Chapter 6
Taxation
The UAE offers a favourable tax regime that continues to attract businesses globally, but recent changes have introduced new corporate tax measures that businesses need to consider.
An overview of key tax regulations in the UAE is provided below.
Corporate Tax
9%
In June 2023, the UAE implemented a corporate tax (CT) regime under Federal Decree-Law No. 47 of 2022. Businesses are subject to a 9% corporate tax on taxable income exceeding AED 375,000, while income below this threshold is taxed at 0%.
Certain entities are exempt from corporate tax, including:
Government entities and government-controlled entities
Qualifying public benefit organizations
Qualifying investment funds
Entities involved in extractive and non-extractive natural resources*
*Oil and gas companies or entities involved in natural resource extraction continue to be taxed at the Emirate level under specific agreements, often at higher rates.
Businesses operating within the UAE’s free zones can benefit from a 0% corporate tax rate on qualifying income, provided they meet specific conditions to be classified as Qualifying Free Zone Persons (QFZP). These conditions often involve maintaining adequate substance within the free zone and adhering to regulations set by the respective free zone authority.
Non-qualifying income, however, is taxed at the standard 9% rate.
The UAE does not differentiate between capital gains and regular business income. Any capital gains from the sale of assets are included in a company’s taxable income and taxed at the applicable corporate tax rate. However, gains from the sale of shares may be exempt, subject to conditions such as a 5% ownership held for at least 12 months.
Although the UAE’s corporate tax law mentions withholding tax, the current withholding tax rate is set at 0%. This means that UAE-sourced income paid to non-residents is not subject to withholding tax at present, though the rate could be revised in the future.
Corporate Tax Compliance
All businesses subject to corporate tax must:
- Register with the Federal Tax Authority (FTA).
- File tax returns within nine months of the end of their financial year.
- Submit financial statements and comply with transfer pricing regulations, where applicable.
Failure to comply with these obligations may result in penalties.
Value Added Tax (VAT)
5%
Value Added Tax (VAT) was introduced in the UAE on January 1, 2018, under Federal Law No. 8 of 2017, as part of the broader GCC VAT Agreement. VAT is applied to the supply of goods and services at a standard rate of 5%, making it one of the lowest VAT rates globally.
Businesses with taxable supplies and imports exceeding AED 375,000 in a 12-month period are required to register for VAT.
Companies with supplies exceeding AED 187,500 can voluntarily register. There is no threshold for non-residents, meaning they must register for VAT regardless of their turnover.
VAT returns must be filed online through the Federal Tax Authority’s (FTA) platform, typically on a quarterly or monthly basis, depending on the size and nature of the business.
Standard Rate (5%): This applies to most goods and services within the UAE.
Zero-Rated VAT: Certain supplies, such as exports, international transport, healthcare services, and education, are zero-rated. This means that while no VAT is charged on these transactions, businesses can still reclaim VAT paid on inputs.
Exempt VAT: Some sectors, such as financial services, residential buildings (after the first sale), and local passenger transport, are exempt from VAT. Businesses that supply exempt goods or services cannot recover VAT on their inputs.
Businesses subject to VAT must comply with the following:
- Issue tax invoices for all taxable supplies. These invoices must meet specific requirements outlined by the FTA.
- Maintain records for at least five years, or 15 years for real estate transactions.
- Ensure that VAT refunds are processed through the FTA when input tax exceeds output tax.
Personal Income Tax and Social Security
The UAE does not impose personal income tax, making it an attractive jurisdiction for expatriates and high-net-worth individuals. However, there is a social security regime that applies to UAE and GCC nationals. Contributions are required from both employees and employers:
Employee contribution: 5% of gross remuneration
Employer contribution: 12.5% of gross remuneration
Expatriates are exempt from this requirement but may be subject to social security contributions in their home countries.
Real Estate and Property Taxes
In most Emirates, a municipality tax is imposed on properties based on their annual rental value.
For example:
- In Dubai, a 5% tax is levied on rental properties, typically paid by tenants.
- Some Emirates charge property taxes to both tenants and property owners, with rates varying across the Emirates.
Additionally, there is a property transfer tax imposed when real estate changes ownership.
In Dubai, this tax is 4% of the property value.
