What is the Corporate Tax Rate in UAE?

The UAE introduced a federal corporate tax in June 2023. This tax aims to diversify the country's revenue streams and solidify its position as a global business hub. Corporate tax filing is necessary for compliance with FTA's regulations, and the corporate tax rate is an essential part. The Corporate tax rate applies to both businesses and individuals at a 0% rate for taxable income up to AED 375,000 and a 9% rate for exceeding income, with some exceptions for Qualifying Free Zone Persons. This article gives a detailed answer for the question of what is corporate tax in UAE. 

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Corporate Tax in UAE

The United Arab Emirates implemented a federal Corporate Tax (CT) regime in June 2023. This tax applies to the net profits of most businesses operating within the country. The CT structure features a tiered system: profits up to AED 375,000 are subject to a 0% tax rate, promoting small business growth. For profits exceeding this threshold, a standard rate of 9% applies. There's also a yet-to-be-determined rate for large multinationals meeting specific criteria aligned with international tax guidelines.

Corporate tax rates in UAE

Here's the table summarizing the corporate tax rates in UAE in the following table,

Note:

• Natural Person: An individual human being subject to UAE Corporate Tax if conducting business within the UAE.
• Juridical Person: A legal entity (company, partnership) resident for UAE Corporate Tax if incorporated in the UAE (including free zones) or effectively managed there.
• Qualifying Free Zone Person: A juridical person within a UAE free zone enjoying a 0% corporate tax rate on specific income.

Also read: How to file the Corporate tax returns in UAE?

Corporate Tax Rate for Natural & Juridical Persons

The UAE operates a tiered corporate tax system. Natural and juridical persons, including companies and partnerships, benefit from a 0% tax rate on profits up to AED 375,000. However, a standard rate of 9% corporate tax applies for income exceeding this threshold.

Corporate Tax Rate for Qualifying Freezone Persons

Qualifying Free Zone Persons (QFZPs) in the UAE enjoy a special tax treatment. Unlike standard businesses, QFZPs can achieve a 0% corporate tax rate on their Qualifying Income. This income typically refers to activities like consultancy or logistics conducted within the free zone. However, it's crucial to maintain compliance with the free zone authority's specific requirements and ensure expenses are incurred within the zone. If a QFZP generates income outside the qualifying category or chooses to opt into the standard corporate tax system, a 9% tax rate applies to that income.

How to Calculate Corporate Tax in UAE?

Calculating UAE corporate tax involves a two-step process: determining your taxable income and applying the tax rate. Here's a breakdown:

1. Taxable Income:
• Start with your net profit, as shown in your financial statements.
• Subtract all applicable expenses and deductions allowed by the UAE corporate tax regulations.
• Exclude any exempt income.
2. Tax Rate:
• As mentioned, UAE using the following tax system:
• 0% tax rate on profits up to AED 375,000.
• 9% tax rate on profits exceeding AED 375,000.

Example:

If your company's net profit after deductions is AED 500,000:

• Taxable income = AED 500,000 - AED 375,000 = AED 125,000
• Corporate tax = AED 125,000 * 9% = AED 11,250

As per this example, the UAE corporate tax liability for your business is AED 11,250.

Conclusion

In summary, the UAE's federal corporate tax, introduced in June 2023, features a system to enhance revenue diversity and maintain its global business appeal. The tax imposes a 0% rate on taxable income up to AED 375,000 and a 9% rate on income above this threshold. Qualifying Free Zone Persons enjoy a 0% rate on specific qualifying income, provided they meet certain criteria. This approach facilitates corporate tax compliance while promoting small business growth and maintaining favourable conditions for businesses operating within free zones.

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