Key highlights

• The UAE’s corporate tax rate is 9% (effective from June 2023).
• Small businesses can benefit from tax relief under certain conditions.
• Free zone companies may remain tax-exempt if they are compliant with the qualifying criteria.
• Corporate tax applies to taxable income above AED 375,000.
• Understanding and complying with UAE tax laws is crucial for business growth and maintaining a legal operation.

Corporate tax in the UAE: A complete guide for businesses (2025)

With the UAE’s rapid economic diversification, the introduction of Corporate Tax (CT) in 2023 marked a significant shift in the country’s fiscal landscape. As of 2025, businesses across the United Arab Emirates (UAE) are required to comply with the UAE Corporate Tax regime, which is designed to support the country’s vision of global transparency, reduced reliance on oil, and a modern regulatory framework.

Whether you’re a startup, SME, or large multinational operating in the UAE, this guide breaks down everything you need to know about corporate tax—from who it applies to, exemptions, how to calculate it, compliance tips, and why staying informed is essential for your business success.

Why the UAE introduced corporate tax

Although the UAE was once known for its tax-free environment, global economic pressures and the country’s commitment to international tax standards (such as OECD guidelines) led to the formal adoption of a federal corporate income tax system.

Benefits of corporate tax introduction:

• Complies with OECD and BEPS guidelines.
• Enhances the country’s financial transparency.
• Provides sustainable revenue for public development.
• Encourages responsible corporate governance.

Who is subject to corporate tax in the UAE?

The UAE Corporate Tax applies to all UAE-based legal entities, including:

• Mainland companies
• Free zone companies (with exceptions)
• Foreign legal entities with permanent establishment in the UAE
• • Individuals conducting a trade or business in the UAE in an ongoing or regular manner
• Entities or individuals generating state sourced income
• Branch of UAE entity, foreign entity managed and controlled in the UAE or any individual conducting business in the UAE

Exempt entities ( subject to certain conditions)

Entity type	Exemption reason
Government entities	Carry out sovereign activities
Government-Affiliated Entity	Directly or indirectly wholly owned and controlled by a government entity
Extractive businesses	Subject to existing Emirate-level taxation
Non-Extractive Natural Resource Business	Business or business activities of separating, treating, refining, processing, storing, transporting, marketing or distributing natural resources of the UAE
Qualifying public benefit entity	e.g, charitable, environmental purposes
General pension or social security fund or private pension	Subject to certain conditions

Corporate tax rates in the UAE (2025)

The following rates apply across all Emirates:

Taxable income range	Corporate tax rate
Up to AED 375,000	0%
Above AED 375,000	9%
Multinational Enterprises	15% (if global revenue ≥ EUR 750M in at least two out of the four financial years immediately preceding the financial year in which the Domestic Minimum Top-up Tax (DMTT) applies)

Note: Free Zone companies may still benefit from 0% tax on qualifying income if they meet specific regulatory criteria.

Tax residency and corporate tax obligations

To determine tax liability, businesses must establish if they are resident or non-resident entities (corporate tax may also apply on natural persons subject to specific conditions). 

Resident Entity: Incorporated in the UAE or effectively managed and controlled from the UAE.

Non-Resident Entity: Foreign business with a Permanent Establishment (PE) in the UAE, or an entity generating state-sourced income.

Pro Tip: Even free zone entities must register for corporate tax and file annual returns, even if they remain at 0% tax rate.

Step-by-step corporate tax compliance process

Tax deductions and reliefs

Certain expenses can be deducted from the taxable income:

• Salaries and wages
• Rent and utilities
• Business travel
• Depreciation of assets
• R&D expenses
• Entertainment expenses

Small business relief

Businesses earning less than AED 3 million (cumulative) over the previous tax years may qualify for small business tax relief until 2026.

Free zone businesses and corporate tax

Free zone entities can still enjoy 0% tax only if:

• They maintain adequate presence in the UAE.
• They earn only qualifying income (like exports, foreign services).
• • Did not choose to be subject to corporate tax.
• Must comply with the arm’s length principle for transactions with related parties and for arrangements between free zone parent and its foreign permanent establishment or domestic permanent establishment.
• Must maintain transfer pricing documentation. 

Failing to meet these conditions will result in the standard 9% tax rate.

Penalties for non-compliance

Failure to meet corporate tax obligations can lead to:

• Fines and penalties 
• Imprisonment 

Businesses are strongly advised to hire a tax consultant or financial advisor for proper compliance.

Comparison table: free zone vs mainland corporate tax

Feature	Mainland Company	Free Zone Company (Qualifying)
Tax Rate	9% on taxable income above AED 375,000	0% on qualifying income
Can do business in the Mainland	Yes	No (unless separate branch)
Audit Requirements	Required	Required
The return filing	Mandatory	Mandatory

Frequently asked questions (FAQs)

1. When did the UAE corporate tax come into effect?
The law took effect on June 1, 2023.

2. Who needs to register for corporate tax?
All UAE-based companies, including free zone businesses.

3. Is there any tax for companies earning below AED 375,000?
No, profits below AED 375,000 are exempt from tax.

4. Can free zone companies be exempt from tax?
Yes, if they meet the qualifying criteria.

5. How is taxable income calculated?
Based on net profit as per audited financial statements, adjusted for allowable deductions.

6. Do individuals pay corporate tax?
Only if operating a business that generates income.

7. Are there exemptions for startups?
Yes, startups may qualify for slight business relief if revenue conditions are met.

8. What are the filing deadlines?
A Tax return must be filed within 9 months from the end of the tax period.

9. What happens if a company doesn’t comply?
Fines, audits, and possible legal actions.

10. How to apply for a tax residency certificate?
Via the Federal Tax Authority portal, with supporting documents.

Why you should stay compliant with UAE corporate tax

As the UAE transitions into a globally recognized and financially transparent economy, understanding and complying with corporate tax laws is no longer optional—it’s a necessity. Here’s why it matters:

• Avoid hefty fines and legal penalties
• Maintain eligibility for free zone tax exemptions
• Strengthen your brand’s credibility and transparency
• Build trust with international partners and investors
• Ensure business sustainability and scalability

Partnering with a legal expert like Kanoony ensures your business remains 100% compliant, providing you with peace of mind and freeing up your time to focus on growth.

Ready to make corporate tax compliance simple?

Let Kanoony handle the complex legal paperwork and ensure your business remains compliant with UAE law.

Contact our experts today and stay ahead of the 2025 corporate tax landscape!