Complete Guide to Corporate Tax in Dubai and the United Arab Emirates

As of June 1, 2023, the United Arab Emirates have implemented a tax on corporate profits, called Corporate Tax. This tool, which corresponds to corporate income tax, applies to most entities established in the country, whether located in Mainland or Free Zone. The objective of this reform is to harmonize Emirati taxation with international standards while maintaining an attractive economic environment.

What is Corporate Tax in the United Arab Emirates?

Corporate tax is a federal tax imposed on companies' net profit, calculated according to international accounting standards (IFRS). It applies to all companies conducting economic activities in the United Arab Emirates, whether local, international, or independent working in the territory. This reform aims to align the Emirates' taxation with international standards, while preserving an attractive economic framework.

Who must register for corporate tax?

Registration with the Federal Tax Authority (FTA) is required for:

• All companies registered in the mainland territory.

• All companies operating in Free Zones, although they benefit from tax reliefs.

• Exempt entities (such as free zones, government agencies, associations, etc.), on a declarative basis.

• Organizations whose annual profit does not exceed 375,000 AED.

Before any declaration or tax payment, it is necessary to obtain a Tax Registration Number (TRN).

What is the corporate tax percentage in the United Arab Emirates?

The overall tax is set at 9% on net profits exceeding 375,000 AED (approximately 89,000 euros). Companies whose profits are below this level enjoy a 0% tax.

Illustration: A company generating a net profit of 475,000 AED will be taxed at 9% only on the amount exceeding 375,000 AED, thus on 9% of 100,000 AED.

Companies exempt from corporate tax

Total or partial exemptions are granted to certain entities. Particularly affected are:

• Companies whose annual turnover does not exceed 3,000,000 AED.

• Specific entities located in free zones, provided they comply with criteria established by the FTA.

• Government or public entities exercising non-commercial activities.

However, even in the absence of tax to pay, these companies are required to submit an annual declaration to attest to their tax situation.

Corporate Tax declaration deadline

The declaration must be submitted within nine months following the end of the financial year. Thus, a company closing its accounts on December 31, 2024 must submit its first declaration before September 30, 2025 at the latest.

What is the method to calculate corporate tax?

The calculation is based on net accounting profit, modified according to tax standards. In accordance with IFRS standards, companies must prepare their annual balance sheets and apply a 9% rate on the taxable portion of profits.

Basic formula: Taxable profit = net result - allowed deductions - exemptions.

If taxable profit exceeds 375,000 AED, a 9% tax is applied. It is strongly recommended to use accounting support to ensure calculation accuracy and benefit from deductions or exemptions provided by legislation.

Freelancers and Corporate Tax

Freelancers in the United Arab Emirates are considered as sole proprietorships and are therefore subject to the same tax obligations. As soon as their annual income exceeds 1,000,000 AED, they must register with the FTA and submit an annual declaration. Below this level, preventive registration may be necessary depending on the type of activity.

How to optimize a company's taxation in the United Arab Emirates?

One can legitimately and compliantly reduce one's taxation, notably:

• By carefully structuring one's activity (free zone vs. mainland).

• Distributing one's income over several tax periods to remain below thresholds.

• Deducting allowable expenses and costs.

• Paying a balanced salary rather than excessive profit.

• Calling upon an authorized tax firm to ensure declaration accuracy and prevent potential audits.

A proactive strategy in tax management helps prevent costly errors and maximize company liquidity.

In case of tax audit

The FTA reserves the right to conduct an audit at any time. The administration has the right to:

• Request accounting documents and supporting documents.

• Verify the concordance of reported figures.

• Impose penalties in case of violations or recurring errors.

Meticulous accounting and a declaration prepared with expert help constitute the best protection against reassessment risks.

To conclude

Corporate Tax represents a significant change in the tax landscape of the United Arab Emirates. It aims to improve national financial transparency while maintaining a competitive and attractive tax framework. This reform in no way diminishes Dubai's attractiveness for foreign entrepreneurs and investors: the rate remains low, procedures are explicit, and the economic situation is remarkably stable.

Assistance provided by LATRECHE ASSOCIATES

LATRECHE ASSOCIATES assists entrepreneurs and companies in compliance with their tax obligations in the United Arab Emirates. Our specialists provide:

• Tax registration with the FTA.

• Preparation and submission of corporate tax declarations.

• Bookkeeping in accordance with IFRS standards.

• Assistance in case of audit or request for clarification.

Do not hesitate to contact us for a tax diagnosis of your company and a study of your situation.