UAE Tax Guide
The UAE introduced Federal Corporate Tax on business profits from 1 June 2023. A 0% rate applies in specific cases — but understanding when it applies, when it does not, and how VAT interacts with it is essential before assuming a structure is "tax-free."
Important: This Is a General Overview, Not Tax Advice
UAE tax law is detailed and subject to change. The 0% corporate-tax rate, Small Business Relief and Qualifying Free Zone status depend on specific conditions that must be assessed for each business. This article provides a general educational overview only. Octopus BFCO coordinates tax analysis with qualified licensed tax advisers where required.
Corporate Tax — The Basics
The UAE introduced Federal Corporate Tax through Federal Decree-Law No. 47 of 2022, applicable to financial years starting on or after 1 June 2023. It applies to businesses and commercial activities — including those of free zone companies — but with a key feature: the first AED 375,000 of taxable income is taxed at 0%.
This means that a business with taxable income below AED 375,000 effectively pays no corporate tax. Only the portion of income above this threshold is taxed at 9%.
However, the 0% rate is not automatic for all businesses. Certain activities are always excluded from preferential treatment, and free zone companies must meet specific conditions to qualify for the 0% rate on qualifying income.
Corporate Tax Brackets
UAE Federal Corporate Tax
0%
Up to AED 375,000
Taxable income within this bracket is taxed at 0%
9%
Above AED 375,000
Only the portion above AED 375,000 is taxed at 9%
Effective from financial years starting on or after 1 June 2023.
Relief Mechanism
Small Business Relief allows businesses with revenue below a certain threshold to be treated as having zero taxable income — reducing compliance burden and effectively eliminating corporate tax for small operations.
Revenue Threshold
Revenue must not exceed AED 3 million in the current tax period AND in every previous relevant tax period. This is measured on gross revenue under IFRS. For companies, worldwide revenue counts — not only UAE-sourced income. If you run multiple businesses, their revenue is combined.
Permanent Exclusion Rule
If revenue exceeded AED 3 million in any earlier tax period, you permanently lose access to Small Business Relief — even if revenue later drops back below the threshold. A business that reported AED 3.2M in 2024 cannot claim SBR in 2025 or 2026, even with lower revenue.
Who Is Excluded
Qualifying Free Zone Persons benefiting from the 0% qualifying-income rate cannot use SBR. Members of Multinational Enterprise Groups (consolidated revenue ≥ AED 3.15 billion) are also excluded. Only Resident Persons — UAE-incorporated companies or natural persons carrying on business in the UAE — are eligible.
Election (Not Automatic)
SBR must be actively elected on each Corporate Tax return through the EmaraTax portal. It is not applied by default. If you do not elect it, the standard 0% / 9% regime applies — even if you were fully eligible.
No Substance or Employee Requirement
Unlike Qualifying Free Zone Person status, Small Business Relief does NOT require a minimum number of employees, adequate assets, or substance tests. The conditions are based on revenue threshold and residency status — not on physical presence or headcount.
Trade-offs: Losses & Interest
When SBR is elected, tax losses arising in that period cannot be carried forward, and net interest expense cannot be carried forward. For a loss-making startup expecting future profits, declining SBR to preserve loss carryforward may be more valuable than the immediate tax saving.
Simplified Compliance
Eligible businesses may prepare accounts on a cash basis and file a simplified return. However, registration, a Tax Registration Number, and record-keeping for at least 7 years remain mandatory.
Extended to 31 December 2029
Ministerial Decision No. 131 of 2026 extends Small Business Relief to tax periods ending on or before 31 December 2029. The AED 3 million revenue threshold is unchanged. After 2029, the standard 0% / 9% regime applies to all businesses — including the smallest companies that previously paid nothing under SBR.
Status as of August 2026
Small Business Relief is available for tax periods that begin on or after 1 June 2023 and, following Ministerial Decision No. 131 of 2026, now continues to apply to tax periods ending on or before 31 December 2029. The AED 3 million revenue threshold is unchanged. The extension gives eligible small businesses and start-ups additional tax periods — through the end of 2029 — in which to claim the relief while staying within the revenue cap. See our dedicated guide for the full detail.
Qualifying Free Zone
A free zone company can apply a 0% corporate-tax rate on its qualifying income — but only if it meets all the conditions for Qualifying Free Zone Person status. This is not automatic simply by being registered in a free zone.
The key principle: a free zone licence does not automatically mean 0% tax. The company must elect QFZP status, meet all conditions, and only qualifying income benefits from the 0% rate. Non-qualifying income is taxed at the standard 9% rate (above AED 375,000).
Conditions for QFZP Status
Be a Free Zone Person
The entity must be registered in a UAE free zone and not be on the excluded list (e.g. mainlands, branches of mainland companies).
Maintain Adequate Substance
Adequate assets in the UAE, adequate number of qualified full-time employees, and adequate operating expenditure to perform core income-generating activities.
Audited Financial Statements
Prepare and maintain audited financial statements for each financial year.
No Excluded Activities
Must not conduct excluded activities: banking, insurance, finance and leasing (with exceptions), or certain headquarters activities.
Qualifying Income Requirement
The entity's qualifying income must represent at least the de minimis amount — a minimum portion of total revenue must be qualifying income (as determined by the Ministry of Finance).
Comply with Transfer Pricing
Must comply with UAE transfer pricing rules and maintain documentation for transactions with related parties.
Excluded Activities
Banking activities regulated by the Central Bank of the UAE
Insurance activities regulated by the Insurance Authority
Finance and leasing activities (excluding certain exceptions)
Headquarters activities (excluding those meeting specific conditions)
What Counts as Qualifying Income
Income from transactions with other Free Zone Persons
Income from services performed in or from a Free Zone for non-Free Zone Persons (if not from excluded activities)
Income from the ownership or use of qualifying intellectual property assets
Other income as determined by the UAE Cabinet decision
If a free zone company does not meet the QFZP conditions, or conducts excluded activities, it is taxed under the standard corporate-tax regime: 0% up to AED 375,000 and 9% above that threshold — the same as any mainland company.
Value Added Tax
The UAE applies VAT at a standard rate of 5% on most goods and services. However, certain supplies are zero-rated (0%) or exempt — meaning VAT may not apply or may not be chargeable in specific cases.
5%
Standard VAT Rate
AED 375,000
Mandatory Registration
AED 187,500
Voluntary Registration
1 January 2018
In Effect Since
Zero-Rated Supplies (0% VAT)
Zero-rated means the supply is subject to VAT but at 0%. The supplier can still recover input VAT on related expenses.
Exports of goods and services outside the GCC
Goods must physically leave the UAE
International transport of goods and passengers
Including related services
Certain sea, air and land transport means
Supply, modification or repair
Investment-grade precious metals
Gold, silver, platinum of 99% purity
Exported services (directly related to goods)
Such as installation, assembly and similar services
Education services provided by qualified institutions
Nursery, pre-school, school education
Healthcare services provided by qualified institutions
Preventive, basic and therapeutic care
Supply of food for human consumption (certain items)
Subject to specific conditions
Exempt Supplies (No VAT Charged)
Exempt means the supply is outside the scope of VAT entirely. The supplier cannot recover input VAT on related expenses.
Financial services
Margin-based, fee-based and certain other financial services
Life insurance and life reinsurance
Life insurance contracts and related services
Supply of residential buildings
Sale or lease of residential property (first sale excepted)
Supply of bare land
Sale or lease of undeveloped land
Local passenger transport
Taxi, bus, metro and similar public transport
Key Difference
Zero-rated and exempt are not the same. With zero-rated supplies, the business charges 0% VAT but can still reclaim VAT on its own purchases. With exempt supplies, no VAT is charged — but VAT on related costs cannot be reclaimed. This distinction affects pricing, cash flow and the overall tax position of the business.
A UAE free zone licence does not automatically mean 0% corporate tax — QFZP status must be earned and maintained.
All UAE businesses — mainland and free zone — benefit from the 0% bracket on the first AED 375,000 of taxable income.
Small Business Relief can eliminate corporate tax for businesses with revenue below AED 3 million, but registration and filing obligations remain.
Qualifying Free Zone Persons must not conduct excluded activities (banking, insurance, certain finance/leasing).
VAT at 5% applies to most supplies, but exports, international transport and certain education/healthcare are zero-rated.
Financial services, residential property and bare land are exempt — but input VAT recovery is blocked on exempt supplies.
Tax treatment depends on the specific activity, structure, substance and income type — not on the free zone name alone.
Start With the Objective, Not the Tax Rate
Octopus BFCO coordinates corporate tax analysis, VAT registration, free zone qualification and ongoing compliance with qualified tax advisers — so the 0% rate you expect is the 0% rate you actually achieve.