Understanding tax and accounting in the UAE

The United Arab Emirates (UAE) is recognised around the world for its attractive business landscape, including its favourable corporate tax regime.

Corporate tax in the UAE

Corporate tax is a new concept in the UAE. The country only introduced its corporate tax regime in December 2022, with it coming into effect for fiscal years starting on or after 1 June 2023.

Overview of UAE corporate tax law

Most businesses operating in the UAE are liable for corporate tax, with some exceptions. Broadly speaking, this includes the following ‘taxable persons’:

UAE companies and other juridical persons (entities) that are incorporated or effectively managed and controlled in the UAE
Natural persons (individuals) who conduct a specified business or business activity in the UAE
Non-resident juridical persons (foreign legal entities) that have a permanent establishment in the UAE

Businesses established in a UAE free zone – the majority of which are in Dubai – are also within the scope of corporate tax, although some may be exempt if certain conditions specified by the Federal Tax Authority (FTA) are met.

In line with the tax regimes of most countries, the UAE taxes income on both a residence and source basis:

A ‘resident person’ (as determined under the UAE Corporate Tax Law) is taxed on income derived from both domestic and foreign sources
A ‘non-resident person’ will be taxed only on income derived from sources within the UAE

Corporate tax rate

In aiming to keep its corporate tax regime as straightforward as possible, the UAE implemented a statutory rate of 9% on taxable income above AED375,000. Income below this threshold is not taxed.

This applies across all seven emirates and to all UAE tax residents and non-residents, subject to certain exceptions.

Tax exemptions and qualifying free zones

Certain entities may qualify for corporate tax exemptions in the UAE – some automatically and others because they meet specific criteria. These include government entities, extractive businesses, qualifying investment funds, and non-extractive natural resource businesses, among others.

In addition, UAE free zone entities that satisfy a set of prescribed conditions may be considered a Qualifying Free Zone Person (QFZP) and be subject to 0% corporate tax on their qualifying income.

Certain types of income are also exempt from corporate tax. The main purpose of this is to prevent double taxation.

Filing deadlines and requirements

All companies registered for corporate tax must file their return, together with transfer pricing documentation (if applicable) within nine months from the end of their relevant tax period. Any UAE corporate tax payable must also be settled within this period.

For example, if your company operates on a fiscal year that ends on 31 December, your tax filing deadline would be 30 September in the following year.

Businesses in the UAE must keep all relevant records and documents for seven years after the end of the applicable tax period. This ensures adherence with UAE tax regulations and supports any potential audits in the future.

Economic substance

To curb tax avoidance, the UAE introduced the Economic Substance Regulations (ESR) in 2019. Under this framework, businesses engaged in specific "relevant activities" must demonstrate that they have a significant economic presence in the country.

The activities covered by these regulations include sectors such as banking, insurance, investment fund management, lease-finance, headquarters operations, shipping, holding company functions, intellectual property management, and distribution and service centres.

Companies that fall under the ESR rules will need to file a notification within six months after the end of the fiscal year. An Economic Substance Report must also be submitted to the designated regulatory authority no later than 12 months following the end of their fiscal year.

As of September 2024, the ESR requirements will not apply to those with financial periods starting on or after 1 January 2023. For fiscal years between 1 January 2019 and 31 December 2022, companies still need to have maintained ESR compliance.

Other important taxes in the UAE

Besides the corporate income tax, there are other significant taxes you must prepare for when operating a business in the UAE, like VAT, excise tax, and customs duties.

Domestic minimum top-up tax (DMTT) for multinationals

On 1 January 2025, the UAE implemented a DMTT of 15%. This is imposed on large multinationals with consolidated global revenues of €750 million or more in at least two of the four preceding fiscal years.

This aligns the UAE with the OECD's global minimum corporate tax agreement – Pillar Two of its Base Erosion and Proft Shifting (BEPS) project – ensuring large multinational enterprises (MNEs) pay a minimum effective tax rate of 15% on profits globally.

Value-added tax (VAT)

The UAE introduced VAT in January 2018 – the current standard VAT rate is 5% and applies to most goods and services. That said, there is a 0% rate which applies to certain goods and services – such as exports outside of the Gulf Cooperation Council (GCC) – while a small number are exempt from VAT.

The UAE VAT legislation is based on the Common VAT Agreement of the Gulf Cooperation Council (GCC) States. However, VAT in the UAE is directly administered by the FTA.

VAT registration will be required if your local taxable supplies and imports exceed the mandatory registration threshold of AED375,000 annually. You may also volunteer to register for VAT in the UAE if the total value of your business’ local taxable supplies and imports is more than AED187,500 during a fiscal period.

Once you confirm the need to register in the UAE, you will need to gather essential documents such as trade licences, confirmation of local sales and purchases (contracts and invoices), and bank details for your application. VAT registration is conducted online via the FTA website and in most cases, the approval process may take up to a month.

Free zone entities are treated the same as ‘mainland’ entities for VAT purposes and have the same VAT registration and compliance obligations. Some free zones are designated zones for VAT purposes, and special rules for the VAT treatment of the supply of goods to, from and within these zones apply.

Personal income tax

The UAE government does not levy personal income tax on individuals. As a result, there are no reporting obligations. For many foreign professionals and skilled workers, this is one of the more appealing elements of moving to the UAE.

Understanding double taxation agreements (DTAs) in the UAE

A DTA is a bilateral agreement between two countries that aims to eliminate the double taxation of income. Through its extensive network of more than 130 DTAs, the UAE seeks to encourage foreign investment and attract more international businesses by reducing the overall tax burden. Some of the countries that have DTAs with the UAE include China, India, Saudi Arabia, and Switzerland, among others.

The DTAs offer numerous benefits to businesses setting up in the UAE. They ensure that income is not taxed both in the UAE and again in your company’s country of origin. By simplifying rules for cross-border trade and investment, these agreements make it easier for you to operate internationally. Foreign companies operating in the UAE and companies that are resident in the country can both benefit from the DTAs.

The UAE’s DTAs typically include provisions defining tax residency and permanent establishment, allocating taxing rights between the two countries for several types of income such as dividends, interest, royalties and capital gains, and detailing methods for relief from double taxation, either through exemption or tax credits.

UAE accounting standards: IFRS and compliance

Once you understand your business’ tax liabilities in the UAE, you must ensure that it reports to the FTA in the appropriate manner. Companies regulated by the UAE Commercial Companies Law are required to adhere to the International Financial Reporting Standards (IFRS).

If a company in the UAE meets the criteria for small and medium-sized entities, they may opt to apply IFRS for SMEs instead of the full IFRS standards. This is particularly relevant for companies with less complex operations and lower revenue.

In the UAE, Sharia-compliant accounting standards are mandatory for Islamic financial institutions. Companies must adhere to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards in addition to the IFRS for financial reporting. Non-financial companies engaged in Sharia-compliant activities may also adopt these standards to ensure compliance.

Revenue and expenses are recognised on the accrual basis, meaning transactions are recorded when they occur, not when cash is received or paid. For entities with annual revenue below AED 3 million, the UAE corporate tax regime may offer simplified compliance requirements or certain exemptions. This threshold could allow smaller entities to potentially avoid stricter reporting and audit obligations.

Next steps

Tax laws in the UAE are still relatively new and, as such, are subject to change and clarification. This creates a risk of non-compliance if your business is not familiar with any of the latest developments. Common mistakes include errors in calculating tax liabilities, failing to keep updated records, and missing important tax filing deadlines.

To help ensure your operations in the UAE are fully compliant, our team at Hawksford can support you with tax, accounting and bookkeeping services. With a dedicated office in Dubai, we can promptly address many issues that arise, guide you through complex filing requirements, and offer tax planning strategies tailored to your business. Connect with our team to find out more about our range of tax and accounting solutions today. 