What should you know about the new UAE Corporate Tax?

What should you know about the new UAE Corporate Tax?


As corporate taxation continues to become more and more of a factor for businesses around the globe, this is an important factor for those who have invested their time and money in the UAE. The new federal corporate tax regime has been a consistent talking point from the government officials in the UAE and it remains unclear if the impact of this competitive corporate tax regime will reach all corporate businesses including those in free zones.

I. New Corporate Tax in the UAE

On January 31st, 2022 the UAE took a major step towards tax reform with its announcement of introducing taxes on corporations. This was hugely significant to companies operating in the UEA as up until this point they had been largely exempt from having to pay corporate income taxes.

The newly implemented Federal-Decree Law No 47 of 2022 will require UAE businesses —including free zone businesses–to comply with taxation regulations come June 1st, 2023, when it’s officially put into effect.

II. Applicable Rates

As of June 1st, 2023, all businesses in the UAE with business profits exceeding 375,000 AED will have to pay a 9% corporate tax. Those generating less than this sum – remain exempt from these new regulations.

The corporate income tax changes, which will affect taxable income, take effect from June 1st, 2023, and January 2024 respectively depending on the financial year followed by the business; they should make sure they set aside enough money for when the taxes come due!

III. Exempt Entities

The following list of entities will be exempt from corporate tax, either automatically or by way of application (The method of which is still undetermined):

1. The federal UAE Government and Emirate Governments and their departments, authorities and other public institutions;

2. Wholly Government-owned UAE companies that carry out a sovereign or mandated activity, and that are listed in a Cabinet Decision;

3. Businesses engaged in the extraction and exploitation of UAE natural resources that are subject to Emirate-level taxation (e.g. upstream oil and gas companies);

4. Charities and other public benefit organizations that are listed in a Cabinet Decision issued at the request of the Ministry of Finance, upon application of the relevant entity;

5. Public and regulated private social security and retirement pension funds; and

6. Investment funds, as they are typically organized as ‘flow-through’ limited partnerships. Furthermore, regulated investment funds and Real Estate Investment Trusts can apply to the FTA to be exempt from CT subject to meeting certain requirements.

IV. Is corporate tax applicable in free zones?

Companies and organizations registered in free zones will be subject to the corporate tax regime, including compliance with all necessary filing requirements. However, free zone entities may still benefit from a 0% corporate tax rate as long as they are able to meet the regulatory requirements of “qualifying free zone person” and “qualifying income” .

Therefore, it is essential to understand the definitions of key terms such as “qualifying free zone person” and “qualifying income”.

In order to be considered a Qualifying Free Zone Person, the Free Zone Person must:

1-Maintain adequate substance in the UAE: entities must have employees on site and are actively engaged in operations within the free zone, rather than simply having an empty entity without any activities taking place.

2-Derive Qualifying Income (to be defined in a Cabinet Decision):

3-Not have made an election to be subject to CT at the standard rates; and

4-Comply with the transfer pricing requirements under the CT Law.

A Qualifying Free Zone Person may be subject to additional conditions as prescribed by the Minister. If any of these conditions are not met, or if there is an election to be governed by the general corporate tax regime, the standard rates of corporate tax will apply from the start of the particular tax period in which these conditions were not met.

“Qualifying income” is a term that refers to any income generated by a Qualifying Free Zone Person that is subject to corporate tax at a rate of 0%. This type of income must be specified in the Cabinet Decision, which outlines what types of profits are eligible for this special tax rate.

V. What will be the tax rate for a ‘Free Zone Person’ with a mainland branch?

For any branches of a free zone business located in the mainland of the UAE, income originating from that area will be taxed at the standard corporate tax rate, yet other types of income from the free zone entity will remain exempt from taxation. This allows such organizations to take advantage of the various benefits associated with being based in a free zone while still adhering to all applicable taxation laws.

VI. What is the tax rate for ‘Free Zone Persons’ trading with the mainland without a branch?

However, payments made to free zone entities by a mainland group company are not eligible for tax deductions. To ensure that businesses located in free zones do not acquire an unfair advantage over those established in the mainland of the UAE, any other income sourced from outside the free zone will disqualify them from receiving the 0% CT regime for all of their income. This measure is outlined in the Consultation Document issued by the Federal Tax Authority of UAE.


This 9% rate is highly competitive when compared to other locations, and the regime itself is based on recognized and practiced principles from different parts of the world. This makes it much simpler for businesses that are already accustomed to tax systems elsewhere to implement such a regime in the UAE Free Zones – reducing costs and streamlining processes.

Therefore, companies may wish to review their corporate structures in order to benefit from these advantages when the regime finally takes effect.

What should you know about the new UAE FTZ Corporate Tax?(图1)

What should you know about the new UAE FTZ Corporate Tax?(图2)