The Evolution of Corporate Tax in the UAE
Updated — 31 July 2026. This article has been revised to remove outdated statements from the original 2023 version and to reflect the current UAE Corporate Tax framework.
When Corporate Tax applies
UAE Corporate Tax applies to Tax Periods beginning on or after 1 June 2023. The first applicable period therefore depends on the financial year of the business rather than on a single universal filing date.
General rates
- 0% on taxable income up to and including AED 375,000.
- 9% on taxable income exceeding AED 375,000.
Taxable income is not the same as revenue. It generally starts from accounting profit or loss and is then adjusted under the Corporate Tax rules. Legitimate business expenditure may be deductible, subject to the applicable conditions and limitations.
Small Business Relief
An eligible UAE Resident Person may elect for Small Business Relief when revenue does not exceed AED 3 million in the relevant Tax Period and in all previous Tax Periods. The election must be made for each eligible period. Under the current rules, the relief is available only for Tax Periods ending on or before 31 December 2026.
Small Business Relief is not automatic and it is not simply a two-year exemption. It is also unavailable to certain persons, including Qualifying Free Zone Persons and members of multinational enterprise groups within the relevant rules. Businesses must retain records and comply with the conditions even when relief is claimed.
Free Zone companies
Free Zone incorporation does not by itself create a blanket exemption. A Qualifying Free Zone Person may benefit from a 0% rate on Qualifying Income while other taxable income may be subject to 9%, provided all statutory conditions are met. These conditions include adequate substance, qualifying activities and income, transfer-pricing compliance and other requirements.
Foreign income and non-residents
Income earned from clients outside the UAE is not automatically outside Corporate Tax. The treatment depends on the status of the person, the nature and location of the activity, any permanent establishment, applicable exemptions and the detailed rules governing the income.
No artificial fragmentation
Creating or operating multiple entities solely to fragment revenue or obtain a tax threshold can trigger anti-abuse provisions. Structures should have genuine commercial purposes, appropriate substance and arm's-length arrangements. Related-party and connected-person transactions may also be subject to transfer-pricing rules.
Practical compliance
Businesses should maintain reliable accounting records, register when required, determine their Tax Period, prepare the Corporate Tax return, document related-party transactions and file and pay within the applicable deadlines. VAT and Corporate Tax are separate regimes, so compliance with one does not replace compliance with the other.
Conclusion
The UAE remains attractive because of its infrastructure, international connectivity and comparatively competitive tax framework. The appropriate strategy is now based on accurate accounting, commercial substance, properly documented transactions and timely compliance—not on assumptions that every UAE or Free Zone company is tax-free.
Official guidance is available from the UAE Federal Tax Authority, including its guidance on Small Business Relief.