Corporate Tax Rates in UAE

Rajinder Nagiyal

October 11, 2023

Corporate Tax

Corporate Tax Rates in UAE

Unlike many countries that impose high company taxes, the UAE presents enterprises with a special opportunity – a near-zero corporate tax rate.

In this article, we will examine the corporate tax system in the UAE, including its history, current corporate tax rates, and the implications for businesses.

History of the UAE's Tax System

In the past, the UAE relied heavily on oil revenues and did not impose taxes on businesses or individuals. This tax-free environment significantly contributed to the nation’s rapid economic growth.

However, in our present time, the government has recognised the need for diversification and the creation of a more sustainable economy. In line with this vision, the UAE began implementing new tax regulations.

What are the corporate tax rates in the UAE?

Businesses in the UAE must pay corporate tax at the following rates on their taxable income:

Taxable income up to AED 375,000 is subject to a 0% business tax rate.
Taxable income over AED 375,000 is subject to a 9% business tax rate.
All multinational firms subject to OECD Base Erosion and Profit-Sharing rules that fall under Pillar 2 of the BEPS 2.0 framework, i.e., those with combined worldwide revenues of more than AED 3.15 billion, are subject to a 15% corporate tax rate.

Note: According to the law, which took effect on/ after June 1, 2023, enterprises are required to pay corporate tax in the UAE at the start of their financial year.

Current Corporate Tax Rates for trade zones in the UAE

The Ministry of Defence of the UAE, at the federal level, introduced a corporate tax system in January 2022, which took effect on June 1, 2023

Below is a summary of the current corporate tax rates for businesses operating in different trade zones in the UAE:

1. Mainland Companies

The standard corporate tax rate for businesses operating on the UAE’s mainland is 9%. Due to this favourable environment, the UAE remains a major global business hub and an attractive market for businesses looking to expand their operations, set up new headquarters, and attract foreign investment.

2. Free Zone Companies

The existence of numerous free zones in the UAE is one of its best-selling points for enterprises.

Each free zone has its own rules and regulations, and many of them offer significant tax benefits, including 100% ownership for business owners.

While the majority of free zone businesses in the UAE enjoy a 0% corporate tax rate, others are still charged the usual 9% corporate tax rate.

This comprises:

Transactions with companies on the mainland.
Income made by a free zone business with a branch on the mainland of the United Arab Emirates

Note: Corporate tax for free zone companies in the UAE will be 0% with qualifying income. For free zone companies with Non-Qualifying income, corporate tax will be 9%.

Implications for Businesses

The corporate tax system in the UAE has several effects on businesses and the country in general:

1. It attracts foreign Investment

Foreign investors are attracted significantly by the absence of a huge corporate tax rate, particularly in free zones. This promotes business establishment in the UAE, fostering economic expansion.

2. Economic Diversification

The introduction of corporate taxes is part of the UAE’s broader plan for economic diversification. The government can reduce its reliance on oil income by generating revenue from corporate taxes and investing in a variety of industries, including tourism, technology, and renewable energy.

3. Worldwide Expansion

Businesses looking to expand their global footprint could consider the UAE an ideal base because of its strategic location between Europe, Asia, and Africa. Businesses can leverage the country’s infrastructure and tax benefits to access global markets.

Challenges and Considerations

Although the corporate tax rates in the UAE are advantageous for many enterprises, there are a few key factors to take into account:

1. Local Collaborations

Businesses on the mainland need local sponsors or service agents, which may entail sharing ownership or control of the business. Companies must carefully negotiate these partnerships to ensure their interests are protected.

2. Changing Regulations

The UAE government has been actively working on tax and regulatory reforms. To guarantee compliance, businesses need to stay informed about these evolving changes.

Conclusion

The implementation of corporate tax in the UAE calls for significant changes in the compliance and tax costs of the majority of businesses in the UAE.

Enterprises must be in compliance with the new tax policy, which requires precise tax impact analysis and modifications to the corporate structure, legal agreements, reporting systems, mode of operations, and transfer pricing policies if necessary.

Our designated tax team at RSN Finance can provide the necessary help and respond to all your questions on corporate tax.

Feel free to get in touch with us if you’re seeking corporate tax registration services in the UAE.