Introduction
On January 31, 2022, the UAE Ministry of Finance announced the introduction of Corporate Tax ("CT") in the United Arab Emirates. Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses ("CT Law") was subsequently issued on December 9, 2022. The new CT Law provides the legislative basis for a Federal Corporate Tax in the UAE and is effective for company financial years starting on or after June 1, 2023 (i.e. for most companies as of January 1, 2024).
The law is applicable to all businesses and commercial activities operating within the seven Emirates. The introduction of CT supports the UAE in achieving its strategic objectives and accelerating its development and transformation. The new tax regime has been designed to incorporate best practices globally while minimising the compliance burden on businesses. The CT regime adheres to international standards and will cement, together with the UAE’s extensive network of double tax treaties, the UAE’s position as a leading jurisdiction for business and investment.
Scope of the Tax
CT is a form of direct tax levied on the net income of corporations and other businesses.
It will apply to businesses across all Emirates (including Free Zone companies), with the exception of the extraction of natural resources, which will remain subject to Emirate level corporate taxation. Foreign entities and individuals will be subject to corporate tax only if they conduct a trade or business in the UAE in an ongoing or regular manner. As a matter of fact, all activities undertaken by a legal entity will be deemed "business activities" and so fall within the scope of the CT.
Individuals will be considered to have a "business" within the scope of the corporate tax if the individual has (or is required to obtain) a business license or permit to carry out relevant commercial, industrial and/or professional activity in the UAE.
Corporate Tax Rates
CT will be levied at a rate of 9% on Taxable Income exceeding AED 375,000. Taxable Income below this threshold will be subject to a 0% rate.Provided a Free Zone entity meets the conditions to be considered a Qualifying Free Zone Person ("QFZP"), it is eligible for a 0% UAE CT rate on its Qualifying Income. The income of a QFZP which is not Qualifying Income will be taxed at the standard 9% CT rate (further information on this below).
Taxable Person under CT Law
The UAE's Ministry of Finance website says in accordance with most countries’ tax regimes, the new law taxes income on both a residence and source basis. The applicable basis of taxation depends on the classification of the Taxable Person.
A Resident Person will be taxed on income derived from both domestic and foreign sources (i.e. a tax residence basis), and is any of the following Persons:
A juridical person that is incorporated or otherwise established or recognised under the applicable legislate of the UAE (including Free Zone Person)
A juridical person that is incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction that is effectively managed and controlled by the UAE
A natural person who conducts a Business or Business Activity in the UAE (see below)
Any other person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister
A Non-Resident will be taxed only on income derived from sources within the UAE (i.e. a source basis) and is a Person that either has a permanent establishment, derives State Sourced Income, or has a connection in the State as specified in a decision issued by the Cabinet at the suggestion of the Minister.
Note that residence is not determined by where a person resides or is domiciled - rather by specific factors laid out in the CT Law. Hence, if a person does not satisfy the conditions for being either a Resident or a Non-Resident person, then they will not be a Taxable Person and will not be subject to the tax.
Exempt Persons
Government entities are automatically exempt from paying tax, while Extractive Businesses and Non-Extractive Natural Resource Businesses are exempt upon notification to the Ministry of Finance (however, they will still be taxed at the Emirate level).
Qualifying Public Benefit Entities are exempt from CT if explicitly listed in a related Cabinet decision. Public and private pension funds, certain investment funds and other government-controlled entities can apply for an exemption from the Federal Tax Authority ("FTA") if they meet certain criteria.
Exempt Income
The CT Law also exempts certain types of income from CT. Taxable Persons will not be subject to CT on such income and cannot claim a deduction for any related expenditure. The main purpose of certain income being exempt from CT is to prevent double taxation on certain types of income.
The following income (and related expenditure) is not considered:
Dividends and other profit distributions received from a juridical person that is a Resident Person (i.e. a UAE company)
Dividends and other profit distributions received from a Participating Interest in a foreign juridical person (if (1) the ownership interest is at least 5%; (2) a 12 month uninterrupted holding period (or the intention to hold for 12 months) is in place, and (3) the Participation is subject to tax in its country or territory of residence at a rate that is not lower than the UAE tax rate (i.e. 9%))
Any other income from a Participating Interest as specified in the CT Law
Income of a Foreign Permanent Establishment that meets certain conditions of the CT Law
Income derived by a Non-Resident Person from operating aircraft or ships in international transportation that meets the conditions of CT Law
Small Business Relief
Article 21 of the CT Law together with the Ministerial Decision (Ministerial Decision No. (73) of 2023) on Small Business Relief states a tax resident person (hence only UAE company) may be eligible to claim Small Business Relief if its revenue in the relevant tax period and previous tax periods is below AED 3,000,000 for each tax period.
However, in the event that the threshold is exceeded, then the taxable person will be subject to the normal UAE CT rates. Small Business Relief is not available to Qualifying Free Zone Persons or members of Multinational Enterprises Groups.
The current statutory threshold of AED 3,000,000 to claim Small Business Relief applies only to Tax Periods that end before or on 31 December 2026.
Individuals
The UAE has not introduced personal income tax. As per Cabinet Decision No. (49) of 2023, resident or non-resident natural persons (individuals) are subject to CT where the turnover or gross amount of income derived from Businesses or Business Activities exceeds AED 1,000,000 within a Gregorian calendar year.
Under the applicable CT Law, ‘business’ means any activity conducted regularly, on an ongoing and independent basis by any Person and in any location, such as industrial, commercial, agricultural, vocational, professional, service or excavation activities or any other activity related to the use of tangible or intangible properties.
‘Business Activity’ is defined as any transaction or activity, or series of transactions or activities conducted by a Person in the course of its Business.
The following income sources are not considered income from a Business or Business Activity under the CT Law, irrespective of the amount of income derived:
Salaries:
Any wages or salaries paid to employees in consideration of their services under an employment contract (because not acting as independent), whether in cash or in kind. This also includes all allowances, bonuses and benefits paid to the employees as per the employment contract (or the applicable legislation).
Personal investment income:
Any income from investment activity carried out by the natural person on their personal account (not conducted through a Licence or requiring a Licence from a Licensing Authority in the UAE).
Real estate investment income:
Any income from activity conducted by the natural person in relation to the sale, leasing, sub-leasing, and renting of land or real estate in the UAE (not conducted through a Licence or requiring a Licence from a Licensing Authority in the UAE).
Free Zone Person
Generally, there is no distinction between onshore/mainland and free zone companies under the CT Law. A free zone company can, however, benefit from preferential CT treatment if it qualifies as a Qualifying Free Zone Person meeting all the following conditions:
Maintains adequate substance in the State
Derives Qualifying Income as specified Cabinet Decision No. (55) of 2023 on Qualifying Income (see hereinafter)
Has not elected to be subject to CT under Article 19 of the CT Law
Complies with the arm’s length principle (Article 34) and transfer pricing rules (Article 55) of the CT Law
Meets any other conditions as may be prescribed by the Minister.
A QFZP is obliged to prepare audited financial statements under the CT Law (for most Free Zone companies, however, there’s already a statutory requirement for this under the relevant Free Zone Company regulations).
In the event a Free Zone Person qualifies as QFZP, the entity shall benefit from the following tax rates:
0% on Qualifying Income and
9% on taxable income that is not Qualifying Income (no AED 375,000 threshold with 0% tax rate on non-qualifying income)
Cabinet Decision No. (55) of 2023 on Qualifying Income specifies that the following income shall be qualified as Qualifying Income:
Income derived from transactions with other Free Zone Persons; except for income derived from Excluded Activities (see below).
Income derived from transactions with Non-Free Zone Persons, but only in respect of Qualifying Activities (see below) that not Excluded Activities.
Any other income provided that QFZP satisfies the de minimus requirements under Article 4 the new law (Cabinet Decision No. (55) of 2023).
[1] Article 4 of Cabinet Decision No. 55 of 2023 statesthe de minimus requirements shall be considered satisfied where thenon-qualifying Revenue derived by the QFZP in a relevant taxable period doesnot exceed 5% of the total Revenue of the QFZP in that tax period; orAED5,000,000, whichever is lower.
Qualifying Activities (as per Ministerial Decision No. (139) of 2023 Regarding Qualifying Activities and Excluded Activities):
Manufacturing of goods or materials, processing of goods or materials
Holding of shares and other securities
Ownership, management and operation of ships
Reinsurance services subject to the regulatory oversight of the competent authority in the state
Fund management services subject to the regulatory oversight of the competent authority in the state
Wealth and investment management services subject to the regulatory oversight of the competent authority in the state
Headquarter services to related parties
Treasury and financing services to related parties
Financing and leasing of aircraft, including engines and rotable components
Distribution of goods or materials in or from a designated zone to a customer that resells such goods or materials, or parts thereof or processes or alters such goods or materials or parts thereof for the purposes of sale or resale
Logistics services, and
Any activities ancillary to the activities listed.
Excluded Activities (as per Ministerial Decision No. (139) of 2023):
Any transactions with natural persons, except transactions in relation to some of the Qualifying Activities
Banking activities subject to the regulatory oversight of the competent authority in the UAE
Insurance activities subject to the regulatory oversight of the competent authority in the UAE (other than the Reinsurance business)
Finance and leasing activities subject to the regulatory oversight of the competent authority in the UAE except transactions in relation to some of the Qualifying Activities
ownership or exploitation of immovable property, other than Commercial Property located in a Free Zone where the transaction in respect of such Commercial Property is conducted with other Free Zone Persons
Ownership or exploitation of intellectual property assets, and
Any activities ancillary to the activities listed.
What’s next
Any Taxable Person under the CT Law, UAE incorporated entities and branches of foreign companies as well as certain individuals have the following three obligations:
Register for CT in order to obtain a 'TRN' or Tax Registration Number (there is currently no statutory deadline, but this must be completed before the first tax filing is due)
Bookkeeping and Accounting (if applicable audited financial statements)
CT filing within nine months from the year end of the first tax period, i.e. for most companies by end of September 2025 for the first relevant financial year 1 January to 31 December 2024.
Help is at hand
Swiss Group has a long, illustrious history in the UAE. We’ve been here since the 1970s, and helped corporations, entrepreneurs, investors and people navigate the UAE legal and regulatory framework for more than 50 years.
If you have any questions, issues or concerns regarding the new Corporate Tax Law, reach out to us for expert Tax Consultancy whether you are corporation or private individual. We can also advise on Double Tax Treaties.
Swiss Group also offers deep experience regarding the set-up of UAE Companies (whether Mainland, Free zone or Offshore), and for more than 50 years we’ve been assisting our clients in the optimisation and maintenance of their existing structures and entities.
It's vital that everyone – whether a corporation or individual - understands their tax obligations, keep records of their income and expenses, and comply with tax laws to ensure accurate reporting and avoid potential penalties or legal issues.
Consulting with Swiss Group’s accounting and tax professionals provides peace of mind, clarity and help you navigate the new tax regime and responsibilities effectively.
And any business set-up should be considered holistically, of course, through the lens of myriad factors that affect success – such as the VAT and Corporate Tax laws, labour costs, infrastructure, property prices and visa and employment issues.
While at heart, we are a business consultancy, we are much more than that. Consider Swiss Group a one-stop-shop offering all the services you might need to set up a business, legal advice, tax advice and accounting services, alongside handling of family matters, all under the auspices of a company rooted in Swiss reliability and precision.
In short, Swiss Group offers a market-leading range of personalised advisory and management services, emphasising corporate and commercial matters.