The UAE introduced a federal corporate tax on June 1, 2023, marking a significant shift for a country long known for its tax-free business environment. As of 2025, the regime is fully active and businesses that have not yet assessed their obligations need to do so urgently.
The Basics: What Is the Corporate Tax Rate?
The UAE corporate tax applies a tiered rate structure:
- 0% on taxable income up to AED 375,000
- 9% on taxable income above AED 375,000
- A separate rate applies to large multinationals subject to the OECD Pillar Two global minimum tax (15%), but this affects very few businesses operating in the UAE
The 0% threshold means that the vast majority of small businesses and startups will pay no corporate tax whatsoever.
Who Is Subject to Corporate Tax?
All businesses incorporated in the UAE — both mainland and free zone — are within the scope of corporate tax:
- UAE-incorporated companies (LLCs, sole establishments, civil companies)
- Free zone companies
- Foreign companies with a permanent establishment in the UAE
- Individuals conducting business in the UAE earning above AED 1 million annually from a UAE source
The Free Zone Exception
Free zone companies are not automatically exempt — but they can qualify as a Qualifying Free Zone Person (QFZP), which entitles them to a 0% rate on qualifying income.
To maintain QFZP status, a free zone company must:
- Maintain adequate substance in the free zone (real operations, employees, physical presence)
- Derive income only from qualifying activities (trading with other free zone companies, international trade, certain services)
- Comply with all transfer pricing requirements
Income earned from UAE mainland customers generally does not qualify and is taxed at 9%. Many free zone companies that believed they were fully exempt have discovered they have taxable mainland income.
Key Compliance Obligations
- Registration — all businesses must register with the Federal Tax Authority (FTA), regardless of whether they expect to owe tax
- Accounting records — businesses must maintain proper financial records and prepare financial statements
- Tax return filing — returns are due within 9 months of the end of the financial year
- Transfer pricing — transactions between related parties must be documented at arm's length
Exemptions Worth Knowing
- UAE government entities and government-controlled entities
- Extractive businesses (oil, gas, minerals) — subject to emirate-level taxation instead
- Qualifying public benefit entities (charities, non-profits)
- Qualifying investment funds and pension funds
What Should Your Business Do Now?
If you have not already, the immediate priorities are: register with the FTA, assess whether your free zone business qualifies for the 0% rate, review your financial record-keeping, and identify any related-party transactions that require transfer pricing documentation.
ZenVisa works with accredited tax advisors to help clients assess their corporate tax position and ensure compliance. Contact us to get connected with the right support.