Is Your Business Subject to Corporate Tax ? A Quick Guide

6 Jun 2024

Is Your Business Subject to Corporate Tax ? A Quick Guide

Overview of Corporate Tax in the UAE


In June 2023, the United Arab Emirates (UAE) introduced a federal corporate tax on business profits, marking a significant shift in its economic and fiscal policies. Historically known for its tax-free business environment, this move has generated considerable discussion and some confusion, particularly among businesses operating within the numerous free zones in the country.


These free zones have been a cornerstone of the UAE’s strategy to attract foreign investment and boost economic growth by offering tax incentives and simplified regulations. The implementation of corporate tax UAE adds a new dimension to this landscape.


Given this new tax landscape, businesses are understandably seeking clarity on their obligations under the corporate tax regime. This guide aims to provide a clear, concise framework to help business owners and stakeholders determine if their operations are subject to the UAE corporate tax, thereby easing the transition into this new fiscal environment.


Understanding Corporate Tax UAE Basics


The corporate tax UAE is a federal tax levied on the profits of businesses operating within the country. It applies to all taxable profits generated by a business, irrespective of the size or industry, unless specific exemptions are in place. This corporate tax UAE is designed to align the UAE with global tax standards while ensuring that the country remains an attractive destination for international business.


The standard tax rate under the UAE corporate tax regime is set at 9%. This competitive rate is intended to maintain the UAE’s reputation as a business-friendly environment, encouraging both local and international companies to establish and expand their operations within its borders.


Corporate tax in the UAE is applicable from the financial year starting on or after June 1, 2023. This new tax policy aims to support the UAE’s strategic economic ambitions, including fostering innovation, supporting small and medium-sized enterprises (SMEs), and enhancing the country’s fiscal sustainability.


Key Exemptions and Considerations


One of the most crucial elements of the UAE corporate tax regime is its exemption threshold. Businesses with annual taxable profits below AED 375,000 are exempt from paying corporate tax UAE. This threshold is particularly advantageous for small businesses and startups, as it allows them to grow and stabilize without the immediate burden of tax liabilities.


Another significant consideration is the treatment of businesses operating within free zones, particularly concerning corporate tax UAE for Freezone. Free zones have been instrumental in attracting foreign investment due to their favorable tax policies and simplified regulatory requirements. The UAE government has clarified that only free zone businesses with Qualifying Income exceeding AED 3 million per year are subject to corporate tax. This clarification aims to balance the need for tax revenue with the goal of maintaining the competitiveness and attractiveness of free zones.


What is Qualifying Income for Free Zone Businesses?


Understanding what constitutes Qualifying Income is crucial for free zone businesses, as this determines their liability under the new UAE corporate tax regime. According to the UAE Ministry of Finance, Qualifying Income includes specific types of revenue that free zone businesses earn from certain activities. Here are some key examples of Qualifying Income under the corporate tax in the UAE:


Sales to Mainland UAE Customers


Revenue generated from goods or services sold to customers located in the mainland UAE falls under Qualifying Income. This includes both direct sales and any business activities that result in income from mainland clients. For instance, if a free zone business manufactures products within the free zone and sells them to retailers or consumers in mainland UAE, the profits from these sales are considered Qualifying Income.


Branch Activities Conducted Outside the Free Zone


ncome earned by branches or other parts of a free zone business that operate outside the free zone is also classified as Qualifying Income.This means that if a free zone business has a branch office or subsidiary conducting business in the mainland UAE or internationally, the profits from these operations will be included in the Qualifying Income calculation. This provision ensures that businesses cannot circumvent corporate tax in the UAE obligations by simply relocating parts of their operations while still benefiting from the free zone status.


Other Specified Income


The Ministry of Finance may specify additional types of income that qualify for taxation under the corporate tax regime. This category allows for flexibility and ensures that the tax system can adapt to various business models and revenue streams. For example, income from intellectual property, consultancy services, or other specialised business activities could be considered Qualifying Income if the Ministry deems it necessary.


These criteria ensure that businesses generating significant revenue within the UAE’s economic ecosystem contribute fairly to the tax system. It prevents free zone businesses from enjoying undue tax advantages while engaging in substantial commercial activities that benefit from the UAE’s infrastructure, market access, and corporate tax in the UAE regulations.


For free zone businesses, accurately identifying and reporting Qualifying Income is essential to ensure compliance with the corporate tax regulations. Misclassification of income could lead to penalties and legal complications. Therefore, businesses should carefully review their revenue sources, especially those relevant to corporate tax UAE for FreeZone, and consult with tax professionals if necessary.


For the most detailed and current information, businesses should refer to the official Ministry of Finance website. This site provides comprehensive guidelines and updates on what constitutes Qualifying Income and how it should be reported, helping businesses stay compliant with the new tax regime.


Quick Assessment Tool: Is Your Business Affected?


To help businesses quickly determine if they are subject to the new UAE corporate tax, we have developed a simple and straightforward assessment tool. This tool consists of a flowchart or checklist designed to guide businesses through a series of questions, enabling them to understand their tax status with ease. Here’s a detailed breakdown of how this assessment tool works:


Step 1: Assess Annual Taxable Profit

Is your annual taxable profit above AED 375,000?


Yes: If your business’s annual taxable profit exceeds AED 375,000, you need to proceed to the next question to determine your tax liability further. This threshold is a critical marker because businesses with profits below this amount are exempt from corporate tax, aligning with the UAE’s policy to support small businesses and startups.


No: If your annual taxable profit is below AED 375,000, your business is exempt from corporate tax. This exemption allows smaller enterprises to reinvest in growth and development without the immediate burden of tax obligations.


Step 2: Evaluate free zone Status and Qualifying Income

Are you a free zone business with Qualifying Income exceeding AED 3 million?


Yes: If your free zone business generates Qualifying Income that exceeds AED 3 million annually, your business is potentially subject to corporate tax in the UAE. Qualifying Income includes revenue from mainland UAE sales, branch activities outside the free zone, and other specified income by the Ministry of Finance. Given the complexity of determining Qualifying Income, it is advisable to consult a tax advisor to accurately assess your tax liability and ensure compliance with the new regulations.


No: If your free zone business does not have Qualifying Income exceeding AED 3 million, your business remains exempt from corporate tax. This exemption aims to maintain the competitive edge of free zones, which have historically been attractive to businesses due to their favourable tax conditions under the new corporate tax UAE regime.


Using the Assessment Tool


This quick assessment tool simplifies the process of determining tax liability under the new UAE corporate tax regime. By answering just two key questions, businesses can quickly ascertain whether they need to take further action or if they are exempt from the tax. Use it to navigate the complexities of corporate tax effectively.


Practical Example


To illustrate how this tool works, consider the following example:


Business A: An IT services company operating in a free zone with an annual taxable profit of AED 400,000. A significant portion of its revenue comes from providing services to mainland UAE clients, amounting to AED 4 million annually.


Step 1:

Since Business A’s taxable profit is above AED 375,000, it proceeds to Step 2.


Step 2:

Business A has Qualifying Income exceeding AED 3 million from its mainland UAE operations. Therefore, Business A is potentially subject to corporate tax and should consult a tax advisor.


Business B: A small retail shop in a Free Zone with an annual taxable profit of AED 200,000, with no significant revenue from mainland UAE.


Step 1:


Business B’s taxable profit is below AED 375,000, so it is exempt from corporate tax.


Benefits of the Assessment Tool


The primary benefit of this assessment tool is its simplicity and efficiency in evaluating corporate tax UAE status. By providing a clear method, it saves time, reduces uncertainty, and aids in identifying when professional tax advice is needed, ensuring compliance and penalty avoidance.


For businesses with complex structures or those unsure about their qualifying income, consulting with a tax advisor can provide clarity and help navigate the intricacies of the new tax regulations. Using this assessment tool as a first step can make those consultations more focused and productive.


Next Steps and Resources


For businesses that have complex structures or those that exceed the Qualifying Income threshold, it is crucial to seek professional advice. Consulting with a tax advisor can provide detailed guidance tailored to the specific needs and circumstances of the business, ensuring full compliance with the new regulations.


In addition to professional consultation, several resources are available to help businesses navigate the new corporate tax regime in the UAE.


  • Ministry of Finance – UAE Corporate Tax Information: The Ministry of Finance provides comprehensive information and updates about the corporate tax regime on their official website. This resource includes detailed guidelines, official pronouncements, and frequently asked questions (FAQs) that can help businesses understand their obligations and stay updated on any changes or clarifications ensuring a thorough grasp of corporate tax UAE regulations.


  • Relevant Official Pronouncements and FAQs: These documents are essential for businesses seeking authoritative answers to common questions and detailed explanations of specific provisions within the corporate tax regime.


By leveraging these resources and seeking professional advice, businesses can ensure they are well-prepared to meet their tax obligations under the new UAE corporate tax regime.




The introduction of corporate tax in the UAE represents a significant shift in the country’s fiscal policy, aimed at aligning with global standards while supporting economic growth. For most businesses, especially those operating solely within free zones, the exemptions provided under the new regime, such as the criteria of “uae corporate tax freezone qualifying income,” mean they are likely not subject to corporate tax. However, it is crucial for all businesses to assess their income levels and sources carefully.


By understanding the basics of the new corporate tax UAE, recognizing the key exemptions, and using the provided assessment tools, businesses can ensure compliance and make informed decisions. As always, consulting with a tax advisor and staying updated with official resources will provide the best assurance of meeting all regulatory requirements.

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