Corporate Tax in the UAE: A New Era
The UAE introduced federal Corporate Income Tax (CIT) for the first time with Federal Decree-Law No. 47 of 2022, effective for financial years beginning on or after 1 June 2023. This marked a significant shift from the UAE's historically zero-tax corporate environment. The standard rate is 9% on taxable income above AED 375,000.
For most small and medium businesses, this creates new obligations that did not exist before: corporate tax registration, annual financial reporting under accepted accounting standards, and annual tax return filing with the Federal Tax Authority (FTA).
Who Is Subject to UAE Corporate Tax
Corporate tax applies to:
- All UAE-incorporated legal entities (LLCs, private companies, public companies)
- Foreign companies that have a permanent establishment in the UAE
- Natural persons (individuals) who conduct business in the UAE and whose business income exceeds AED 1 million per year
This means a sole trader running a retail business with over AED 1 million in annual revenue is subject to corporate tax as an individual, not just incorporated companies.
The AED 375,000 Threshold
Taxable income up to AED 375,000 per year is taxed at 0%. Income above AED 375,000 is taxed at 9%. For a business with AED 500,000 in taxable income, the tax is 9% × AED 125,000 = AED 11,250.
The 0% threshold was introduced specifically to protect small businesses and startups. An SME with AED 300,000 in net profit owes zero corporate tax, provided they still register and file a return showing the zero liability.
Small Business Relief
The FTA introduced a Small Business Relief provision for businesses with revenue under AED 3 million. Eligible businesses can elect to be treated as having zero taxable income for periods ending before 31 December 2026 — effectively deferring or eliminating corporate tax for qualifying SMEs during the initial phase. This election must be made in the tax return and the business must meet the revenue threshold.
Registration and Filing
All businesses subject to UAE corporate tax must register with the FTA via the EmaraTax portal. Registration must be completed before the due date of the first tax return — typically within 9 months of the end of the first taxable financial year. Late registration carries penalties.
Annual corporate tax returns must be filed within 9 months of the end of each financial year. A business with a December year-end must file by 30 September of the following year.
Deductible Expenses
Business expenses that are "wholly and exclusively" incurred for business purposes are deductible, including: cost of goods sold, staff wages and salaries, rent, utilities, depreciation, marketing costs, and finance charges. Entertainment expenses are subject to a 50% limitation. Fines, penalties, and dividends are not deductible.
Maintaining clean records of all business expenses — with receipts and documentation — is now essential not just for management purposes but for the substantiation of deductions in the annual tax return.
Free Zone Businesses
Qualifying Free Zone Persons can continue to benefit from 0% corporate tax on their "qualifying income" (broadly: income from transactions with other Free Zone entities or from certain specified activities). However, non-qualifying income — particularly income from UAE mainland customers — is subject to the standard 9% rate. Free Zone businesses must carefully track the source of their income to apply the correct rate.
How Your POS Supports Corporate Tax Compliance
Your POS is the primary source of revenue data for your corporate tax return. Annual sales figures, revenue by customer type (B2B vs. B2C, Free Zone vs. mainland), and transaction records are all required to calculate taxable income accurately. OneScale's annual financial reports provide the structured revenue data that your accountant needs to prepare a compliant UAE corporate tax return.
Conclusion
UAE corporate tax is a reality for all businesses operating in the emirate. The compliance requirement is not burdensome for well-organised businesses — register once, maintain clean records throughout the year, file once annually. The businesses that will struggle are the ones that continue to operate informally and find themselves unable to reconstruct accurate financial data when the return is due.
