What Is Corporate Tax?
Corporate Tax in the UAE is a direct tax imposed on the net income or profits of businesses and entities. It is governed by Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, later amended by Decree-Law No. 60 of 2023. Effectively applicable to financial years beginning on or after 1 June 2023, it aligns with international standards while positioning the UAE as a competitive business hub.
UAE residents or non-residents with a permanent establishment here are generally subject to Corporate Tax. Profits up to AED 375,000 are taxed at 0%, and any income above that is taxed at 9%, with special 0% treatment for qualifying free-zone persons.
Conditions for Registration of Legal Entities (Companies)
Any company or juridical person incorporated or effectively managed in the UAE must register for corporate tax. Requirements include:
- Companies formed in UAE
- Foreign companies with a UAE permanent establishment
- Free-zone entities (unless specifically exempt)
- LLPs and partnerships profiting from UAE business activities
Conditions for Registration of Natural Persons
Individuals conducting business activities in the UAE must register if they meet specified criteria.
Registration applies to:
- Natural persons with business or commercial activities in the UAE
- Individuals whose turnover exceeds a specified threshold (e.g., AED 1 million)
- Sole proprietors or unincorporated partnerships earning UAE business income
- Those required by Cabinet decision to register as taxable persons
Computation of Corporate Tax
Computation Overview:
Corporate Tax is calculated based on taxable income, which starts from the accounting net profit per financial statements (prepared under IFRS or IFRS for SMEs), then adjusted for tax-specific differences. The correct rate is then applied (0% or 9%) depending on the threshold.
Example – Global Trading LLP:
- Scenario A (No Tax Payable):If Global Trading LLP has a taxable income of AED 300,000, the tax rate is 0%, so no corporate tax is payable.
- Scenario B (Tax Payable): If the taxable income is AED 1,000,000, then
- o First AED 375,000 → taxed at 0%
- o Remaining AED 625,000 → taxed at 9% = AED 56,250 tax payable
Disallowed Expenses for CT Computation
Certain expenses are not deductible while computing taxable income.These include:
- Fines and penalties (except compensation payments)
- Bribes and illegal payments
- Non-business expenses
- Donations not made to qualifying public benefit entities
- Dividends and distributions
- Corporate tax itself
- Expenditure related to exempt income
Required Accounting Documents
Financial reports should be prepared in accordance with IFRS or IFRS for SMEs. Businesses must maintain the following:
- Audited or management-prepared financial statements
- General ledger and trial balance
- Detailed expense and income records, with supporting invoices
- Inventory records and documentation of cost of goods sold
- Tax returns and supporting schedules
- Contracts, agreements, and cross-border transaction documentation
- Records kept for at least 5 years to comply with audits and tax authority requirements
