Corporate Tax and VAT Basics for New UAE Companies

The United Arab Emirates has modernized its fiscal framework to align with international tax transparency standards, specifically the OECD Base Erosion and Profit Shifting (BEPS) Inclusive Framework. Today, operating a compliant business in Dubai involves adhering to two primary federal taxes: Corporate Tax and Value Added Tax (VAT).

While the UAE remains one of the most commercially attractive, low-tax environments globally, statutory filing, transparent financial bookkeeping, and formal tax registrations are strictly enforced.

Effective for financial years commencing on or after June 1, 2023, Federal Decree-Law No. 47 of 2022 established the federal Corporate Tax framework:

0% Corporate Tax on taxable net income up to AED 375,000, specifically designed to support early-stage startups and small businesses.

9% Corporate Tax on taxable net income exceeding AED 375,000.

All juridical persons (LLCs, FZ-LLCs, branches) must obtain a Corporate Tax Registration Number (TRN) via the FTA’s EmaraTax platform and submit an annual corporate tax return within 9 months following the close of their financial year.

Under Ministerial Decision No. 73 of 2023, eligible resident taxable persons whose gross revenue does not exceed AED 3,000,000 in any relevant tax period ending on or before December 31, 2026, can elect for Small Business Relief (SBR).

When elected, the taxable person is treated as having no taxable income for that period, significantly easing the administrative and calculation burden on early-stage enterprises. However, basic compliance, FTA registration, and financial recordkeeping remain mandatory.

Free zone entities are subject to Corporate Tax law, but can benefit from a 0% tax rate on "Qualifying Income" if they achieve and maintain Qualifying Free Zone Person (QFZP) status:

1. Maintain adequate economic substance in the free zone (appropriate physical assets, qualified employees, and operating expenditure).

2. Derive qualifying income from transactions with other free zone persons or designated qualifying activities (such as manufacturing, logistics, fund management, and treasury services).

3. Comply with arm’s-length transfer pricing rules and maintain compliant documentation.

4. Prepare audited annual financial statements.

Non-qualifying income (e.g. transactions with mainland consumers or non-qualifying commercial activities) is taxed at the standard 9% rate.

Introduced in January 2018 under Federal Decree-Law No. 8 of 2017, VAT is an indirect tax levied on the consumption of goods and services at a standard rate of 5%:

Mandatory Registration Threshold: Any business whose taxable supplies and imports exceed AED 375,000 over the preceding 12-month period (or expect to exceed that amount within the next 30 days) must register with the FTA.

Voluntary Registration Threshold: Businesses with taxable turnover or expenses exceeding AED 187,500 may voluntarily register to claim back input VAT paid on operational purchases.

Registered businesses collect 5% output VAT from customers, deduct eligible input VAT paid on business expenses, and remit the net balance to the FTA via periodic VAT returns (usually quarterly).

Under both Commercial Companies Law and tax legislation, all UAE companies must maintain proper books of accounts and supporting commercial records (invoices, receipts, contracts, bank statements) for a minimum of 5 years (7 years for real estate records).

Financial statements must be prepared in accordance with International Financial Reporting Standards (IFRS).