UAE Corporate Tax Law Explained: Federal Decree-Law No. 47 of 2022

UAE Corporate Tax Law Explained: Federal Decree-Law No. 47 of 2022

UAE Corporate Tax Law Explained: Federal Decree-Law No. 47 of 2022 :

The introduction of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses marked a historic milestone in the United Arab Emirates’ economic framework. For decades, the UAE was known for its tax-free business environment—a cornerstone of its appeal to investors and global enterprises. With this new law, the UAE has transformed its tax ecosystem by instituting a federal Corporate Tax regime built on internationally accepted standards, while still maintaining a competitive edge.

In this comprehensive guide, we explain what the law is, who it applies to, how it works, key exemptions and reliefs, special considerations for Free Zone companies, implementation timelines, compliance requirements, and the strategic impact on businesses. Whether you are a UAE-based entrepreneur, an international investor, or a tax professional, this blog will serve as your go-to resource on everything Corporate Tax in the UAE.

Background: Why the UAE Introduced Corporate Tax :

Historically, the UAE offered almost zero direct taxation for corporations—a significant advantage that established it as a thriving global business hub. However, evolving international tax norms and the UAE’s commitment to global economic integration necessitated the establishment of a standardized Corporate Tax framework.

The goals behind Federal Decree-Law No. 47 of 2022 include:

• Encouraging transparency and global compliance

• Aligning with OECD’s global tax standards and BEPS initiatives

• Diversifying government revenue sources

• Maintaining competitiveness while attracting foreign investment

• Ensuring fairness across sectors

The law was published on 9 December 2022 and applies to financial years beginning on or after 1 June 2023.

What Is Corporate Tax Under the New Law ?

Under Federal Decree-Law No. 47 of 2022, Corporate Tax is a direct tax on the net profits (taxable income) of corporations and business entities operating in the UAE. Corporate Tax is sometimes referred to as Corporate Income Tax or Business Profits Tax in other jurisdictions.

Who Is a Taxable Person ?

The law broadly applies to:

• UAE incorporated companies

• Foreign companies with a Permanent Establishment in the UAE

• Natural persons carrying out a business activity as defined by Cabinet Decision

• Free Zone entities (subject to qualifying conditions)

Resident vs Non-Resident Companies

• Resident companies are taxed on worldwide income.

• Non-resident companies are taxed on UAE-sourced income or income linked to a UAE Permanent Establishment.

Corporate Tax Rates: Simple and Competitive :

The tax regime uses a two-tier structure designed to support small businesses and maintain investment appeal.

Standard Tax Rates

According to Article 3 of the Corporate Tax Law:

• 0% Corporate Tax on taxable income up to the threshold amount (AED 375,000)

• 9% Corporate Tax on taxable income exceeding that threshold

This approach supports emerging and smaller enterprises while capturing value from larger profit pools in a fair manner.

Free Zone Persons

Companies operating in Free Zones can continue enjoying 0% tax on qualifying income if they meet certain regulatory and substance requirements. Any income outside the qualifying criteria may be subject to the normal 9% rate.

Taxable Income: What Gets Taxed ?

Understanding taxable income is crucial for compliance and accurate tax planning.

Calculating Taxable Income

Corporate Tax is applied to net profit before tax as per audited financial statements, with allowed adjustments. These adjustments typically include:

• Adding back non-deductible expenses

• Excluding exempt income such as dividends and capital gains (subject to conditions)

• Accounting for other statutory deductions or allowances

Foreign Tax Credits

If a UAE company has paid tax in another jurisdiction, it may be eligible for a Foreign Tax Credit against its UAE Corporate Tax liability—subject to law conditions.

Who Is Exempt From Corporate Tax ?

One of the strengths of the UAE Corporate Tax regime is its selective yet meaningful exemptions.

Some key exempt categories include:

Government Entities

Government entities are generally exempt, unless they carry a business activity under a licence.

Public Benefit and Non-Profit Entities

Qualifying non-profit and public benefit entities may be exempt if they meet specific criteria and operate within the defined purpose.

Extractive and Natural Resource Businesses

Businesses operating in extractive industries are usually taxed under Emirate-level laws and may be exempt from Federal Corporate Tax.

Qualifying Free Zone Persons

Free Zone companies can retain 0% tax status on qualifying income if they meet economic substance, regulatory, and compliance requirements.

Free Zone Companies: A Closer Look :

One of the most discussed aspects of the UAE Corporate Tax Law is how it affects Free Zone businesses.

What Is a Qualifying Free Zone Person?

To benefit from the 0% tax rate, Free Zone entities must satisfy stringent conditions, such as:

• Conducting substantive economic activities in the Free Zone

• Maintaining adequate operational substance

• Compliance with Transfer Pricing rules

• Following Ministerial and Cabinet decisions on qualifying criteria

Qualifying Income vs Non-Qualifying Income

• Qualifying Income relates directly to business activities performed within the Free Zone.

• Non-Qualifying Income includes unrelated earnings that may be subject to a 9% tax.

This dual categorization ensures Free Zone companies can remain competitive while aligning with international tax principles.

Compliance: Registration, Filing and Payments :

Compliance with Corporate Tax is both procedural and strategic.

Registration :

All taxable persons, including Free Zone companies, must register with the Federal Tax Authority (FTA) and obtain a Corporate Tax Registration Number.

Filing Obligations :

Taxable persons must submit:

• Annual Corporate Tax Return

• Audited financial statements

• Transfer Pricing documentation (where applicable)

Payment Deadlines :

Corporate Tax payments and return filings are due within 9 months from the end of the relevant Tax Period.

Transfer Pricing & International Standards :

The UAE Corporate Tax Law incorporates Transfer Pricing rules, requiring related-party transactions to be priced at arm’s length. Companies must maintain records and documentation supporting their pricing policies.

This aligns UAE tax practice with global norms and ensures compliance with cross-border tax standards.

Recent Amendments & Future Developments :

The UAE continues to refine its tax regime in line with global best practices.

Domestic Minimum Top-up Tax (DMTT) :

Effective from financial years commencing 1 January 2025, the Domestic Minimum Top-up Tax was introduced as part of aligning with the OECD Pillar Two rules. This means large multinational enterprises may be subject to a minimum effective tax rate of 15% across jurisdictions, including the UAE.

Amendments for Refunds and Settlement Rules :

Recent legislative changes (Federal Decree-Law No. 28 of 2025) now enable clearer mechanisms for tax credits and refunds, including unused incentives.

Strategic Impact on Businesses :

The corporate tax framework carries both immediate and long-term implications:

Enhancing Investment Appeal :

With a competitive 9% headline rate, strategic exemptions, and extensive tax treaties, the UAE remains attractive to global investors.

Encouraging Compliance and Transparency :

Mandatory tax filings and documentation raise reporting standards, positioning the UAE as a transparent economy aligned with the best global practices

Planning for Growth :

Companies must now incorporate tax planning into their growth strategies—leveraging incentives, understanding Free Zone criteria, and maximizing reliefs when possible.

Common Myths Debunked :

Myth 1: Corporate Tax applies to personal salary.

Fact: Retail tax applies only to corporate profits; employment income is not subject to Corporate Tax.

Myth 2: Free Zone companies are entirely tax-free forever.

Fact: Free Zone benefits depend on meeting qualifying conditions—non-qualifying income may be taxed.

Myth 3: All businesses must pay 9% tax.

Fact: Only profits above AED 375,000 are taxed at 9%; lower profits enjoy 0% tax.

Conclusion: A New Era for UAE Taxation :

Federal Decree-Law No. 47 of 2022 has ushered in a modern, robust, and globally aligned Corporate Tax system for the UAE. It balances competitiveness with compliance, supports small and medium enterprises, preserves Free Zone advantages, and strengthens the country’s position as a global business destination.

For businesses operating in or entering the UAE market, understanding these tax rules is critical—not only for compliance but for strategic planning and long-term growth.