The United Arab Emirates (UAE) has made significant strides in its tax landscape with the introduction of Corporate Tax (CT). As we enter 2025, businesses must stay informed about the latest regulations to ensure compliance and avoid penalties.

1. Corporate Tax Rate & Scope

As per the UAE’s corporate tax regime, the following rates apply:

• 0% for taxable income up to AED 375,000 (to support small businesses and startups).
• 9% for taxable income exceeding AED 375,000.
• Different rates for large multinational corporations that fall under the OECD’s Pillar Two framework (Global Minimum Tax of 15%).

Corporate Tax applies to all businesses except those engaged in the extraction of natural resources, which remain subject to Emirate-level taxation.

2. Free Zone Businesses & Tax Exemptions

The UAE continues to support businesses operating in Free Zones by offering tax incentives. However, in 2025:

• Qualifying Free Zone Persons can benefit from a 0% corporate tax on qualifying income.
• Free Zone businesses must comply with substance requirements and ensure they are generating qualifying income to maintain their tax-free status.

3. Who is Exempt from Corporate Tax?

The following entities remain exempt:

• Government and government-controlled entities.
• Extractive and non-extractive natural resource businesses.
• Charities and public benefit organizations (subject to approval).
• Investment funds meeting specific criteria.

4. Taxable Income Calculation & Compliance

• Businesses must prepare their financial statements in accordance with International Financial Reporting Standards (IFRS).
• Deductions for business expenses are allowed, but non-business-related expenses will not be deductible.
• Transfer pricing rules are enforced to ensure fair business transactions between related parties.

5. Filing Requirements & Deadlines

• Companies must register for Corporate Tax and obtain a Tax Registration Number (TRN).
• Tax returns must be filed annually, with deadlines specified by the Federal Tax Authority (FTA).
• Penalties apply for non-compliance, late filings, and misreporting.

6. VAT and Other Tax Considerations

• VAT remains at 5% on most goods and services.
• Withholding tax may apply on certain transactions involving non-residents.
• Businesses should maintain proper accounting records to ensure compliance with VAT, Corporate Tax, and Economic Substance Regulations.

How Can Businesses Stay Compliant?

• Conduct regular tax audits to ensure compliance.
• Maintain proper documentation for tax filing.
• Seek professional tax consultation to optimize tax liabilities and avoid penalties.

The UAE’s tax regulations are evolving, and businesses must be proactive in understanding their obligations. Ensuring compliance now will help businesses avoid unnecessary fines and benefit from the UAE’s business-friendly environment.