Dubai Corporate Tax Rate: Everything You Need to Know

If you’re looking to start or expand your business in the UAE, you need to know everything about the country’s taxation system, especially the Dubai corporate tax rate.

Yes, it sounds daunting. That’s why, in this post, we cover everything you need to know about the Dubai corporate tax rate in clear, simple terms.

What Is Corporate Tax in UAE?

In simple terms, a corporate tax is a direct tax that businesses pay every year on their net profits. Yes, that means it’s calculated after deducting operational expenses, salaries, and any other costs from the total revenue of these businesses. Understanding the Dubai corporate tax rate helps companies plan their finances better and stay compliant with UAE tax regulations.

Who does this tax apply to? Well, the UAE’s Ministry of Finance has confirmed that this tax applies to all businesses starting from the first financial year that begins on/after June 1st, 2023. Of course, things aren’t always that simple, but we’ll discuss who this tax applies to in more detail later.

What Is the Corporate Tax Rate in UAE?

Given what we’ve already covered, you can deduce that the UAE corporate tax rate depends on how much a business makes throughout the year. Here’s a quick breakdown:

• Businesses with a taxable income less than AED 375,000 pay a 0% corporate tax.
• Businesses with a taxable income of more than AED 375,000 pay a 9% corporate tax.
• Multinational corporations that fall under Pillar 2 of the OECD Base Erosion and Profit Shifting Project pay at least 15%.

In other words, small businesses don’t have to worry about corporate tax, while only large/more profitable corporations are forced to pay. And it’s the Federal Tax Authority’s (FTA) responsibility to oversee collecting that tax.

Know more about: Corporate tax meaning

Who Is Subject to Corporate Tax in the UAE?

That’s probably the question you’ve been looking to find the answer to the most. Here’s the thing: Corporate tax UAE applies to various types of entities, not just traditional businesses.

Here are the entities it covers:

• Companies with valid commercial licenses operating in the UAE (whether on the mainland or in free zones).
• Foreign companies or individuals conducting business on a regular basis in the UAE.
• Banks and financial entities involved in commercial banking.
• Real estate companies

Key Exemptions Under the Dubai Corporate Tax Rate

Like we said, corporate tax isn’t so simple that it just applies to all businesses. There are always exceptions. Here are a few examples:

Natural resource extraction entities: Businesses involved in extracting natural resources, like gas, oil, and other natural resources, are exempt from corporate tax.

Capital gains: Profits that come from selling shares that a UAE business owns in another company aren’t taxed under corporate tax.

Small and mid-sized businesses: Businesses making less than AED 375,000 in taxable income aren’t subject to corporate tax.

Certain free zone businesses that:

• Are licensed by a recognized free zone authority.
• Operate within free zone areas.
• Don’t operate in the UAE mainland in any way.

Corporate Tax for Free Zone Companies in the UAE

Free zones Companies in the UAE have long been a perfect attraction for foreign investors in the UAE. How could it not? They offer full ownership, simpler business setup processes, and 0% corporate tax.

That last one isn’t offered automatically for free zo ne businesses, though. They need to meet specific standards first. These include:

• Having a valid free zone license.
• Conducting business in free zone areas and with other free zone companies only.
• Avoiding conducting business in the UAE mainland (unless through an approved channel).

What Is the Aim of Introducing the Corporate Tax Rate in UAE?

After everything we’ve covered about the Dubai company tax rate, we’re sure there’s one question going through your mind now: What’s the point of choosing these rates specifically?

While, at first glance, there may not seem to be any logic behind it, there are actually a lot of advantages to setting such rates. Here are some of them.

1.    Attracting More Investors

Yes, believe it or not, the UAE’s corporate tax rates can attract more investors. How? Well, take the 9% standard corporate tax rate in UAE. Compared to the standard rates in other countries, that’s a very competitive rate.

That puts the UAE as an attractive destination for foreign investors looking to expand their businesses without paying too much in taxes. In other words, businesses can enjoy stability, low taxation, and high-quality infrastructure. What more could they want?

2.    Diversifying Income Sources

Do you know why the UAE government introduced corporate tax? No, it’s not because they wanted to put an extra burden on business owners. It’s because most, if not all, of the government’s income sources were oil-/gas-related.

The corporate tax was their way of diversifying their income streams and reducing their reliance on oil and gas revenues. Taxes are a source of income for a country.

3.    Supporting Small and Mid-Sized Businesses

By exempting businesses with a taxable income of less than AED 375,000, the government ensures that small and mid-sized entities have room to grow before taking on the burden of corporate tax. That smart approach encourages entrepreneurship and innovation in the UAE across all industries.

4.    Encouraging Sustainable Development

The UAE government doesn’t just take that money and keep it in a safe. It uses that revenue to fund projects that ensure sustainable contributions in fields like education, healthcare, and technological innovation.

Smart Tax Solutions for Smarter Businesses with Alsun Tax Agency

As you can see, corporate tax is complex, and there are various variables that factor into how it applies to you. Naturally, a lot of people won’t be able to gather all the necessary documents and take all the right steps to ensure the process is done seamlessly.

That’s why you need professional help. At Alsun Bookkeeping and Taxation, we work with the best of the best to ensure all your tax-related aspects are optimized to their full potential. So, if you’re looking for a hassle-free service provider that takes care of the entire process from A to Z without making you lift a finger, we’ve got you covered.

Conclusion

Now you know all there is to know about Dubai corporate tax rates. Yes, it might be a bit complex, but with professional help, you won’t have to worry about it. So, give us a call and let us optimize your tax status to its full potential.

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