The UAE introduced its federal Corporate Tax regime effective June 2023. With a headline rate of 9% on taxable income above AED 375,000, it marks a significant shift for businesses operating across the Emirates. Here's what every SME owner needs to know.
The UAE's Corporate Tax (CT) law came into force on 1 June 2023, applying to financial years starting on or after that date. While the 9% headline rate is among the most competitive globally, understanding who is liable, what qualifies as taxable income, and which reliefs are available is critical to staying compliant and managing your tax burden effectively.WHO IS SUBJECT TO CORPORATE TAX?
Corporate Tax applies to all UAE juridical persons — companies incorporated in the UAE — as well as foreign entities that are effectively managed and controlled from the UAE. Natural persons (individuals) conducting business activities under a trade licence are also within scope if their annual turnover exceeds AED 1 million.
Free Zone businesses receive a 0% rate on their "Qualifying Income" provided they meet the Qualifying Free Zone Person (QFZP) conditions and maintain adequate economic substance. However, income from UAE mainland activities or certain related-party transactions may still be subject to the 9% rate.
SMALL BUSINESS RELIEF
One of the most significant provisions for SMEs is the Small Business Relief election. Taxable persons with revenue not exceeding AED 3 million in the current and all prior tax periods (up to 31 December 2026) can elect to be treated as having zero taxable income for that period. This is a major compliance and cash-flow benefit for startups and growing businesses.
WHAT COUNTS AS TAXABLE INCOME?
Taxable income is your accounting net profit (or loss), adjusted for specific add-backs and deductions. Key adjustments include:
- Unrealised gains or losses on assets (an election to exclude these is available)
- Dividends received from UAE resident companies (exempt)
- Capital gains on qualifying shareholdings (exempt, subject to a 12-month ownership condition)
- Interest expenditure limitations (30% of EBITDA for businesses above a threshold)
- Transactions with connected persons must be at arm's length (Transfer Pricing rules apply)
REGISTRATION AND FILING
Every taxable person must register with the Federal Tax Authority (FTA) and obtain a Corporate Tax Registration Number. The first tax return must be filed within 9 months of the end of the relevant tax period. Late registration and late filing carry administrative penalties, so acting promptly is essential.
WHAT SHOULD YOU DO NOW?
If you have not already registered with the FTA, this should be your immediate priority. Beyond registration, businesses need to review their accounting policies, chart of accounts, and intercompany arrangements to ensure they can compute taxable income accurately. A tax impact assessment early in the financial year avoids nasty surprises at filing time.
Our team at Dhoaa Al Shams has been guiding UAE businesses through Corporate Tax readiness since the law was announced. Get in touch for a complimentary impact assessment tailored to your business structure.
M
Mohammed Al Rashid
Dhoaa Al Shams Team
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