Corporate income tax in the UAE: Tax rates, incentives & deductions.

The United Arab Emirates has transitioned into a new era of fiscal policy with the broad implementation of its federal corporate tax system. This landscape has matured as businesses now navigate a standardized compliance cycle and the recent integration of Global Minimum Tax (Pillar Two) standards for large multinationals.

For businesses operating in the UAE, staying current with this evolving framework is essential for both compliance and strategic planning. This guide outlines the key pillars of the UAE’s corporate tax system and its implications for businesses.

Corporate income tax rates

Corporate income tax (CIT) is levied on taxable income of businesses at the following rates:

• 0%: Taxable income not exceeding AED 375,000
• 9%: Taxable income exceeding AED 375,000

As of 1 January 2025, the UAE has officially implemented the Domestic Minimum Top-up Tax (DMTT) under the OECD’s Base Erosion and Profit Shifting (BEPS) 2.0 framework. This ensures that large multinational enterprises (MNEs) with global revenues exceeding EUR 750 million are subject to a global minimum tax rate of 15%.

Who is subject to corporate income tax in the UAE?

Entities subject to corporate tax are known as taxable persons, which can be either resident or non-resident.

Taxable persons are categorised as the following:

• Resident juridical persons: Companies incorporated in the UAE or foreign companies managed and controlled within the UAE.
• Resident natural persons: Individuals conducting business activities in the UAE.
• Non-resident juridical persons: Foreign companies with a permanent establishment (PE) in the UAE.
• Non-resident persons: This category applies to UAE sourced income that is not related to their PE and is subject to a 0% withholding tax.

Exempt persons

Certain entities receive corporate tax exemptions due to significant public interest and policy considerations. These entities are known as exempt persons and are classified into four main categories:

• Government entities, such as federal and local governments, government agencies and departments, authorities and public institutions of the federal or local government, are considered automatically exempt persons.
• Extractive businesses and non-extractive natural resource businesses can qualify for exemption if they notify the Ministry of Finance and meet specified conditions.
• Government-controlled entities and qualifying public benefit entities, can be exempted if listed in a Cabinet Decision and meet relevant conditions.
• Public and private pension or social security funds, qualifying investment funds, juridical persons wholly owned and controlled by certain exempt persons and any other entity determined by the Cabinet upon suggestion of the Minister, can be exempted upon application and approval by the Federal Tax Authority (FTA).

Corporate tax compliance requirements

To register for corporate tax in the UAE, businesses must obtain a Tax Registration Number (TRN), a mandatory requirement for taxable entities. This process is completed via the FTA portal, where businesses submit the necessary documents for verification and tax assessment.

The required documentation typically includes:

• Trade licence: A legal document issued by the relevant UAE authority that permits the business to operate within the specified activity.
• Financial statements: Audited accounts that provide insights into the business’s financial health and operational activities.
• Ownership information: Details of the shareholders or partners, including their identification documents and shareholding structure.
• Business contracts and agreements: Documents evidencing the nature and scope of the business’s activities, such as lease agreements or supply contracts, if applicable.

Upon submission, the FTA reviews the documentation to verify the entity’s registration eligibility. Once approved, the business is issued a TRN, enabling it to comply with all corporate tax requirements, including filing tax returns and making payments. Timely registration is critical to remain compliant, as the FTA now enforces a rigid timeline requiring new entities to obtain a TRN generally within three months of incorporation. Failure to meet these deadlines results in a fixed administrative penalty of AED 10,000.Filing and record-keeping

Tax returns must be filed annually within nine months from the end of the tax period through the FTA’s electronic portal. The law requires businesses to maintain proper documentation for seven years, ensuring transparency and accountability in tax administration.

Tax periods and filing deadlines

A tax period is the accounting period for which a business calculates and reports its corporate tax liability. For most companies, the tax period corresponds to the financial year as set out in the company’s constitutional documents. The standard tax period is 12 months, and the filing deadline falls nine months after the last day of that period.

The table below illustrates how this nine-month rule applies to different financial year-ends:

First tax period for newly incorporated companies

A newly incorporated company’s first tax period begins on the date of incorporation and ends on the last day of its chosen financial year. As a result, the first period may be shorter or longer than 12 months.

• Mid-year incorporation (less than 12 months): A company incorporated on 1 September 2025 with a 31 December year-end will have a first tax period from 1 September to 31 December 2025 (four months). The filing deadline is nine months after 31 December 2025, falling on 30 September 2026.
• Incorporation close to year-end (first period extends to following year): A company incorporated on 1 November 2025 may choose a 31 December 2026 year-end instead of 31 December 2025, creating a first tax period of 14 months. Provided this is within the permitted limit, the filing deadline would be 30 September 2027. Companies should confirm the maximum allowed period with the FTA and ensure consistency with their constitutional documents.

In all cases, registration with the FTA and obtaining a TRN is required from the date of incorporation, not from the end of the first tax period. Late registration may result in penalties, even if no tax is due.

Changing the reporting periods

Changing a financial year-end creates a transitional tax period that is shorter or longer than 12 months, bridging the gap between the last full period and the new year-end.

• Shortening the financial year: A company moving from a 31 December to a 30 September year-end will have a transitional period from 1 January 2026 to 30 September 2026 (nine months). The filing deadline for this period is 30 June 2027. Future tax periods will run from 1 October to 30 September.
• Extending the financial year: A company changing from a 31 March to a 31 December year-end will have a transitional period from 1 April 2026 to 31 December 2026 (nine months). The filing deadline then falls on 30 September 2027.

To implement a change, the company must update its constitutional documents and notify the relevant authorities. The FTA should also be informed to ensure tax records and deadlines are correctly updated. Seeking the professional advice before making changes can help avoid compliance gaps or missed deadlines.

Inactive and pre-revenue companies

A company with no revenue or no active operations is not exempt from corporate tax obligations. Registration and filing requirements apply independently of whether a company has commenced trading or generated income.

Registration

The obligation to obtain a TRN is triggered by being a taxable person, not by earning income. A company incorporated in the UAE, or a foreign company managed and controlled within the UAE, qualifies as a resident juridical person and is required to register from the date it meets that definition.

Pre-revenue companies, including those that have obtained a trade licence but have not yet started operations, must register within the timeframes set by the FTA. Late registration attracts administrative penalties even where no tax liability arises.

Filing

A registered company must file a tax return for each tax period, including periods in which it recorded no revenue. A nil or loss return confirms compliance and keeps the company’s record with the FTA current. Assuming that no income means no filing obligation is one of the more common compliance errors.

Neither VAT registration status nor the presence of a corporate bank account affects these obligations. A company that qualifies as a taxable person is required to register and file regardless of whether it holds a VAT number or has opened a corporate bank account.

Taxable and non-taxable income

Determining a business’s tax liability starts with a clear distinction between taxable and exempt income. The UAE framework defines these categories to ensure that only net economic gains arising from commercial activities are subject to tax.

Scope of taxable income

Taxable income encompasses revenue from business and commercial activities, capital gains from asset and investment sales and foreign-sourced income attributable to UAE operations. Interest, royalties and other investment returns also fall within the taxable income category.

Tax exemptions

The tax system offers several exemptions, including dividend income from qualifying shareholdings and capital gains from qualifying shareholdings. Exemptions may also apply to foreign branch profits and intra-group transfers that fulfil specific criteria.

Deductions and allowances

The UAE tax regime incorporates various provisions to ensure that businesses are taxed on their net profit. By applying specific qualifying deductions and allowances, entities can accurately reflect their operational costs and manage their long-term tax liabilities.

Qualifying deductions

The UAE corporate tax system allows for various business deductions to ensure fairness in tax calculation. Qualifying deductions include general business expenses, interest costs (subject to certain limitations), employee-related expenses and research and development costs.

Loss treatment

Business losses receive favourable treatment, with indefinite carry-forward permitted against future taxable income. However, this benefit is subject to continuity of ownership and business activity requirements to prevent abuse.

Companies that record a loss in a given tax period are still required to file a return for that period. The loss is then recognised by the FTA and can be used to offset future taxable income once the business returns to profit. When offsetting carried-forward losses against future taxable income, the deduction is capped at 75% of taxable income in any given tax period, meaning a portion of income will remain taxable even where significant losses have accumulated.

Taxation of free zone companies

Free zones in the UAE offer a specialized tax environment to maintain the country’s appeal to global investors. Under the current regime, entities operating within these jurisdictions can benefit from a zero-rate tax status, provided they meet specific regulatory and operational criteria.

Tax benefits

The UAE’s free zones continue to play a vital role in attracting international investment, with qualifying free zone persons eligible for a 0% corporate tax rate. Many free zones offer a 50-year tax holiday guarantee, making them particularly attractive for international businesses.

Who is a free zone person?

A free zone person is a legal entity registered under free zone regulations, including branches of mainland or foreign entities and foreign companies relocating to a UAE free zone.

Qualifying free zone person

To be a qualifying free zone person eligible for the 0% corporate tax rate, the following conditions must be met:

• Derive qualifying income
• Maintain adequate substance* in the UAE
• Meet the de minimis requirements**
• Have not elected to be subject to the standard corporate tax regime
• Comply with transfer pricing rules and maintain relevant documentation as per the corporate tax law
• Prepare and maintain audited financial statements for corporate tax purposes

This 0% tax rate applies to qualifying income during the tax incentive period set by the free zone regulations, unless extended.

*To meet the adequate substance requirements, a qualifying free zone person must conduct their core income-generating activities within the free zone. The qualifying free zone person must show it has sufficient staff, assets and operating expenses within the free zone. Determining what qualifies as adequate substance is evaluated case by case.

**The de minimis requirements allow a qualifying free zone person to retain the 0% tax rate if non-qualifying income is under 5% of total revenue or less than AED 5 million annually.

Qualifying income and activities

Qualifying income, taxed at 0%, includes:

• Transactions with other free zone persons
• Domestic and foreign-sourced income from qualifying activities
• Income from excluded activities or non-qualifying income is taxed at 9%.

Activities eligible for the free zone tax regime include:

• Manufacturing or processing goods
• Holding securities
• Ship management and operation
• Fund management and reinsurance services
• Headquarters, logistics and ancillary services

Excluded activities

Excluded activities that make a person ineligible for the free zone tax regime include owning immovable property or conducting regulated banking, finance, leasing and insurance activities.

Double taxation treaties

The UAE’s extensive network of over 100 double taxation treaties provides significant benefits to businesses operating internationally. These agreements typically reduce withholding taxes and prevent double taxation through various mechanisms such as tax credits or exemptions. Each treaty contains specific provisions for different types of income, along with anti-abuse measures to ensure proper application.

Countries that have double tax treaties with the UAE include:

Corporate tax incentives

The UAE offers several corporate tax incentives to attract businesses and encourage economic growth. These incentives vary depending on the emirate, industry and the type of business activity. Below is an overview of some key tax incentives in the UAE:

Research and development incentives

To drive innovation and support economic growth, the UAE officially launched the Research and Development (R&D) tax incentive for tax periods beginning on or after 1 January 2026. It operates as a tiered, non-refundable tax credit of up to 50%, calculated based on qualifying R&D expenditure and the size of the workforce.

The proposed R&D tax incentive will be expenditure-based, offering a refundable tax credit of 30-50%, depending on the business’s revenue and workforce size in the UAE. (Subject to conditions)

Small businesses and startups

The UAE offers small business relief to eligible businesses, reducing their corporate tax burden and compliance costs by exempting them from calculating and paying corporate tax when conditions are met.

UAE resident businesses with revenue of AED 3 million or less during the current and previous tax periods, up to 31 December 2026, qualify for this relief. However, it is not available to members of multinational enterprise groups with consolidated revenue exceeding AED 3.15 billion or to qualifying free zone persons.

Manufacturing and export incentives

Free zones such as the Jebel Ali Free Zone (JAFZA) and KIZAD (Khalifa Industrial Zone) offer tailored incentives for manufacturers and exporters, including tax exemptions and reduced operational costs.

Transfer pricing regulations

Transfer pricing in the UAE follows international standards, centred on the arm’s length principle for related party transactions. Documentation requirements vary based on transaction values, with larger entities typically needing to prepare master file and local file documentation. Multinational groups meeting certain thresholds must also comply with country-by-country reporting obligations.

Conclusion

The UAE’s corporate tax regime has evolved into a globally aligned framework that balances competitiveness with international transparency. As it enters a new phase in 2026, with the activation of R&D credits and the integration of Global Minimum Tax, compliance has become a strategic necessity rather than a mere administrative task.

By managing these requirements effectively, from maintaining adequate substance in Free Zones to meeting evolving registration deadlines, businesses can operate with confidence in the UAE dynamic market. Success in this environment depends on strong record-keeping and a proactive, forward-looking approach to tax planning.

How Acclime can help with corporate income tax in the UAE

Acclime offers complete support with corporate tax compliance and strategic planning. From assisting with tax registration and annual filing requirements to ensuring proper documentation and adherence to transfer pricing regulations, our team of experts can assist with everything from calculating taxable income to identifying applicable exemptions. By partnering with us, businesses can confidently meet compliance obligations while optimising their tax strategies. Contact us to learn more about how we can support your corporate tax compliance and strategic financial planning needs.