The United Arab Emirates (UAE) has long been recognised for its attractive tax environment, making it a preferred destination for investors and companies seeking to establish a presence in the region. While the UAE has traditionally offered a low- or zero-tax regime, recent reforms reflect a broader shift towards aligning with global tax standards, particularly for multinational enterprises.
Understanding the UAE’s evolving tax landscape is essential for both local and foreign businesses operating in the country. From corporate tax and VAT to sector-specific exemptions and compliance obligations, businesses must meet a range of requirements to remain compliant and competitive.
This article outlines the key elements of taxation in the UAE, including applicable tax rates, filing responsibilities and strategic considerations for businesses of all sizes.
Key takeaways
- The UAE has introduced a corporate tax regime with rates of 0% for taxable income up to AED 375,000, 9% for income above that threshold and 15% for large multinational enterprises starting January 2025. This marks a significant change from the UAE’s previous low- or zero-tax environment.
- A standard 5% VAT applies to most goods and services, with exemptions and zero-rated supplies in sectors like education, healthcare, exports and transport. Businesses must register for VAT if exceeding thresholds and comply with invoicing, input tax claims and periodic filings to avoid penalties.
- The UAE currently does not levy personal income tax on salaries or wages, enhancing its attractiveness to expatriates. Withholding tax is generally set at 0%, though treaty provisions may introduce specific obligations.
- Customs duties typically stand at 5% on imported goods but can be higher for specific products like tobacco and alcohol. Companies operating in designated free zones benefit from customs duty exemptions, alongside other tax incentives targeting sectors such as technology and renewable energy.
Corporate income tax
The corporate income tax rates in the UAE are as follows:
| Tax rate |
Applicable income |
Details |
| 0% |
Up to and including AED 375,000 |
This exemption significantly benefits small businesses and startups. |
| 9% |
Above AED 375,000 |
Standard rate applied to most businesses, unless exempt or classified as MNEs |
| 15% |
Large MNEs (from 1 January 2025) |
Increased rate applies to large multinational enterprises from 2025 onwards |
The UAE’s corporate tax applies to a broad range of business entities operating in the country:
- Any company or legal entity established in the UAE mainland, even if its entire income is derived from foreign sources.
- Branches of foreign companies operating in the UAE are subject to corporate tax on their UAE-sourced profits.
- Entities operating within designated free zones are generally subject to corporate tax. However, they may benefit from a 0% tax rate on Qualifying Income, provided they meet the conditions to be treated as a Qualifying Free Zone Person (QFZP) as defined by the UAE Corporate Tax Law.
Businesses are required to file tax returns electronically with the FTA within nine months of the relevant tax period. Accurate and timely filing is essential to avoid penalties.
Value-added tax
The UAE imposes a standard value-added tax (VAT) rate of 5% on the supply of most goods and services. However, certain categories are either exempt or zero-rated, depending on their nature and the conditions met.
Exempt supplies include local passenger transport, specific financial services and residential property rentals. Meanwhile, zero-rated VAT may apply to sectors such as education, healthcare and exports, provided they meet the regulatory criteria.
Some businesses may be exempt from VAT registration altogether, particularly those engaged exclusively in exports or high-seas trading, where transactions fall outside the scope of UAE VAT.
Companies must assess VAT implications when pricing their products or services. VAT registration is mandatory for businesses whose taxable supplies exceed the prescribed threshold set by the Federal Tax Authority (FTA).
VAT compliance requirements include:
- Registering for VAT with the FTA
- Charging VAT on taxable supplies
- Issuing VAT-compliant invoices
- Claiming input VAT on eligible business expenses
- Filing periodic VAT returns in accordance with FTA deadlines
Failure to comply may result in penalties, so it is essential for businesses to implement proper VAT accounting and reporting processes.
Personal income tax
Currently, the UAE does not impose personal income tax on salaries, wages or other personal earnings. This remains one of the country’s most attractive features for expatriates and businesses seeking to attract global talent.
Withholding tax
The UAE currently imposes 0% withholding tax on dividends, interest or royalties. However, specific withholding requirements may arise under particular circumstances involving foreign entities, especially where a double tax treaty is applicable.
Customs duty
Customs duties are levied on imported goods to generate revenue for the government and protect domestic industries.
Rates vary depending on the type of goods being imported. The standard rate is 5% of the Cost, Insurance and Freight (CIF) value of the import. However, higher rates (up to 100%) may apply to certain goods like tobacco and alcohol. Additionally, some goods may be subject to specific excise duties on top of customs duties.
Companies operating within designated free zones in the UAE typically enjoy exemptions from customs duties on goods imported for use within the free zone. This can be a significant advantage for businesses involved in import and re-export activities.
Businesses importing goods into the UAE must comply with customs regulations, which may involve obtaining import licenses, paying customs duties and any applicable excise duties and clearing goods through customs.
Tax incentives
The UAE continues to offer a range of tax incentives, particularly within free zones and certain sectors like technology, manufacturing and renewable energy. Incentives include 0% corporate tax on qualifying income, exemptions from customs duties and ease of repatriation of profits.
Additionally, several emirates (such as Abu Dhabi and Dubai) have introduced their own incentive schemes for businesses involved in innovation, research and development and sustainability initiatives.
Double tax agreements
The UAE has an extensive network of over 140 double tax agreements (DTAs) with countries including China, India, the United Kingdom, Germany, France and most European Union countries. These treaties help businesses and investors avoid double taxation and often provide reduced rates on dividends, interests and royalties.
Businesses operating internationally should review applicable DTAs to maximise tax efficiency and avoid unnecessary tax liabilities.
Conclusion
The UAE’s tax landscape is undergoing a significant transformation, moving from a traditionally low-tax jurisdiction to a more structured regime aligned with international standards. The introduction of corporate tax, the ongoing application of VAT and various sector-specific rules underscore the need for businesses to stay informed and proactive.
Despite these changes, the UAE continues to offer a favourable environment for businesses through competitive tax rates, free zone incentives and an extensive network of double tax treaties. For companies operating or planning to expand into the region, understanding the full scope of tax obligations, while leveraging available exemptions and incentives, is key to long-term success.
By staying compliant and strategically managing their tax exposure, businesses can confidently operate in the UAE while benefiting from its pro-business policies and regional advantages.
How Acclime can help you stay compliant with the UAE’s tax regime
Acclime UAE offers complete support for tax compliance and planning. From tax registration to ongoing filing and reporting, our team of experts can assist with everything from assessing tax obligations to optimising your business structure. By partnering with us, businesses operating in the UAE can confidently comply with the latest tax regulations while minimising risks and maximising available incentives. Contact us to learn more about how we can support your tax planning and compliance needs.
Value Added Tax (VAT) in the UAE
