Corporate Tax in the UAE: Rate, Compliance, DMTT and Calculation

Corporate tax in UAE has been in effect since 1st June 2023, applies to companies incorporated or effectively managed in the UAE on worldwide income and non-resident persons on UAE-sourced income or through permanent establishments (PEs). Natural persons (individuals) engaged in business activities are taxable if annual turnover exceeds AED 1 million, with a 0% rate on taxable income up to AED 375,000 and 9% on amounts above. 

Businesses liable for corporate tax should register with the Federal Tax Authority (FTA), maintain audited financials, and file returns within 9 months of the fiscal year-end. 

What is corporate tax in UAE?

Corporate tax is a direct tax levied on the profit or net income earned on business income of corporations and other entities. Corporate tax is also called corporate income tax or business profits tax.

This tax applies to all UAE businesses except those extracting natural resources, which will be continued to tax under emirate-level corporate taxation. However, foreign individuals and businesses will be subject to corporate tax only when they run a business or trade continuously or regularly in the UAE.

Further, UAE corporate tax applies equally to all categories of profits and other income reported in the financial statements.

Who is subject to corporate tax in the UAE?

The UAE Corporate Tax regime applies to both resident and non-resident persons engaged in business activities within the country, with specific criteria determining tax liability. The framework distinguishes between juridical entities, natural persons, and exempt categories

Resident Persons

All resident person is subject to Corporate Tax UAE and includes both entities and natural persons.

Juridical Entities

• UAE-incorporated entities: Companies established under mainland or Free Zone laws, including branches of foreign companies operating in Free Zones.
• Foreign entities effectively managed in the UAE: Juridical persons incorporated outside the UAE but controlled from within the country, determined by where key management decisions are made.
• Government and quasi-government entities: Unless specifically exempt under Article 4 of Federal Decree-Law No. 47 of 2022.

Natural Persons

Natural persons (individuals) become taxable if:

• They conduct business activities in the UAE (e.g., freelance work, sole proprietorships).
• Their annual business turnover exceeds AED 1,000,000 in a Gregorian calendar year.
• Income from wages, personal investments, or real estate investments is explicitly excluded from taxation.

Non-Resident Persons

Non-residents are subject to Corporate Tax in three scenarios:

Permanent Establishment (PE): A non-resident entity creates a PE in the UAE if it maintains a fixed place of business (e.g., office, factory) or operates through a dependent agent habitually concluding contracts on its behalf. Activities of a preparatory or auxiliary nature (e.g., storage, display) do not constitute a PE unless part of a cohesive business operation. Income attributable to the PE is taxed at 9%.

State-Sourced Income: Non-residents earning UAE-sourced income not linked to a PE are subject to tax. This includes:

• Revenue from sales of goods or services in the UAE.
• Income from UAE-based immovable property.
• Interest from loans secured by UAE assets or borrowers

Nexus in the UAE

A non-resident may establish a taxable presence through a nexus, as defined by Cabinet decisions. This could apply to entities deriving income from digital services or other activities creating an economic link to the UAE.

Special Cases

• Branches of Foreign Companies: Branches in Free Zones are treated as non-resident persons if the parent company is foreign. Their tax liability depends on whether they create a PE or derive UAE-sourced income.
• Natural Persons with Dual Status: Non-resident natural persons conducting business in the UAE are taxable only if their turnover exceeds AED 1,000,000 or they maintain a PE. For example, a foreign consultant operating temporarily in the UAE without a fixed office would not trigger tax liability unless their annual revenue crosses the threshold.

What is the corporate tax rate in UAE?

The UAE has adopted a dual-tier corporate tax system effective June 1, 2023. A 0% corporate tax applies to taxable income up to AED 375,000, supporting small and medium-sized businesses, while a 9% tax rate applies on income exceeding AED 375,000 per tax period.

Domestic Minimum Top-up Tax (DMTT)

Starting January 1, 2025, the UAE will implement a Domestic Minimum Top-up Tax (DMTT) in accordance with Federal Decree Law No. 60 of 2023. This measure aligns with the OECD's Two-Pillar Solution, ensuring large multinational enterprises (MNEs) pay a minimum effective tax rate of 15% on global profits. The DMTT specifically targets MNEs with consolidated global revenues of €750 million or more in at least two of the four financial years preceding the tax year.

Resident Taxable Person

The following categories of persons are considered residential taxable persons:

1. Companies and other juridical persons incorporated under the UAE laws 
2. Juridical persons incorporated in the UAE under the mainland legislation or applicable free zone regulations
3. Juridical persons created by a specific statute
4. Foreign companies and juridical persons effectively managed and controlled in the UAE
5. Natural persons earning income from a business or business activity in the UAE

Who is exempt from corporate tax in UAE?

FTA exempts certain businesses or entities from corporate tax due to their importance and contribution to the UAE’s social fabric and economy.

The following persons are exempted from UAE corporate tax:

How to Calculate Corporate Tax in the UAE?

Calculating corporate tax in the UAE involves several clear steps, starting with your company’s accounting profit and applying specific adjustments as required by UAE tax law. Here’s a step-by-step guide with practical examples:

Step 1: Determine Accounting Profit

Start with your net profit as shown in your financial statements, prepared according to IFRS or IFRS for SMEs.

Step 2: Adjust for Tax Purposes

Apply necessary tax adjustments to your accounting profit. Adjustments may include:

• Adding back non-deductible expenses (e.g., penalties, certain entertainment costs)
• Deducting exempt income (e.g., qualifying dividends)
• Applying any reliefs (e.g., group relief, small business relief)

Step 3: Calculate Taxable Income

Taxable income = Accounting profit ± Adjustments

Step 4: Apply Tax Rates

• 0% on the first AED 375,000 of taxable income
• 9% on taxable income above AED 375,0002345

Example:  Suppose another company has

• Net profit: AED 750,000
• Non-deductible expenses adjustment: +AED 50,000

Taxable income: AED 750,000 - AED 50,000 = AED 700,000

• First AED 375,000 at 0%: AED 0
• Remaining AED 325,000 at 9%: AED 325,000 × 9% = AED 29,250

Total Corporate Tax Payable: AED 29,250

Conclusion

The UAE introduced a federal Corporate Tax effective from mid-2023, applying a 0% rate on profits up to AED 375,000 and 9% on higher amounts. It applies to resident companies, Free Zone businesses meeting conditions, and non-residents with UAE income or permanent establishments. Certain entities like government bodies and extractive industries are exempt. Small businesses with low revenue may qualify for relief. From 2025, a minimum tax of 15% will apply to large multinational groups. The system includes transfer pricing rules and requires businesses to register and file annual tax returns, aiming to balance global tax standards with the UAE’s competitive business environment.