Understanding Who Must Pay Corporate Tax in the UAE

As the UAE introduces Corporate Tax (CT), many businesses are asking: who is required to pay this tax? Understanding the scope is essential for compliance and avoiding unnecessary penalties.

UAE Businesses Subject to Corporate Tax

Corporate Tax in the UAE applies to:

• Onshore companies: Any business registered and operating within the UAE mainland.

• Free zone entities: Most free zone businesses are subject to CT but may benefit from 0% tax incentives, provided they meet regulatory conditions and do not conduct business with the UAE mainland.

• Branches of foreign companies: If a foreign company operates in the UAE through a branch, the branch is generally liable for CT on UAE-sourced profits.

Who Is Exempt from Corporate Tax

Certain entities are exempt from CT under UAE law:

• Government entities and public institutions.

• Qualifying investment funds.

• Individuals or entities earning non-business income (e.g., personal investment income) may also fall outside CT obligations.

Exemptions are important to note because they help business owners focus on accurate reporting and compliance.

Small Businesses and Thresholds

The UAE Corporate Tax law includes a threshold for taxable income:

• Only businesses with taxable profits above AED 375,000 are required to pay the standard 9% Corporate Tax rate.

• Businesses below this threshold are generally exempt, making the tax more business-friendly for startups and SMEs.

This threshold ensures that micro and small businesses are not overburdened, while larger enterprises contribute fairly to the tax system.