Dubai: Introduction: Embracing a Modern Tax Framework
For decades, Dubai’s primary appeal was its zero-tax environment.2 While that remains largely true for personal income (salaries, capital gains), the introduction of Corporate Tax (CT) and the sustained operation of Value Added Tax (VAT) mark the UAE’s shift toward a globally aligned and transparent financial system.
This Dubai Buzz guide provides a clear and concise overview of both the Corporate Tax and the existing VAT system, helping businesses ensure compliance and strategic financial planning in 2025.
💼 Part 1: UAE Corporate Tax (CT) – The 0% and 9% System
Effective for financial years starting on or after June 1, 2023 (and January 1, 2024, for calendar year businesses), the UAE Corporate Tax (Federal Decree-Law No.3 47 of 2022) introduces a low-rate, competitive tax structure.
1. Core CT Rate Structure
The UAE has implemented a simple tiered system designed to protect Small and Medium Enterprises (SMEs):4
| Taxable Income Slab | Corporate Tax Rate |
| Up to AED 375,000 | 0% |
| Above AED 375,000 | 9% |
Example: A Dubai mainland company with AED 500,000 in taxable profit will pay 0% on the first AED 375,000 and 9% on the remaining AED 125,000.5
2. Critical Rules for Free Zone Businesses
Free Zones remain attractive, but the 0% rate is now conditional.6 A Free Zone entity can benefit from the 0% Corporate Tax rate only if it qualifies as a Qualifying Free Zone Person (QFZP).7
| Requirement | Condition |
| Qualifying Income | Income derived from ‘Qualifying Activities’ (e.g., manufacturing, logistics, intra-group services) or transactions with non-mainland/foreign entities. |
| Adequate Substance | Must maintain sufficient physical presence, assets, and employees in the Free Zone. |
| Audited Financials | Required to prepare and maintain audited financial statements. |
| De Minimis Rule | Non-Qualifying Revenue must not exceed the lower of AED 5 million or 5% of total revenue. |
Crucial Point: Income generated from trading with Mainland UAE customers is generally considered non-qualifying income and will be subject to the standard 9% CT rate.8
3. Key Exemptions and Reliefs
The law provides specific exemptions to maintain business stability:9
- Small Business Relief: Businesses with revenue below AED 3 million (for tax periods ending before December 31, 2026) can opt for this relief, simplifying compliance.10
- Personal Income: Salaries, investment income, dividends, and capital gains earned by individuals in their personal capacity remain untaxed.11
- Government Entities: Entities wholly owned and controlled by the government are typically exempt.12
- Dividends and Capital Gains: Exemptions apply to dividends and capital gains derived from qualifying shareholdings.13
4. Compliance and Deadlines
- Registration: Mandatory for almost all businesses (Mainland and Free Zone) via the FTA’s EmaraTax portal.14 Failure to register on time incurs a penalty.15
- Filing Deadline: The CT return must be filed and tax paid within 9 months from the end of the relevant tax period.16
- Record-Keeping: Records must be maintained for a minimum of seven years.17
🔎 Part 2: UAE Value Added Tax (VAT) – The Compliance Constant
Since its introduction in 2018, the 5% VAT remains a critical component of doing business in Dubai, administered by the FTA.18
1. VAT Rate and Thresholds
- Standard Rate: 5% applies to most goods and services.19
- Mandatory Registration: Businesses whose taxable supplies and imports exceed AED 375,000 annually.20
- Voluntary Registration: Businesses whose taxable supplies and imports exceed AED 187,500 annually.21
2. Zero-Rated vs. Exempt Supplies
Understanding the difference is crucial for input tax recovery:
| Category | Description | Input Tax Recovery | Examples |
| Zero-Rated (0%) | The supply is taxable, but at 0%. | Full Recovery allowed on associated business expenses. | Exports, international transport, certain education/healthcare services, newly constructed residential properties. |
| Exempt | The supply is not subject to VAT. | No Recovery allowed on associated business expenses. | Residential rent, bare land, some financial services. |
3. VAT Compliance Obligations
- Tax Invoicing: Issue proper Tax Invoices for all taxable supplies, clearly stating the VAT amount.22
- Filing: File VAT returns through the EmaraTax portal within 28 days after the end of the tax period (monthly or quarterly, based on size).23
- Record-Keeping: Maintain VAT-related records (invoices, import/export documents) for a minimum of five years.24
🎯 Strategic Takeaway for Dubai Businesses
The new tax era necessitates proactive financial management.25 The shift away from pure profit-and-loss accounting to complex Taxable Income calculations requires expertise.26 Businesses must prioritize substance over form—ensuring their operational structure and documentation align with the new tax realities, especially when transacting between Free Zone and Mainland entities.27
Relevant Hashtags
#UAECorporateTax #DubaiVAT #FreeZoneTax #FTAUAE #DubaiBusiness #TaxCompliance #CorporateGovernance #DubaiBuzz
Would you like a specialized guide focusing on the UAE’s Transfer Pricing (TP) Documentation Requirements and their impact on inter-company transactions?
Navigate Dubai’s modern tax landscape. Our 2025 business guide breaks down the UAE’s Corporate Tax (0% / 9% tier), clarifies Qualifying Free Zone Person (QFZP) rules, and reviews mandatory 5% VAT compliance for businesses in the Emirate.