By, Rayhan Aleem, Founder & Managing Partner, Alpha Pro Partners

Navigating Corporate Tax can feel overwhelming as a small business owner in the UAE. But it’s crucial to understand how the system works and what you need to stay compliant. And while the regulations are relatively new, updates are still being issued as the roll-out continues. We know it might seem complicated, so we’ve broken things down to keep you on track.

What is UAE Corporate Tax?

In January 2022, the Ministry of Finance announced it would introduce a federal Corporate Tax on the net profits of UAE businesses, effective on or after 1 June 2023 depending on their financial year. This was a significant move for a country renowned for its tax-friendly landscape, but don’t forget that the UAE remains one of the most tax-friendly business hubs worldwide. It was also an important step to align with international best practices and support economic growth, while maintaining a competitive business environment.

Who does Corporate Tax apply to?

The first thing to note is that all businesses and individuals conducting business activities under a commercial license in the UAE must register for Corporate Tax. Registration is mandatory regardless of taxable income, and includes Free Zone and mainland entities.

The Corporate Tax rate is 0% for taxable income up to AED 375,000 and 9% for taxable income above this threshold. Therefore, if your business makes less than AED 375,000 per year, you don’t need to pay Corporate Tax, but it’s essential to keep proper records and comply with the filing requirements.

Clarifying the Free Zone position

There can be confusion around Free Zones. Businesses operating in Free Zones are subject to Corporate Tax, but mostly at a 0% rate (providing they comply with the strict regulatory requirements and do not conduct business with mainland UAE). 

If a Free Zone entity derives non-passive income from mainland UAE, all its income will be subject to the general Corporate Tax regime. 

As per the legislation, to be considered a qualifying free zone person, you must:

                ● Derive ‘qualifying income’

                ● Maintain adequate substance in the UAE
                ● Satisfy the de minimis requirement

                ● Prepare and maintain audited financial statements

                ● Have not made an election to be subject to Corporate Tax at the standard rates
                ● Comply with the transfer pricing requirements under the corporate tax law

Other exemptions 

‍Businesses engaged in the extraction of natural resources are exempt from Corporate Tax as these businesses will remain subject to the current Emirate level of Corporate Taxation. 

Dividends and Capital Gains earned by a UAE business from its qualifying shareholdings will be exempt from Corporate Tax. 

Other exemptions include:

• Interest and other income earned by an individual from bank deposits or saving schemes.
• A foreign investor’s income earned from dividends, capital gains, interest, royalties and other investment returns.
• Investment in real estate by individuals in their personal capacity.
• Dividends, capital gains and other income earned by individuals from owning shares or other securities in their personal capacity.

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What tax relief is available for SMEs?

The UAE government has consistently shown support for small businesses and small business relief is intended to reduce their Corporate Tax burden and compliance costs. This allows the taxable person to be considered as not having any derived taxable income in a fixed tax period.

Things to note:

• It is available for companies with revenues less than AED 3m.
• Qualifying Free Zones do not qualify.
• Multinational companies will be exempt from tax relief if the group revenues are more than AED 3.15bn.
• Owners of multiple entities cannot split your businesses into separate licences to artificially claim the small business relief for each entity.
• The small business relief will only apply until December 2026.
• Tax losses will not be carried forward for subsequent periods.

Are you ready for the deadline?

With most companies operating on a fiscal year that ends on 31 December, the initial taxable period will be from 1 January 2024 to 31 December 2024. This sets the filing deadline for the first UAE Corporate Tax return on 30 September 2025.

Businesses will need to maintain all relevant records and documents for seven years following the end of the tax period to which they relate. This is critical for maintaining compliance with UAE tax regulations and facilitating any future audits.

For trusted advice to simplify your accounting and ensure compliance, contact clients@alphapartners.co.