UAE Corporate Tax Rates, Thresholds & Exemptions Explained (2025-2026 Guide)

UAE Corporate Tax Rates, Thresholds & Exemptions Explained (2025-2026 Guide)

Introduction :

The implementation of UAE Corporate Tax (CT) marks a landmark shift in one of the world’s most competitive business environments. For decades, the United Arab Emirates was primarily known as a zero-corporate-tax jurisdiction, positioning itself as a magnet for global investors, businesses, and entrepreneurs. However, in December 2022, the UAE announced a comprehensive federal Corporate Tax framework under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, effective for financial years starting on or after 1 June 2023.

This blog explains Corporate Tax rates, thresholds, exemptions, special regimes, and key planning considerations — in clear, practical language — to help business owners, CFOs, tax professionals, and stakeholders navigate the landscape effectively.

Overview of UAE Corporate Tax :

What Is Corporate Tax?

Corporate Tax is a levy on the taxable profits of companies and other juridical persons conducting business activities in the UAE. It applies to mainland businesses, branches of foreign companies, and — under certain conditions — to free zone entities and individuals conducting business with qualifying revenues

Corporates and businesses are now required to register, file, and pay taxes based on taxable profits, with compliance overseen by the Federal Tax Authority (FTA).

Corporate Tax Rates in the UAE — Key Numbers :

The UAE Corporate Tax regime adopts a graduated and internationally aligned structure:

Standard Corporate Tax Rates

  Taxable Income (AED)                             Tax Rate

     Up to AED 375,000                                  0%

    Above AED 375,000                                  9%

    Large Multinationals                          15%(DMTT)

Here’s what it means:

🔹 0% Rate — Small Profit Threshold

A 0% rate applies on the first AED 375,000 of taxable profits in a tax period. This is designed to shield startups and smaller enterprises, reducing financial strain during early growth stages.

🔹 9% Standard Rate — Main Levy

Any taxable profit exceeding AED 375,000 is subject to a 9% corporate tax. This rate applies uniformly to most UAE resident companies, branches, and non-resident entities with a UAE taxable presence.

Example:

If a company makes AED 1,000,000 in taxable income:

First AED 375,000: 0%

Remaining AED 625,000 @ 9% = AED 56,250 CT due

🔹 15% Domestic Minimum Top-Up Tax (DMTT)

For large multinational enterprises (MNEs) with global revenues ≥ EUR 750 million (approx. AED 3 billion), a Domestic Minimum Top-Up Tax ensures a minimum effective tax rate of 15% on UAE profits. This aligns with the OECD’s Pillar Two global minimum tax framework, effective for financial years starting on or after 1 January 2025.

This mechanism prevents profit shifting and ensures global tax fairness on highly profitable multinationals.

Who Must Pay UAE Corporate Tax? (Scope & Applicability) :

🔹 UAE Resident Entities

All UAE-incorporated companies and legally formed entities — whether LLCs, joint ventures, or professional license holders — fall under the Corporate Tax scope.

🔹 Foreign Entities

Foreign companies with a permanent establishment (PE), branch, or fixed place of business in the UAE are subject to corporate tax on UAE-sourced profits.

🔹 Individuals with Business Activities

Natural persons conducting business activities (e.g., consultants, freelancers) may be subject to CT if their business turnover exceeds AED 1 million annually (excluding personal investment or employment income).

🔹 Free Zone Entities

Free zones retain favorable regimes:

• Free zone businesses that meet Qualifying Free Zone Person (QFZP) conditions may benefit from a 0% tax rate on qualifying income.

• If income is non-qualifying or criteria are not met, standard CT rates apply.

Thresholds & Reliefs - What Businesses Need to Know :

Corporate Tax in the UAE includes several key thresholds and reliefs :

🔹 Profit Threshold – AED 375,000 

This foundational threshold determines the tax-free portion of profits (0%), shielding early-stage growth businesses and SMEs.

🔹 Small Business Relief — AED 3 Million Turnover

Businesses with annual turnover ≤ AED 3 million can elect Small Business Relief, effectively resulting in zero corporate tax (even if profits exceed AED 375,000) up to 31 December 2026 — under specified conditions.

Key points:

• Only available to qualifying resident persons.

• Not available to MNE constituent companies or qualifying free zone persons.

• Once elected and conditions are met, the taxable person is treated as having derived no taxable income for that period.

🔹 Exempt Income & Participation Exemption

Certain income types, such as dividends and capital gains from qualifying shareholdings, may be exempt from CT under a Participation Exemption regime, provided specific criteria are met.

Exemptions — Who Pays 0% ?

The UAE CT Law provides broad exemptions designed to encourage investment, public benefit activities, and strategic growth sectors.

🔹 Government Entities

Fully government-owned entities and sovereign functions typically enjoy CT exemption, so long as their commercial activities don’t compete unfairly with the private sector.

🔹 Public Benefit Organizations

Not-for-profit, charitable, cultural, religious, or scientific organizations officially recognised by the UAE Cabinet may qualify for corporate tax exemption.

🔹 Natural Resource & Extractive Industries

Oil, gas, and other extractive businesses fall under emirate-level taxation regimes and are generally exempt from federal corporate tax, although their income may be taxed separately according to relevant industry rules.

🔹 Qualifying Free Zone Persons (QFZPs)

Free zone companies that:

• Conduct qualifying activities,

• Maintain adequate economic substance, and

• Comply with transfer pricing and other regulatory requirements

• can retain 0% tax on qualifying income.

• However, non-qualifying income (e.g., mainland-sourced profits) may be subject to the 9% rate.

🔹 Other Exempt Categories

• Certain investment-linked vehicles.

• Pension and social security funds (subject to approval).

• Foreign-owned exempt-entity structures (from May 2025 onward, under updated regulations).

How Does UAE Corporate Tax Work in Practice ?

Here’s how to navigate the process without penalty or stress :

🔹 Determining Taxable Income

Taxable income starts with accounting profit prepared under accepted financial reporting standards, then adjusted for:

• Disallowed expenses

• Allowable deductions

• Capital allowances

• Interest limitations

• Loss carryforwards

• Exempt income and reliefs.

These adjustments ensure that CT is assessed on a fair and standardised basis.

🔹 Progressive Application

The UAE CT system is not a flat tax on total profit, rather a tiered system:

• Only the portion above AED 375,000 is taxed at 9%.

🔹 Transfer Pricing & Documentation

In alignment with international norms, businesses must maintain robust transfer pricing policies and documentation where related-party transactions occur, ensuring fair-value pricing and compliance with OECD-aligned standards.

Free Zone Corporate Tax — What You Must Know

🔹 Free Zone Regime Evolution

Historically privileged with long-term tax holidays, free zones now operate under the federal Corporate Tax law with opportunities to preserve 0% treatment on qualifying income when criteria are met.

🔹 Qualifying Criteria

To benefit from the free zone 0% regime, a business must:

• Maintain adequate substance (employees, operations) in the UAE.

• Earn qualifying income that meets the regulatory definition.

• Comply with transfer pricing and reporting requirements.

Failure to meet these conditions may result in 9% tax on non-qualifying or excluded income.

Multinational Enterprises & the 15% Minimum Tax :

🔹 Why DMTT Matters

Under global tax reforms spearheaded by the OECD, countries are adopting Pillar Two minimum tax standards to reduce profit shifting and base erosion. The UAE’s Domestic Minimum Top-Up Tax (DMTT) ensures MNEs with global revenue ≥ EUR 750 million face an effective 15% minimum tax.

🔹 Who Is Impacted?

• Large MNE groups operating in the UAE with consolidated revenues above the threshold.

• Effective from 1 January 2025 for qualifying years.

This regime operates in parallel to the standard CT rules and ensures global tax compliance for international corporate groups.

Compliance Essentials - Filing & Deadlines :

Registration :

All taxable persons — even those expecting 0% tax liability — must register with the FTA.

Filing Returns :

Corporate Tax returns are generally due within nine months of the fiscal year-end.

Even businesses with 0 taxable income must file returns to substantiate their status.

Penalties for Non-Compliance :

Failure to register or file can result in penalties, with waivers available under specific transitional provisions if timely remediation occurs.

Strategic Tax Planning in the UAE :

🔹 Use Thresholds Smartly

• Structure transactions and timing to benefit from the AED 375,000 threshold.

• Assess whether Small Business Relief qualifies your business to defer tax liabilities.

🔹 Evaluate Free Zone Eligibility

Free zone companies should assess whether they can qualify as QFZPs and maintain the required substance to preserve 0% on qualifying income.

🔹 Document Transfer Pricing

Maintain clear and defensible transfer pricing documentation to support intergroup pricing and mitigate audit risk.

🔹 Align With Global Standards

Large MNEs must integrate Pillar Two planning into their corporate tax strategies to manage DMTT exposure.

Conclusion :

The UAE Corporate Tax regime represents a balanced, globally compliant, and investor-friendly tax framework that supports economic growth while aligning with international tax standards. With competitive rates, meaningful exemptions, and targeted reliefs, it allows businesses of all sizes — from startups to multinationals — to operate efficiently within a clear legal structure.

From understanding 0% and 9% brackets, to navigating free zone opportunities and preparing for 15% minimum tax obligations, informed planning is essential for UAE businesses today.

If your company is evaluating how UAE Corporate Tax affects you, professional guidance and proactive compliance are critical. For expert support on registration, filing, and maximizing exemptions, explore UAE Corporate Tax Filing Services at uae-corporatetaxfiling.com — your partner for seamless tax compliance and strategic guidance.