Corporate Tax in UAE 2026
In January 2022, the UAE Ministry of Finance officially announced the introduction of corporate tax across the country, with the law coming into effect from 1 June 2023. This tax applies to business profits starting from that date, depending on each company’s financial year. Corporate income tax is a direct tax charged on profits, and it is not something unique to the UAE, as many countries such as the United States, India, France, and several GCC states including Oman, Kuwait, and Qatar already apply it. Even with this move, the UAE remains competitive, as it has set one of the lowest rates globally at 9 percent. This approach also aligns with international discussions that followed the 2021 G7 agreement on a global minimum tax, while still supporting businesses as they prepare for corporate tax in uae 2026 and beyond.
The Federal Tax Authority is in charge of managing, collecting, and enforcing corporate tax in the UAE, while the Ministry of Finance handles international tax agreements and information exchange with other countries. The introduction of corporate tax supports long-term economic stability, improves corporate governance, and strengthens the overall business environment. It is also seen as a key step in the UAE’s economic transformation, helping the country grow in a structured and transparent way. By applying corporate tax in uae 2026 as part of its broader strategy, the UAE aims to confirm its position as a global business hub, attract investments, meet international tax standards, and reduce harmful or non-compliant tax practices.
Which businesses or sources of income are outside the scope of corporate tax in the UAE?
Under the corporate tax rules, companies are required to pay tax only if their annual profits exceed AED 375,000. However, not all businesses or income types fall under this rule, as the law clearly defines several exemptions. These exemptions are designed to keep the system fair and practical, especially as companies plan ahead for corporate tax in uae 2026 and adjust their financial strategies accordingly.
Individuals are fully exempt from corporate tax, which means income earned from salaries, personal property, share investments, or other private sources that are not linked to a business activity in the UAE is not taxed. Foreign investors who do not carry out business operations inside the UAE are also excluded. In addition, free zone companies that meet all required conditions can continue to benefit from their existing tax incentives. Capital gains and dividends earned by UAE businesses from qualifying shareholdings are generally tax-free, although this does not apply to certain intragroup transactions or restructuring activities. These exemptions play an important role in supporting investment and clarity as businesses prepare for corporate tax in uae 2026.
Who is required to pay corporate tax in the UAE?
Under the UAE tax framework, any business that earns a net taxable profit exceeding AED 375,000 is required to pay corporate tax on its profits at the applicable rate. This rule applies to companies that are incorporated in the UAE, businesses that are managed and controlled from within the country, and certain entities operating in free zones. Understanding who falls under this scope is essential for proper planning, especially as businesses look ahead to corporate tax in uae 2026 and structure their operations accordingly.
To support small businesses and new start-ups, the UAE offers relief through a 0 percent tax rate for companies whose net profits do not exceed AED 375,000. This approach helps ease the financial burden on smaller entities while ensuring larger, more profitable businesses contribute fairly to the economy. As the rules continue to shape the market, being aware of these thresholds becomes even more important for companies preparing for corporate tax in uae 2026.
Corporate Tax Exemptions and Non-Taxable Income Categories in the UAE
Certain activities and income types are excluded from corporate tax to ensure fairness and avoid double taxation under the UAE tax system. These exemptions clarify how corporate tax in uae 2026 will be applied in practice and which parties remain outside its scope. The aim is to focus taxation on active business profits while leaving personal income and specific strategic sectors unaffected. As part of the broader framework of corporate tax in uae 2026, these exclusions help businesses and individuals clearly understand their tax position and plan accordingly.
Categories exempt from corporate tax include the following:
- Natural resource extraction businesses are not subject to corporate tax because they will continue to pay taxes at the Emirate level as per existing regulations.
- Dividends and capital gains earned by a UAE company from qualifying shareholdings are excluded, provided the required conditions are met.
- Intra-group transactions and business restructurings within the same group are exempt when they meet the qualifying criteria set by the law.
- Salaries and employment-related income earned by individuals from either public or private sector jobs are not subject to corporate tax.
- Interest and similar income earned by individuals from bank accounts or savings plans remain outside the scope of corporate tax.
- Income earned by foreign investors from dividends, capital gains, interest, royalties, or other investments is exempt.
- Individuals investing in real estate in their personal capacity are not subject to corporate tax on that income. Dividends, capital gains, and other income earned by individuals from shares or securities held in their own name are also excluded.
Expenses Allowed and Disallowed When Calculating Corporate Tax
When calculating taxable profits, not all accounting expenses are automatically allowed as deductions under corporate tax rules. Some costs must be adjusted or added back to the accounting profit to reach the final taxable income. This approach is a key part of corporate tax in uae 2026, as it ensures that only genuine business-related expenses are deducted while calculating tax. Understanding these adjustments under corporate tax in uae 2026 helps businesses avoid errors and stay compliant with the law.
- Expenses that may be adjusted or partially deductible include the following.
- Depreciation or amortization related to capital assets, which may not be fully deductible for tax purposes.
- Business setup costs, license renewals, and government fees that are paid mainly for business operations.
- Non-recoverable value-added tax under VAT regulations, which can be treated as an expense.
- Only 50 percent of client entertainment and leisure expenses is allowed as a deduction.
- Interest expenses on debt funding are deductible up to a limit of 30 percent, based on the applicable rules.
- Loans granted to related parties are deductible only if they are clearly linked to a genuine business purpose.
- Payments made to a mainland branch of a free zone entity may be deductible, subject to specific conditions.
Corporate Tax Rates and Applicable Thresholds in the UAE
According to the Ministry of Finance, the UAE has introduced clear corporate tax rates to support small businesses while ensuring fair taxation for larger entities. These rates form a core part of corporate tax in uae 2026, as they define how much tax a business will pay based on its taxable income. By applying a lower threshold and a standard rate above it, corporate tax in uae 2026 aims to balance economic growth with international tax standards.
- The applicable corporate tax rates are as follows.
- A 0% tax rate applies to taxable income up to AED 375,000.
- A 9% tax rate applies to taxable income exceeding AED 375,000.
An additional corporate tax rate will apply to multinational companies that fall under the OECD Pillar Two rules related to the Base Erosion and Profit Shifting framework, with the exact rate to be announced later.
Corporate Tax Calculation and Return Filing Process in the UAE
Corporate tax in the UAE is applied on a yearly basis and follows a self-assessment system, meaning businesses are responsible for calculating their own tax and submitting a corporate tax return to the Federal Tax Authority. This process is a core part of corporate tax in uae 2026, as it places the responsibility on companies to review their figures carefully and file accurate returns on time. Under corporate tax in uae 2026, tax is charged at 9 percent on taxable profits, while profits up to AED 375,000 are taxed at a zero percent rate, which offers relief for small and growing businesses.
The calculation starts with the company’s accounting income shown in its financial statements, which is the net profit or loss before tax. From there, several adjustments are made to arrive at the final taxable income. Income that is exempt from corporate tax is excluded from the calculation. Expenses that are fully or partially non-deductible for tax purposes are added back to the accounting profit. Once the taxable income is determined, the first AED 375,000 is taxed at 0 percent, and any amount above this threshold is taxed at 9 percent.
For example, if a company earns a net profit of AED 575,000, corporate tax is calculated on AED 200,000 only, resulting in a tax amount of AED 18,000. The final tax amount is declared and paid through the corporate tax return filed with the Federal Tax Authority, making accuracy in calculations and adjustments essential for compliance.
Conclusion
In summary, understanding corporate tax in uae 2026 is essential for businesses to stay compliant and plan their finances effectively. By knowing which incomes are taxable, which expenses can be deducted, and how tax rates are applied, companies can accurately calculate their liability and avoid penalties. Properly filing the corporate tax return with the Federal Tax Authority ensures transparency and adherence to UAE tax laws, helping businesses focus on growth while managing their tax obligations efficiently.
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