GSL / International Taxation / United Arab Emirates

Taxation in the UAE

The UAE tax system is characterized by a low overall tax burden, the total absence of personal income tax, and an advanced network of corporate tax incentives. The country levies corporate tax, value-added tax (VAT), and excise tax, while maintaining specialized tax regimes for specific categories of taxpayers, including Free Zone companies. Tax administration is fully digitized, and the UAE's fiscal policies strictly comply with global standards on transparency and economic substance.

Core Taxes

Corporate Tax
0% / 9%
Personal Income Tax
None
Capital Gains Tax
None
Value Added Tax (VAT)
0% / 5%
Withholding Tax on Dividends and Interest
0%

Key Features of the Tax System

Taxation Principle

Worldwide income for residents; territorial income for non-residents.

Tax Residency Criteria

Companies: Place of incorporation or place of effective management and control

Individuals: 183 days of physical presence or the primary center of life interests.

CFC Rules

None

Foreign Exchange Control

None

National Currency

UAE Dirham (AED)

Tax Authority

Federal Tax Authority, FTA

Federal Tax Authority (FTA)

Federal Tax Department (FTA)

Tax administration in the UAE is managed by the Federal Tax Authority (FTA). The FTA is responsible for taxpayer registration, administering corporate tax, VAT, and excise tax, conducting tax audits, issuing official clarifications, and ensuring general compliance with fiscal legislation.

Beyond its domestic fiscal functions, the Federal Tax Authority ensures compliance with global transparency benchmarks, including Common Reporting Standard (CRS) mandates and economic substance rules. The FTA is also the sole body authorized to issue Tax Residency Certificates (TRC) required to utilize international Double Taxation Treaties (DTT).

All communications, applications, and return submissions are processed through EmaraTax, the FTA’s unified digital platform, which is fully integrated with national payment channels and the UAE PASS identity verification system.

Tax Laws of the UAE

  • Federal Decree by Law No. 47 of 2022 on Corporate and Business Tax
  • Federal Decree by Law No. 28 of 2022 concerning Tax Procedures
  • Federal Decree by Law No. 8 of 2017 Concerning Value-Added Tax (VAT)
  • Federal Law by Decree No. 13 of 2016 Concerning the Establishment of the Federal Tax Authority.
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The UAE is no longer a traditional zero-tax haven. Available preferential tax rates (such as 0% in Free Zones) do not imply automatic exemption, as businesses are required to maintain bookkeeping, undergo independent audits, and satisfy economic substance criteria. Furthermore, the ultimate tax implications always depend on the beneficiary’s country of tax residence, factoring in CFC rules and automated data exchange under the CRS.

Corporate Tax Residency Criteria

For corporate tax purposes, a company is recognized as a tax resident of the UAE if it meets either of the following conditions:

  • The company is registered within the UAE, including both Mainland and Free Zone entities. In this case, it is automatically deemed a UAE tax resident;
  • The company is incorporated outside the UAE, but its effective management and control are exercised from within the UAE. This assessment factors in where key management decisions are made, where board of directors meetings are held, and where senior executive strategy is determined.

A foreign corporate entity recognized as a UAE resident under the POEM (Place of effective Management) criterion becomes subject to taxation in accordance with UAE corporate tax laws. In cases of dual tax residency, the provisions of the relevant Tax Treaty apply.

Taxation

Corporate tax

UAE tax residents are subject to corporate tax on their worldwide income.

Non-Resident entities are taxed on the income derived from sources within the UAE.

The corporate tax was introduced in the UAE on June 1, 2023, and applies to all business profits generated after this statutory date.

The taxable base is calculated based on the net accounting profit of the company, adjusted in accordance with fiscal regulations.

0%
First AED 375,000 of taxable income
9%
Taxable income exceeding this threshold

Preferential Tax Regime for Free Economic Zones

To qualify for the Qualifying Free Zone Person (QFZP) status, an entity must satisfy the following strict conditions:

  • be incorporated within a UAE Free Economic Zone;
  • derive Qualifying Income in accordance with established regulatory rules;
  • maintain an adequate level of economic substance within the UAE;
  • comply with transfer pricing documentation and arm’s-length principles;
  • maintain all required bookkeeping and statutory tax documentation.

Qualifying Free Zone Persons (QFZP) are entitled to apply a 0% tax rate to their Qualifying Income, while any other taxable income remains subject to the standard 9% rate.

Qualifying Income streams may include:

  • revenues derived from transactions with other Free Zone entities;
  • specific categories of income derived from cross-border transactions with foreign corporate entities;
  • other distinct types of income explicitly specified by UAE tax legislation.

Deductible Expenses

Expenses incurred wholly and exclusively for the purposes of the business and generating taxable income are deductible, unless explicitly provided otherwise by legislation. Capital expenditure is generally not fully written off immediately, but is accounted for through depreciation or amortization in accordance with applicable financial reporting standards.

When determining the taxable base for corporate tax, expenses must meet the following criteria to be deductible:

  • incurred wholly and exclusively for business purposes;
  • supported by appropriate documentation;
  • not classified as explicitly non-deductible under the law.
These deductible expenses specifically include:
  • cost of goods, raw materials, and supplies;
  • employee salaries, wages, and mandatory benefits;
  • rental and lease payments;
  • utility and administrative expenses;
  • marketing and advertising costs;
  • professional, legal, consulting, and audit services;
  • repair and maintenance costs for property and equipment;
  • depreciation of fixed assets and amortization of intangible assets;
  • loan interest expenses, subject to statutory limits;
  • other expenses directly related to business operations.
Non-Deductible Expenses:
  • fines, penalties, and other statutory sanctions;
  • expenses incurred in generating tax-exempt income;
  • personal expenses of owners, shareholders, and executives not related to the business;
  • profit distributions (dividends);
  • entertainment expenses (strictly limited to a 50% deduction);
  • interest expenses exceeding statutory limitations (as a general rule, net interest expenditure is capped at 30% of EBITDA, unless specific exemptions apply).
Corporate Tax Registration of a United Arab Emirates (UAE) Company.
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Corporate Tax Registration of a United Arab Emirates (UAE) Company. Service offer

VAT / Sales Tax

Value-Added Tax (VAT) in the UAE was introduced on January 1, 2018, and applies to the supply of goods and services, as well as to imports.

The standard rate is 5%, which represents one of the lowest rates among international tax systems.

Rate Applies to
5% Majority of goods and services supplied
0% Export of goods and services, international transport, designated medical and educational services, and certain investment transactions
Exemptions Specific financial services, certain residential real estate transactions, and other categories explicitly provided under the legislation.

VAT Registration

A company is legally required to register as a VAT taxpayer if the total value of its taxable supplies and imports exceeds the statutory thresholds:

  • Mandatory Registration is required once the taxable turnover exceeds AED 375,000 over the past 12 months, or is forecast to exceed this threshold within the next 30 days.
  • Voluntary Registration is permitted once the taxable turnover or taxable expenses exceed AED 187,500.

Foreign (non-resident) companies making taxable supplies within the UAE may also be subject to mandatory registration, provided there is no other person responsible for accounting for the VAT on those specific transactions.

VAT Framework for Free Zone Companies

Registration within a Free Zone does not automatically exempt a company from VAT. Free Zone enterprises must evaluate the nature of their business operations and apply VAT rules based on the specific type of their supplies.

For VAT purposes, certain Free Zone territories hold a special status known as Designated Zones. Transactions involving goods within these zones may be treated as outside the territorial scope of UAE VAT, provided specific statutory conditions are met. However, any supply of goods or services outside a Designated Zone, or transactions that do not fully comply with regulatory requirements, remain subject to the standard 5% VAT rate.

Filing and Payment

Companies registered as VAT taxpayers are required to regularly file electronic VAT returns with the Federal Tax Authority (FTA) via the official tax portal.

The standard tax period for VAT is typically 3 calendar months. However, the FTA reserves the right to assign a different period to specific categories of taxpayers.

The VAT return must be submitted and the tax paid no later than the 28th day following the end of the relevant tax period, unless specified otherwise by the FTA.

The FTA applies administrative penalties for non-compliance with VAT regulations. The primary fines associated with VAT return filings and tax payments are detailed below.

Violation Penalty
Late submission of a VAT return AED 1,000 for the first violation;

AED 2,000 for repeated violations within 24 months.
Late payment of VAT declared in the return Interest at a rate of 14% per annum, calculated on a monthly basis on the unpaid tax amount (effective from April 14, 2026)
Further delay in VAT payment 1% per day of the unpaid tax amount (capped at a maximum penalty of 300% of the tax due)
Late VAT registration AED 10,000
Failure to maintain proper tax records and documentation AED 1,000 for the first violation (effective from April 14, 2026);

AED 20,000 for repeated violations
Issuance of an incorrect tax invoice AED 5,000 for each non-compliant document
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Dividend Income

In the UAE, corporate dividend income is generally exempt from corporate tax; however, the tax treatment depends on the source of the dividends.

Source of Dividends Taxation in the UAE
From a UAE resident company Exempt from corporate tax
From a foreign company
(Participation Exemption conditions met)		 Exempt from corporate tax
From a foreign company
(Participation Exemption conditions not met)		 Included in the taxable base and subject to standard corporate tax rates

Dividends from foreign companies can be exempt from corporate tax provided that the conditions of the Participation Exemption regime are satisfied.

Key Conditions:
  • The equity stake in the foreign company is at least 5%, or the acquisition cost of the participation is at least AED 4,000,000.
  • The participation is held (or is planned to be held) for a continuous period of at least 12 months.
  • The foreign company is subject to corporate tax in its home country at a rate of not less than 9%, or meets alternative statutory criteria.
  • Other legislative requirements for a qualifying participation are fully satisfied.

Interest Income

As a general rule, interest income is subject to corporate tax as it forms part of the standard taxable profit.

Free Zone Company Framework:

If the company holds Qualifying Free Zone Person (QFZP) status, interest income may:

  • be subject to a 0% rate if it is classified as Qualifying Income under the law; or
  • be subject to a 9% rate if it is classified as non-qualifying income. This depends entirely on the nature of the income and the status of the counterparty.

Royalty Income

Royalty income is generally included in the taxable profit and remains subject to standard corporate tax.

Free Zone Company Framework

For a company holding Qualifying Free Zone Person (QFZP) status, royalty income can only benefit from the preferential regime in cases explicitly provided under the legislation, specifically regarding qualifying intellectual property. In all other scenarios, such income is taxed under the standard rules.

Capital Gains

As a general rule, capital gains realized by a company are included in the taxable profit and are subject to standard corporate tax.

Capital gains derived from the disposal of shares or other equity interests can be exempt from corporate tax, provided that the conditions of the Participation Exemption regime are satisfied.

Key Conditions:
  • The company holds an equity stake of at least 5% in the other company, or the acquisition cost of the participation is at least AED 4,000,000.
  • The participation is held (or is planned to be held) for a continuous period of at least 12 months.
  • The underlying entity meets the minimum taxation requirements.
  • Other conditions established by UAE legislation are fully satisfied.

Free Zone Company Framework

For a Qualifying Free Zone Person (QFZP), capital gains can also be subject to a 0% tax rate, provided that the gain is classified as Qualifying Income and all Free Zone regulatory requirements are satisfied. In all other cases, the standard 9% rate applies.

Withholding Tax (WHT) is 0%

There is no Stamp Duty.

Social Security

The social security system in the UAE applies primarily to UAE nationals and, in specific cases, to citizens of the Gulf Cooperation Council (GCC) states. Employers are legally required to register such employees in the social security system and pay insurance contributions.

Contribution Rates for UAE Nationals:

Rates depend on the applicable pension regime. For employees covered under Federal Decree-Law No. 57 of 2023:

  • 15% is funded by the employer;
  • 11% is funded by the employee;
  • 2,5% is additionally funded by the state for specific private-sector employees in accordance with the legislation.

For employees remaining under the previous pension system, transitional rules apply with a total contribution rate of 20% of the salary (15% by the employer, 5% by the employee).

Mandatory contributions to the state social security system are not required for the vast majority of expatriate (foreign) employees. Instead of pension provisions, they are typically entitled to an End-of-Service Gratuity upon the termination of employment, in compliance with UAE labor law.

Health insurance is not integrated into the public social security system, but employers in many emirates are legally obligated to provide medical insurance for their staff. The strictest requirements are enforced in Abu Dhabi and Dubai.

Tax Incentives and Reliefs

A range of tax incentives and special regimes is available to legal entities in the UAE to stimulate investment and foster business development.

Tax Relief / Incentive Details
Tax-Free Corporate Income Taxable profit up to AED 375,000 is subject to a 0% rate; profits exceeding this threshold are taxed at the standard 9% rate.
Qualifying Free Zone Persons (QFZP) Companies meeting the statutory requirements can apply a 0% tax rate to their Qualifying Income. Non-qualifying income remains subject to the standard corporate tax rates.
Participation Exemption Dividends received from UAE resident companies and from qualifying foreign subsidiaries are exempt from corporate tax, subject to specific statutory conditions.
Capital Gains Exemption Revenues derived from the disposal of shares or equity interests in qualifying companies can be exempt from corporate tax, subject to regulatory requirements.
Intra-Group Transfer and Reorganization Relief The law provides corporate tax exemptions for specific intra-group asset transfers and business reorganization transactions, provided established conditions are satisfied.
Small Business Relief Entities with an annual gross revenue not exceeding AED 3,000,000 can elect to be treated as having no taxable income for the relevant tax period. This relief is subject to statutory conditions and is currently available for tax periods ending on or before December 31, 2026.
Exempt Persons and Entities Government entities, extractive businesses (subject to conditions), qualifying public benefit organizations, pension and social security funds, qualifying investment funds, and certain other categories of taxpayers are exempt from corporate tax.
Foreign Tax Credit Tax paid in a foreign jurisdiction on foreign-sourced income can be credited against the UAE corporate tax liability within established statutory limits, preventing double taxation.
Tax Groups Eligible companies can form a single Tax Group and file a unified corporate tax return, simplifying tax administration and allowing the offsetting of profits and losses across group members.

Tax Reporting

UAE companies are required to comply with statutory tax registration, record-keeping, and tax reporting requirements enforced by the Federal Tax Authority (FTA).

Tax Registration

All persons recognized as corporate taxpayers in the UAE are legally required to register with the Federal Tax Authority and obtain a Corporate Tax Registration Number (CT TRN). This mandate applies equally to Mainland enterprises and Free Zone Persons.

Registration is processed electronically via the EmaraTax system.

To secure a Corporate Tax Registration Number, the following documentation is typically required:

  • the company’s trade license;
  • constitutional documents (Memorandum and Articles of Association);
  • incorporation certificates;
  • details of the ultimate beneficial owners and authorized representatives;
  • documentary proof of authorization for the designated signatory.

Types of Tax Returns

The UAE framework mandates a single annual Corporate Tax Return. The return must be completed and submitted exclusively in electronic format via the Federal Tax Authority (FTA) portal (EmaraTax).

There are no provisions for advance tax estimates, provisional returns, or monthly/quarterly corporate tax filings.

The tax return submission and the actual tax payment share the same deadline — no later than 9 months following the end of the relevant tax period.

Unified Corporate Tax Return

The tax return must reflect:

  • the company’s net accounting profit;
  • required statutory tax adjustments;
  • tax-exempt income streams (e.g., qualifying dividends);
  • non-deductible commercial expenses;
  • tax losses carried forward from previous periods;
  • transactions executed with related parties;
  • the application of preferential tax regimes (e.g., Qualifying Free Zone Person status);
  • the final tax computation at the standard 9% rate or the application of the 0% rate upon satisfying all statutory criteria.
Unified Corporate Tax Return

Penalties and Fines for Tax Non-Compliance

Violation

Penalty

Late registration for corporate tax

AED 10 000

Late submission of a corporate tax return

  • AED 500 for each month (or part thereof) of delay for the first 12 months;
  • AED 1,000 for each subsequent month

Late payment of corporate tax

Interest at a rate of 14% per annum on the unpaid tax amount for each month (or part thereof) of delay.

Late submission of a tax deregistration application

AED 1,000 for each month of delay, capped at a maximum of AED 10,000

Late notification of the appointment of a legal representative

AED 1 000

Foreign Exchange Control

There are no capital movement restrictions or traditional foreign exchange controls in the UAE.

However, all foreign exchange transactions are conducted subject to strict banking regulations, anti-money laundering (AML) legislation, and Know Your Customer (KYC) compliance procedures. Banks and financial institutions reserve the right to request supporting documentation verifying the economic substance and source of funds for any transaction.

Anti-Avoidance Rules

Transfer Pricing

Transfer pricing rules in the UAE are based on the OECD Transfer Pricing Guidelines and apply to transactions executed between related parties and connected persons.

All controlled transactions must comply with the Arm’s Length Principle. This requires transactions between interdependent entities to be conducted under terms and conditions comparable to those that would be agreed upon by independent parties under similar circumstances.

To verify compliance with the arm’s length principle, the following OECD-recommended methods are applied:

  • Comparable Uncontrolled Price (CUP) method;
  • Resale Price Method;
  • Cost Plus Method;
  • Transactional Net Margin Method (TNMM);
  • Profit Split Method;
  • Any other method, provided that the listed methods do not allow for a reliable determination of the market price.

Transfer Pricing Documentation

Taxpayers are required to demonstrate that their controlled transactions adhere to the arm’s length principle.

UAE legislation mandates a three-tier transfer pricing documentation system aligned with OECD requirements (BEPS Action 13):

  1. Transfer Pricing Disclosure Form;
  2. Local File;
  3. Master File.

Furthermore, the largest multinational enterprise (MNE) groups are subject to the obligation of submitting a Country-by-Country Report (CbCR).

Document Who is Required to Prepare When to Prepare / Submit
Transfer Pricing Disclosure Form Taxpayers executing controlled transactions, provided that:

  • the total value of transactions with related parties exceeds AED 40 million (and more than AED 4 million per transaction category); or
  • payments to connected persons exceed AED 500,000.
 Submitted together with the annual Corporate Tax Return.
Local File Taxpayers that meet either of the following criteria:

  • annual gross revenue of AED 200 million or more; or
  • the company is part of a multinational enterprise (MNE) group with a consolidated revenue of AED 3.15 billion (~ EUR 750 million) or more.
 Prepared annually and maintained by the taxpayer. Submitted strictly upon request by the FTA, typically within 30 days.
Master File The same taxpayers that are required to prepare a Local File. Prepared annually and maintained by the taxpayer. Submitted upon request by the FTA within 30 days.
Country-by-Country Report (CbCR) The ultimate parent entity of an MNE group that is a UAE tax resident, provided that the group’s consolidated revenue is AED 3.15 billion (~ EUR 750 million) or more. Submitted annually, no later than 12 months following the end of the reporting financial year.

Even if a taxpayer is not statutorily required to maintain a Master File and a Local File, the FTA retains the legal right to request documentation proving that its controlled transactions adhere to the arm’s length principle. Therefore, it is highly recommended to maintain supporting documentation for all such transactions, regardless of whether the established thresholds are met.

Liability for Non-Compliance

Violation Penalty
Failure to submit the Transfer Pricing Disclosure Form with the tax return
  • AED 500 for each month of delay during the first 12 months after the deadline;
  • AED 1,000 per month starting from the 13th month.
Failure to maintain or submit the Local File and Master File upon request by the FTA
  • AED 10,000 for each violation;
  • AED 20,000 for repeated violations within 24 months.

Thin Capitalization

Instead of traditional thin capitalization rules, the UAE implements interest deduction limitation rules based on the OECD BEPS Action 4 framework.

Interest expenses derived from debt financing can be deducted for taxable profit calculation purposes only up to a limit of 30% of EBITDA (earnings before interest, taxes, depreciation, and amortization).

This restriction does not apply if the total net interest expenditure for the relevant tax period does not exceed AED 12,000,000.

Beyond the general interest capping rule, specific regulations govern transactions with related parties. Interest on loans obtained from related parties may be disallowed for tax deduction purposes if the loan proceeds are utilized for:

  • dividend distributions;
  • capital redemption or returns to shareholders;
  • acquisition of equity stakes or corporate shares;
  • financing operations completely unrelated to generating taxable income.
Transfer Pricing Consultation

Frequently Asked Questions on Taxation

Are Free Zone companies required to register with the tax authority and pay taxes?

Yes, registration with the Federal Tax Authority is mandatory for absolutely all UAE companies, including Free Zone structures and even loss-making entities. Regarding tax payments, Free Zone companies can qualify for a preferential 0% rate upon satisfying certain conditions (earning Qualifying Income, maintaining audited financial statements, and ensuring economic substance). If these regulations are violated, profits are taxed at the standard 9% rate.

At what turnover is a company required to register for and pay VAT in the UAE?

Mandatory registration as a VAT taxpayer (5% rate) is required if a company’s taxable turnover over the past 12 months (or forecast for the next 30 days) exceeds AED 375,000. Voluntary registration is also available once the turnover reaches AED 187,500.

Is it mandatory for a UAE company to maintain accounting records and undergo an audit?

Yes. Under the corporate tax law, all legal entities must maintain proper bookkeeping records in compliance with IFRS and retain primary documentation for at least 7 years. An annual independent audit is strictly mandatory for companies whose revenue exceeds AED 50,000,000, as well as for all Free Zone entities without exception that wish to retain their 0% tax rate.

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