The UAE introduced a federal corporate tax effective for financial years beginning on or after 1 June 2023, at a headline rate of 9 percent on taxable income exceeding AED 375,000. The tax applies to all businesses operating in the UAE, including those in Abu Dhabi, and represents a fundamental shift in a country that was historically known for its zero-tax environment.
Rate Structure
The corporate tax applies a tiered structure. Taxable income up to AED 375,000 (approximately $102,000) is taxed at 0 percent, effectively exempting small businesses and startups. Income above this threshold is taxed at 9 percent. A higher rate of 15 percent may apply to large multinational enterprises with global revenues exceeding EUR 750 million, aligned with the OECD’s global minimum tax framework (Pillar Two).
Scope
The tax applies to UAE-incorporated companies, foreign entities with a permanent establishment or nexus in the UAE, and individuals conducting business activities above certain thresholds. Personal income from employment, investment, and real estate (outside a business structure) is not subject to corporate tax.
Free Zone Treatment
Qualifying Free Zone Persons — entities operating within designated free zones that meet specific substance and compliance requirements — may benefit from a 0 percent rate on qualifying income. Non-qualifying income earned by free zone entities is taxed at the standard 9 percent rate. This provision preserves some of the historical tax advantages of UAE free zones while bringing them within the broader corporate tax framework.
International Alignment
The introduction of corporate tax was driven in part by international pressure. The OECD’s Base Erosion and Profit Shifting (BEPS) framework and the global minimum tax initiative created a context in which the UAE’s zero-tax status risked becoming a competitive liability rather than an advantage, potentially subjecting UAE-sourced profits to top-up taxes in other jurisdictions.
Impact on Business Environment
The 9 percent rate remains among the lowest corporate tax rates globally, significantly below rates in most developed economies and below the OECD’s proposed 15 percent global minimum. The UAE has positioned the tax as business-friendly, with generous exemptions, simple compliance requirements, and a rate designed to maintain competitiveness.
Role in Vision 2030
The UAE corporate tax supports the Abu Dhabi Economic Vision 2030’s revenue diversification objectives. By creating a new stream of government income independent of hydrocarbon sales, the tax contributes to the fiscal sustainability that the vision identifies as essential for long-term economic independence. The tax also aligns the UAE with international norms, supporting the vision’s objective of maintaining strong international economic relationships.