The United Arab Emirates (UAE) has been widely recognized for its favorable tax environment. However, the recent introduction of Corporate Tax (CT) under Federal Decree-Law No. 47 of 2022 marks a significant shift in the country’s taxation landscape.

Effective from financial years starting on or after June 1, 2023, corporate tax will apply to businesses operating across the UAE, including those in Free Zones and Mainland. Whether you are a local business owner, a multinational company, or an individual with a licensed enterprise, it is crucial to grasp the UAE’s corporate tax framework for compliance and effective planning. This comprehensive guide will help you understand the new regulations and navigate them with ease.

Step 1: Determine If Corporate Tax Applies to You

The first step is to check whether your entity or activities fall within the scope of UAE Corporate Tax. If applicable, you must register  within the specified deadline to avoid penalties.

Who is Subject to Corporate Tax?

• UAE Mainland Companies: All Legal entities incorporated or effectively managed and controlled from within the UAE.
• Individuals (Natural Persons): If engaged in a business or business activity that requires a commercial license and their income surpasses AED 1 million annually.
• Foreign Entities: If they have a Permanent Establishment (PE) in the UAE or generate income from the UAE.
• Free Zone Entities: Freezone entities are generally subject to tax unless they meet the criteria to be classified as a Qualifying Free Zone Person (QFZP)—discussed in detail in Step 3.

Who is Exempt?

• Government entities and organizations under government control (subject to  certain conditions).
• Businesses involved in natural resource extraction (taxed at the Emirate level instead).
• Personal income such as salaries, dividends, or real estate gains (unless associated with a licensed business).

Action Point:

Examine your business structure and operations to determine tax applicability. If applicable, obtain Corporate Tax registration.  If you’re uncertain, consult a tax advisor to prevent any potential non-compliance.

Step 2: Register with the Federal Tax Authority

All taxable persons must register for corporate tax, even if there is no tax liability (e.g., exempt entities or businesses below the taxable threshold).

How to Register?

• Log into EmaraTax: Use the FTA’s online portal with your UAE Pass or create an account.
• Add Your Business: Select “Add Taxable Person” and input your trade license number.
• Enter Details: Provide your legal name (in English and Arabic), trade name, and business activities.
• Include Ownership Info: List owners with a 25%+ stake and any UAE branches.
• Authorize a Signatory: Submit Emirates ID or passport details of the representative, along with proof of authorization (e.g., Power of Attorney).
• Submit: Review the details, declare accuracy, and file your application.

Required Documents

• Valid trade license.
• Memorandum of Association
• Valid Emirates ID and Passport of the Owners and signatory.
• Authorization proof (if applicable).

Deadlines and Penalties

Deadlines depend on your tax period or incorporation date. 

If your license is issued on or after 1st March 2024, you must obtain registration within three months from the date of incorporation. Late registration will result in a penalty of AED 10,000.

Outcome

You’ll receive a Tax Registration Number (TRN) for CT upon approval—distinct from your VAT TRN.

Action Point:

Register early via EmaraTax to secure your TRN and avoid fines. The process is straightforward but requires accurate documentation.

Step 3: Understand the Tax Rates and Thresholds

Once you have established tax applicability and obtained registration, familiarize yourself with the rates and potential exemptions.

Standard Tax Rates

• 0% on taxable income up to AED 375,000.
•  9% on taxable income exceeding AED 375,000.
• 15% for large multinationals under the OECD Pillar Two framework (global revenue over EUR 750 million), ensuring a global minimum tax rate.

Free Zone Advantage

Entities in UAE Free Zones can enjoy a 0% tax rate on “qualifying income” if they satisfy the QFZP requirements, which include: 

• Maintaining sufficient economic substance (including staff, assets, and operations within the Free Zone). 
• Generating income from activities conducted in the Free Zone or with entities outside the UAE. 
• Avoiding transactions with mainland UAE businesses, as these are subject to a 9% tax.

Action Point:

Assess your qualifying income to determine if Free Zone benefits apply. If your income includes non-qualifying income, your business may be subject to the 9% tax rate.

Step 4: Calculate Your Taxable Income

Taxable income is derived from your financial statements, adjusted to meet Corporate Tax rules.

Calculation Process

Start with Net Profit/Loss: Use standalone financials prepared as per IFRS.

Make Adjustments:

• Add back non-deductible expenses such as 50% of entertainment costs and unapproved donations. 
• Subtract exempt income, which includes dividends from UAE entities or qualifying foreign participations held for over 12 months with at least 5% ownership. If you choose the realization basis for capital assets, adjust unrealized gains and losses accordingly. 
• Limit interest deductions to 30% of EBITDA or AED 12 million, whichever is higher.

Special Provisions

• No Separate Capital Gains Tax: Profits or losses from selling assets are included in taxable income.
• Slight Business Relief: Until December 31, 2026, businesses with annual revenue under AED 3 million can opt for small-business relief i.e. zero-taxable income, simplifying compliance.

Action Point:

Ensure proper financial adjustments before calculating taxable income and take advantage of available tax reliefs.

Step 5: File Your Corporate Tax Return

Filing is the final compliance step, consolidating your tax obligations.

When to File

You need to submit your return within 9 months of your tax period’s end. For example:

• Tax period: January 1, 2024, to December 31, 2024.
•  Filing deadline: September 30, 2025.

How to File

• Use the EmaraTax portal to file your annual return in one go (no need for interim submissions). 
• Make sure to include your TRN, financial information, and tax calculations. 
• You can pay any taxes owed electronically through the portal.

Penalties

Late filing or payment incurs fines, starting at AED 500 and escalating based on delay duration.

Action Point:

File on time and double-check your calculations. Small errors can lead to audits or penalties.

Key Takeaways:

The UAE’s Corporate Tax regime balances simplicity with competitiveness:

• Low rates (0% or 9%) make it attractive compared to global standards.
• Free Zone incentives preserve the UAE’s appeal for international businesses.
• Clear registration and filing processes via EmaraTax streamline compliance.

Success depends on thorough preparation. Evaluate your tax status, register immediately, accurately calculate your taxable income, and ensure timely filing. For more complicated situations—particularly for Free Zone entities or multinational companies—seeking advice from a tax professional can help you optimize benefits and reduce risks. 

The UAE’s corporate tax system is entirely in effect, with the FTA offering continuous support. Stay informed about any changes through official resources like the FTA website (tax.gov.ae). With the right strategy, compliance can be a simple step toward succeeding in the UAE’s dynamic business environment.