UAE Corporate Tax is a 9% federal tax on business profits above AED 375,000, effective for financial years starting on or after 1 June 2023. Introduced under Federal Decree-Law No. 47 of 2022, it applies to all UAE-registered businesses. Profits up to AED 375,000 are taxed at 0%. Qualifying Free Zone Persons may access a 0% rate on qualifying income. Small businesses with revenue under AED 3 million may elect Small Business Relief.
The UAE Corporate Tax (CT) regime — now in its second full year of operation — represents the most significant change to UAE business taxation in decades. With the FTA actively auditing registrations and enforcing filing deadlines in 2026, every UAE business must understand its Corporate Tax obligations clearly. This guide covers everything: who pays, what rates apply, exemptions, how to register, when to file, and the most expensive mistakes businesses are making right now.
1. What is Corporate Tax in UAE?
The UAE Corporate Tax is not a tax on revenue or gross income — it is a tax on net profits after allowable deductions. This means businesses can deduct legitimate business expenses, depreciation, and other allowances before calculating their taxable income. The UAE's 9% rate is among the lowest Corporate Tax rates globally, making the UAE tax system highly competitive even after the introduction of CT.
CT applies to the same financial year that a business uses for its accounting. Most businesses using a calendar year (1 January to 31 December) entered the CT regime from 1 January 2024, with their first CT return due by 30 September 2025.
2. Who Must Pay Corporate Tax in UAE?
UAE Corporate Tax applies broadly to all businesses operating in the UAE. The table below summarises the CT obligation by entity type:
| Entity Type | CT Obligation | Rate |
|---|---|---|
| UAE mainland companies (LLC, PJSC, etc.) | Fully subject to CT | 0% / 9% |
| UAE branches of foreign companies | Subject to CT on UAE-sourced income | 0% / 9% |
| Free zone companies (standard) | Subject to CT; may elect QFZP status | 0% / 9% |
| Qualifying Free Zone Person (QFZP) | 0% on qualifying income; 9% on non-qualifying | 0% / 9% |
| Natural persons (freelancers, sole traders) conducting UAE business | Subject to CT if annual turnover exceeds AED 1 million | 0% / 9% |
| UAE Government entities | Exempt | N/A |
| UAE extractive businesses (oil & gas) | Separately taxed under Emirate-level decrees; exempt from CT | N/A |
| Qualifying Public Benefit Entities | Exempt (upon FTA approval) | N/A |
| Investment funds (qualifying) | Exempt (upon FTA approval) | N/A |
| Non-resident companies with no UAE PE | Not subject to CT on non-UAE income | N/A |
Important: Registration for Corporate Tax is mandatory for all businesses that are subject to CT — even if they expect to owe zero tax (because their income is below AED 375,000 or they qualify for Small Business Relief). Failure to register carries an AED 10,000 penalty. Register for Corporate Tax here.
3. UAE Corporate Tax Rates 2026
| Taxable Income Band | Corporate Tax Rate | Who It Applies To |
|---|---|---|
| AED 0 to AED 375,000 | 0% | All taxable persons (standard tier) |
| Above AED 375,000 | 9% | All taxable persons on income above threshold |
| Qualifying Income (QFZP) | 0% | Qualifying Free Zone Persons on qualifying income |
| Non-Qualifying Income (QFZP) | 9% | QFZP entities on non-qualifying income above AED 375,000 |
| Revenue ≤ AED 3 million (SBR elected) | 0% | Eligible businesses electing Small Business Relief |
Example: A UAE LLC with taxable income of AED 1,000,000 pays: AED 0 on the first AED 375,000 + (AED 1,000,000 − AED 375,000) × 9% = AED 56,250 in Corporate Tax.
4. Corporate Tax Exemptions in UAE
Several categories of income and entities are exempt from UAE Corporate Tax:
- UAE Government entities and government-controlled entities — Federal and Emirate-level government bodies and wholly owned government entities are automatically exempt.
- Extractive businesses — Companies engaged in the extraction of UAE natural resources (oil, gas, minerals) remain subject to Emirate-level taxation and are exempt from federal CT.
- Qualifying Public Benefit Entities — Non-profit organisations, charities, and public interest entities approved by the Cabinet are exempt from CT. They must apply to the FTA for recognition.
- Qualifying Investment Funds — Regulated investment funds approved by the FTA as qualifying investment funds are exempt, preventing double taxation at the fund level.
- Dividends from UAE companies — Dividends received by a UAE taxable person from another UAE company in which it holds at least 5% (Participation Exemption) are exempt from CT to prevent economic double taxation.
- Capital gains on qualifying shareholdings — Gains on the disposal of shares where the Participation Exemption conditions are met (at least 5% ownership for at least 12 months) are exempt from CT.
- Intra-group transactions — Transfers between 75%+ commonly owned UAE group entities may qualify for a CT relief where gains and losses are deferred.
- Income below AED 375,000 — The 0% rate band effectively exempts the first AED 375,000 of taxable income for all taxable persons.
5. What is Small Business Relief (SBR)?
Small Business Relief was introduced specifically to support UAE SMEs during the early years of the CT regime. To qualify for SBR, a business must:
- Have total revenue (not profit — revenue) of AED 3 million or less in the relevant tax period
- Be a UAE resident taxable person
- Not be a member of a Multinational Enterprise (MNE) group with consolidated revenue exceeding AED 3.15 billion
- Not be a Qualifying Free Zone Person (QFZPs already receive a 0% rate benefit)
- Elect SBR on the Corporate Tax return for each relevant period
Critical warning: Even if you qualify for SBR, you must still register for Corporate Tax, maintain accounting records, and file a CT return. SBR only reduces your CT liability to zero — it does not exempt you from the compliance obligations. Revenue from all sources counts toward the AED 3M threshold, not just UAE revenue.
6. Free Zone Companies & Corporate Tax — QFZP Rules Explained
Free zone companies are not automatically exempt from UAE Corporate Tax. All free zone entities are subject to CT, but those that meet the strict qualifying conditions can achieve a 0% rate on their qualifying income through the Qualifying Free Zone Person (QFZP) regime.
To be a QFZP and access the 0% rate, a free zone company must meet ALL of the following conditions:
- Maintain adequate substance in the UAE free zone — real economic presence including employees, management, and operations physically located in the zone.
- Derive income from qualifying activities — including manufacturing, processing, distribution through the zone, logistics, re-insurance, treasury services for qualifying group members, and specific regulated activities.
- Satisfy the de minimis rule — non-qualifying income must not exceed the lower of AED 5 million or 5% of total revenue. Exceeding this threshold causes loss of QFZP status for the entire period.
- Comply with transfer pricing documentation requirements for all related-party transactions.
- Not elect to be taxed under the standard CT regime — a QFZP election to apply the standard regime is irrevocable for 5 years.
If a free zone company earns income from UAE mainland entities on non-qualifying activities (e.g., directly supplying goods to a mainland customer in a non-qualifying manner), that income is taxed at 9% — not the 0% QFZP rate. Structuring transactions correctly is critical. Talk to our QFZP specialists.
