Taxes are a part of life for businesses all over the world but what about in the UAE? For years, the UAE has been known as a tax friendly place to do business. However, now with the introduction of corporate tax many small business owners are asking themselves Does this apply to me? Will I need to pay? and Are there ways to reduce what I owe?
So let’s get directly into the answers and clear up the confusion. By the end, you will be aware of exactly how UAE corporate tax works and what it means for your business.
What Is UAE Corporate Tax?
Corporate tax is a tax that companies pay on the profit they make since the UAE launched the corporate tax in 2023 with a view to generating a new source of income for the government and keeping pace with international tax rules. The current tax rate is 9% on profits above AED 375,000. This is much lower compared to other countries, which makes it easier for corporations.
This system is designed to be simple and clear so that businesses can follow it without much trouble. For small businesses, knowing the rules and learning about possible reliefs can help reduce the tax burden.
Does Corporate Tax Apply to Small Businesses?
Yes, corporate tax applies to small businesses in the UAE if their net profits exceed the taxable threshold of AED 375,000. However the UAE has introduced Small Business Relief to ease the burden on qualifying entities.
Eligibility for Small Business Relief
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Who qualifies?
Small businesses with annual revenues of AED 3,000,000 or less in the current and previous tax periods can elect for relief. This means they will not be treated as having derived taxable income for the tax period significantly reducing their tax obligations.
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Who does not qualify?
Relief is not available to businesses operating in free zones under certain conditions members of multinational groups with revenues exceeding AED 3.15 billion or businesses that surpass the AED 3,000,000 revenue threshold in prior tax periods.
For example:
If a Sharjah based business earned AED 1,900,000 in 2026 but AED 4,300,000 in 2025, it would not qualify for Small Business Relief in 2026 because its revenue in the prior period exceeded the threshold.
How to Calculate Taxable Income?
Your taxable income is your profit after subtracting certain business expenses. For example, if your business in Dubai earns AED 500,000, you pay a 9% tax on AED 125,000 [AED 500,000 – AED 375,000].
How Can You Reduce Taxable Income?
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Deduct Expenses
Subtract business costs like rent, salaries and office supplies.
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Exempt Income
Certain types of income such as dividends, might not be taxed.
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Free Zone Benefits
If your business operates in a free zone like Jebel Ali, you may not need to pay tax if you meet specific conditions. For example, your income should come from outside the UAE and you should not deal with mainland clients.
Steps for Corporate Tax Registration
If your business needs to pay corporate tax, follow these steps:
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Register with the Federal Tax Authority [FTA]
Sign up on the FTA website to start the process.
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Submit Required Documents
You will need to upload documents like your trade license and financial records.
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File Tax Returns
You need to report your taxable income to the FTA every year.
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Keep Records
Save all your financial documents for at least seven years. This is important in case the government asks to review them.
Tips to Reduce Your Tax Bill
Reducing your tax payments does not have to be hard. Here are some simple tips:
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Apply for Small Business Relief
If your income is under AED 3,000,000, apply for this relief to avoid paying tax.
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Track Your Expenses
Keep records of your business costs like rent and salaries. These expenses can be deducted from your income.
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Free Zone Benefits
If you are in a free zone then follow the rules to keep enjoying tax benefits.
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Work With Expert
Hiring an accounting firm can help you figure out the best ways to reduce your taxes. Many accounting firms in Dubai specialize in this.
Example:
A small e-commerce company in Dubai hired an accounting expert to help them identify allowable deductions. This saved them a lot of money on their tax payments.
Tax for International Businesses
Foreign companies that earn money in the UAE must pay tax on that income. However, many agreements are in place to ensure businesses are not taxed twice on the same income.
Example:
A foreign company with a branch in Abu Dhabi only pays tax on the income it makes in the UAE. Its income from other countries is not taxed in the UAE.
Penalties for Not Following the Rules
If you do not follow corporate tax rules then there is a high chance that you could face fines. Here are common mistakes to avoid:
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Not registering for corporate tax.
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Missing the deadline for filing returns.
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Reporting wrong income figures.
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Not keeping proper financial records.
How Zaebek Can Help With Corporate Tax?
Now that you know that corporate tax applies to small businesses in the UAE if they make more than AED 375,000 in profit. However, if your income is under AED 3,000,000 you might qualify for relief and not pay tax. By tracking your expenses, using available reliefs, maintaining proper accounting records and following the rules, you can lower your taxes and avoid penalties.
If you need help, you can reach out to a trusted accounting firm. Currently, Zaebek is one of the top reliable options for managing your taxes and ensuring compliance.
FAQs
Why Is Compliance Important?
For small businesses, following tax rules is important to avoid fines and build trust with the government and clients. A well organized business that follows the law runs more smoothly and grows faster.
Who is exempted from corporate tax in the UAE?
Certain businesses such as those operating in free zones under specific conditions, might not need to pay corporate tax. Some types of income like dividends can also be exempt.
Is there corporate tax in Abu Dhabi?
Absolutely, corporate tax applies to businesses in all emirates including Abu Dhabi. The same rules apply across the UAE.
Is it compulsory to register for corporate tax in the UAE?
Yes, if your business earns more than AED 375,000 in profit, you must register for corporate tax. Even if you do not owe taxes registration is required to stay compliant.