Corporate income tax in the Emirates

General presentation

Corporate Income Tax is levied on companies' profits. It applies to all companies registered in the UAE, including Mainland companies at a rate of 9% and Free-zone companies at rates of 0% and 9%.

The law governing this tax is Federal Decree-Law No. 47 of 2022.

Key points to remember

0% up to 375,000 AED

Rate applicable to annual taxable income up to AED 375,000.

9% above 375,000 AED

Rate applicable to the portion of annual taxable income exceeding AED 375,000.

9 months to declare

Corporate Tax returns and payment must be submitted within 9 months following the end of the relevant tax period.

AED 10,000 fine

Penalty for late registration for Corporate Income Tax.

Who is subject to corporate income tax?

The scope is defined in particular by Article 11.

Resident persons

Companies in the Emirates and other legal entities incorporated or effectively managed and controlled in the Emirates.
Individuals conducting commercial activities in the Emirates, in accordance with the applicable regulations.

Non-resident persons

Non-resident legal entities with a permanent establishment in the Emirates.
Free-zone companies are also taxable persons, but may benefit from a 0% rate on their qualifying income.
Certain non-resident persons may be subject to withholding tax at a rate of 0%.

Who may be exempt?

Public entities

Government entities - Article 5.
Government-controlled entities - Article 6.
Qualifying public-interest entities - Article 9, subject to conditions.

Natural resources

Persons engaged in extractive activities - Article 7.
Non-extractive natural resource companies - Article 8.

These exemptions are subject to the notifications and conditions provided for by law.

Social funds and plans

Public or private pension and social security funds, subject to conditions.
Qualified investment funds - Article 10, subject to approval.

Effective date and applicable financial years

The Corporate Tax regime applies to financial years beginning on or after June 1, 2023.

January – December

First application as of 01/01/2024.

April - March

First application starting from 04/01/2024.

July - June

First application starting on 01/06/2023.

Income that may be exempt

The following income, as well as the related expenses, is not taken into account when determining taxable income.

Dividends and equity interests

Dividends and other profit distributions received from legal entities incorporated or resident in the Emirates: domestic dividends are exempt without conditions.
Dividends and other profit distributions received from an interest in a foreign legal entity.
Certain other income, such as capital gains, foreign exchange gains/losses, and gains or losses in value, arising from an interest.

Other income

Income from a foreign branch or permanent establishment when an election is made to claim the “foreign permanent establishment” exemption.
Income earned by a non-resident from operating aircraft or ships in international transport that meets the requirements of section 25 of the Act.

What is a “participation”?

A participation is a legal entity in which the shareholder company from the United Arab Emirates holds at least 5%, or which it holds for at least 12 months, and which is subject to corporate tax of at least 9% in the relevant country.

Tax deductions

Non-deductible expenses

Donations, grants, or gifts made to an entity that is not an eligible public-interest entity.
Fines and penalties, other than amounts awarded as compensation for damages or breach of contract.
Bribes or other illicit payments.
Dividends, profit distributions, or similar benefits paid to an owner of the taxable person.
Amounts withdrawn from the business by an individual who is a taxable person.
Corporate tax imposed on a taxable person under the decree-law.
Recoverable input value-added tax incurred by a taxable person.
Income tax imposed on the taxable person outside the State.
Any other expense specified in a decision issued by the Cabinet upon the Minister's proposal.

Limited deductions

Entertainment expenses - Article 32: expenses incurred to entertain clients, shareholders, suppliers, and other business partners are deductible up to 50%.
Interest payments - Articles 30 and 31: the deduction is capped at 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA) adjusted for CT purposes. This limitation does not apply to banks and insurance companies.
Excess interest paid and disallowed due to the limitation may be carried forward and deducted over a period of up to 10 years.
If a loan is obtained from a related party, no interest deduction is allowed if the loan is used for certain transactions, including the payment of dividends or a capital contribution.

How is tax calculated?

The starting point for the calculation is the accounting net profit (or loss) reported in the financial statements prepared in accordance with the accounting standards in force in the Emirates. Companies use their financial accounting period as their tax period.

Start with the accounting result

Net accounting income or loss shown in the financial statements.

Apply the adjustments

Add or subtract tax adjustments to obtain taxable income.

Apply the rates

0% up to AED 375,000, then 9% above that.

Deduct the foreign tax credit

The remaining amount is the final tax payable.

The special case of Free-zone companies

0% on qualifying income

Free-zone companies may benefit from a 0% rate on “Qualifying Income.”

9% on other income

Taxable income that does not meet the conditions for qualifying income is subject to the 9% rate.

Main terms

Maintain adequate substance in the United Arab Emirates.
Have qualifying income.
Have not elected to be taxed at the normal rates.

What activities can generate qualifying income?

Qualifying income is related, in particular, to the following activities: manufacturing goods or materials; processing goods or materials; holding shares and other securities; owning, managing, and operating ships; reinsurance services; fund management services subject to regulatory oversight by the competent authority in the UAE; wealth and investment management services subject to regulatory oversight by the competent authority in the UAE; head office services to related parties; treasury and financing services to related parties; financing and leasing of aircraft, including engines and rotable components; logistics services; distribution in or from a designated zone that meets the required conditions; and any activity ancillary to the activities mentioned above.

Relief for SMEs

According to the Ministerial Decision No. 73 of 2023, companies with annual revenue below AED 3,000,000 per year may benefit from Corporate Income Tax relief until 31/12/26. The exact amount or rate of this relief is not detailed therein.

When should you register with the CIT?

Registration is not automatic with a new registration or renewal. A fine of AED 10,000 applies for late registration.

Resident legal entities

Registered before March 1, 2024:

January or February: May 31
March or April: June 30
May: July 31
June: August 31
July: September 30
August or September: October 31
October or November: November 30
December: December 31

Registered after March 1, 2024:

Registered in the Emirates: three months from the registration date.
Registered outside the Emirates: 3 months from the end of the financial year.

Non-resident legal entities