The UAE introduced corporate tax in June 2023. The rate is 9% on net profits above AED 375,000. Below that threshold, the rate is 0%.
That changed the picture for UK business owners who moved here expecting to stay in a zero-tax setup. Most UAE businesses still pay far less tax than they would in the UK. But before you set up a company, it helps to understand how the tax works and who actually has to pay it.
What is UAE corporate tax?
UAE corporate tax, or CT, is a federal tax on business profits. It applies to UAE-registered companies and, in some cases, to individuals who run a business without a corporate structure.
It applies to financial years starting on or after June 1, 2023. So if your company uses a January to December financial year, your first taxable year under the new rules started in January 2024.
The Federal Tax Authority (FTA) handles UAE corporate tax, and it also handles UAE VAT.
Who pays UAE corporate tax?
Does every UAE company pay the 9%?
No. The 9% rate applies only to profits above AED 375,000 per year. Profits up to that amount are taxed at 0%. Free zone companies that meet the qualifying conditions can keep the 0% rate on qualifying income. Individuals running a business without a UAE company, such as sole traders, only pay CT if their annual income exceeds AED 1,000,000.
The main groups that fall within UAE CT are:
UAE-registered companies, both mainland and free zone: All of them sit inside the CT system. Mainland companies pay 9% on profits above AED 375,000. Free zone companies can qualify for 0% if they meet the conditions.
For UK founders who operate across both jurisdictions, understanding whether to keep your UK limited company is important before you decide how to structure the business.
Foreign companies with a UAE permanent establishment: If a foreign company has a branch or fixed place of business in the UAE, the UAE profits from that activity are subject to CT.
Individuals earning business income above AED 1,000,000: Sole traders and freelancers who earn more than AED 1,000,000 from business activity in a calendar year are subject to CT on that income.
What’s excluded: Employment income, investment income from personal portfolios, and dividends from UAE companies are generally outside CT scope.
The AED 375,000 threshold explained
The first AED 375,000 of net profit is taxed at 0%. Everything above that is taxed at 9%.
So a company that makes AED 500,000 in profit does not pay 9% on the full amount. It pays 0% on the first AED 375,000 and 9% on the remaining AED 125,000. That comes to AED 11,250 in corporate tax, not AED 45,000.
It is a tiered structure, not a flat rate. A company making AED 500,000 in profit has an effective tax rate of 2.25%, not 9%.
For context, UK corporation tax is 25% on profits above £250,000, as of 2023. Even at 9%, UAE CT is much lower for profitable businesses.
Do free zone companies pay UAE corporate tax?
Can a free zone company still get 0% corporate tax?
Yes, but only if it meets the conditions for Qualifying Free Zone Person, or QFZP, status. The 0% rate applies to qualifying income earned from outside the UAE or from other free zones. Income from UAE mainland customers is taxed at 9%. The conditions are specific, and the company must meet them every year.
Before you commit to a structure, it helps to understand freezone vs mainland company structure. The setup you choose at formation directly affects your CT exposure. Once you know your structure, understanding freezone 0% corporate tax conditions is the key tax question for UK founders in UAE free zones.
The main QFZP conditions are:
Substance requirement: The company must carry out real economic activity in the UAE. It needs enough employees, premises, and decision-making in the UAE.
Qualifying income only: The 0% rate applies only to qualifying income. In broad terms, that means income from transactions with foreign counterparties or other free zone companies. Income from UAE mainland customers falls under the 9% rate.
No domestic permanent establishment: The free zone company cannot have a branch or fixed place of business on UAE mainland.
Audited financial statements: The company must prepare audited accounts.
If a free zone company fails any of these conditions, it loses QFZP status for that year and pays 9% on all profits, not just the mainland portion.
The short version is simple. If your UAE free zone company earns most of its income from non-UAE clients, you can likely keep the 0% rate. If you sell heavily to UAE mainland customers, you will probably pay the 9%.
What counts as taxable income?
UAE corporate tax applies to net profit, which means revenue minus allowable expenses.
Allowable expenses include salaries, rent, professional fees, depreciation of assets, and other genuine business costs. The rules generally follow IFRS accounting principles.
Intercompany transactions between related parties must be at arm’s length. In plain terms, the prices charged between group companies need to reflect what unrelated parties would charge. The FTA has transfer pricing rules for this, and they apply to UAE companies with related-party transactions above certain thresholds.
One thing that catches people out is personal expenses run through a UAE company. Using business funds for personal costs is not just poor accounting. Under CT, it inflates deductions and lowers taxable profit. The FTA can adjust this after an audit.
When do you need to register for UAE corporate tax?
All UAE businesses must register for CT, even if they expect to pay 0%. That includes free zone companies claiming QFZP status.
The FTA sets registration deadlines based on your company’s licence issue date. New companies register within 3 months of incorporation. Existing companies had phased deadlines throughout 2023 and 2024.
Missing the deadline can lead to penalties. During the initial rollout period, the FTA issued fines of AED 10,000 for late registration.
You register through the EmaraTax portal, which is the same platform used for VAT.
Corporate tax filing deadlines
UAE corporate tax returns are filed once a year, nine months after the end of your financial year.
If your financial year runs from January to December, your CT return is due by September 30 of the following year.
If your financial year runs from June to May, your CT return is due by February 28.
Payment is due on the same date as the return. There is no instalment system for most businesses, so it is a single annual payment.
Late filing penalties start at AED 1,000 and increase to AED 10,000 for returns more than a year late.
Common questions about UAE corporate tax
Does UAE CT apply to a UK company with a UAE subsidiary?
The UAE subsidiary pays UAE CT on its own profits. The UK parent company does not pay UAE CT on its own income. It pays UK corporation tax instead. The relationship between the two companies can still trigger transfer pricing rules.
Can I offset UAE CT paid against my UK tax bill?
This depends on your structure. It is worth reading how the UK-UAE double taxation treaty works before you assume one tax offsets the other. The two tax systems do not directly offset each other, and a UK accountant and a UAE tax adviser need to look at the position together.
What if my UAE company makes a loss?
Losses can be carried forward and used against future profits. The carry-forward rules allow up to 75% of a future year’s taxable income to be offset by brought-forward losses.
Is CT charged on dividends paid from a UAE company to a UK owner?
Dividends from UAE companies are generally excluded from UAE CT. The UK owner may still have UK tax obligations on those dividends, depending on their UK tax residency status.
Frequently asked questions
When did UAE corporate tax start?
June 1, 2023, for financial years starting on or after that date. Most calendar-year companies had their first CT-taxable year in January 2024.
Is UAE corporate tax the same as VAT?
No. UAE VAT is 5% on the sale of goods and services. UAE CT is 9% on business profits. They are separate taxes, even though the FTA handles both.
Do sole traders in the UAE pay corporate tax?
Only if they earn more than AED 1,000,000 in business income in a calendar year. Below that, individual business income is outside CT scope.
What records does the FTA expect?
Free zone companies claiming 0% should keep audited financial statements. All others should keep accounting records. The FTA can request records going back at least 7 years.
How we help
UAE corporate tax compliance is not just about filing a return once a year. It also means registering on time, structuring income correctly for free zone companies, and keeping up with the FTA’s record requirements throughout the year.
If you want to use our tax filing and compliance service, we can set up the right structure and keep you on track each year.