction with Banking and Operational Posture
Banks scrutinize tax registration, filings, and compliance history as part of KYC, viewing disciplined tax posture as evidence of legitimacy. Non-compliance risks account restrictions or onboarding hurdles. Founders integrate tax into daily operations through regular reconciliations rather than year-end rushes.
Partners such as ALand, guided by Dr. Pooyan Ghamari, support new owners by mapping business models to applicable rules, preparing registration and election documentation, enforcing record-keeping protocols, and providing ongoing oversight to maintain qualifying status where possible and avoid common pitfalls that lead to unexpected liabilities or administrative friction. Corporate tax in the UAE rewards structured, transparent operations that align with the chosen jurisdiction and revenue profile, allowing founders to focus on growth while managing exposure effectively from the outset.