Tax Framework Overview
Abu Dhabi’s tax environment is governed by UAE federal tax legislation, not emirate-level taxation. The key components are straightforward: a 9 percent corporate tax introduced in June 2023, zero personal income tax, 5 percent VAT, and a free zone regime that maintains 0 percent corporate tax on qualifying income. There are no capital gains taxes for most investors, no withholding taxes, and no annual property taxes.
This framework positions Abu Dhabi as one of the most tax-efficient jurisdictions in the world for business and investment. The 2023 introduction of corporate tax narrowed the advantage over competing jurisdictions but did not eliminate it — 9 percent remains far below the rates in virtually every developed economy and most regional competitors.
Corporate Tax
Standard Rate: 9%
The UAE federal corporate tax, effective for financial years starting on or after 1 June 2023, applies a 9 percent rate on taxable income exceeding AED 375,000. Income up to AED 375,000 is taxed at 0 percent, providing relief for small businesses and startups.
Who is subject: All UAE-incorporated entities, foreign entities with a permanent establishment in the UAE, and individuals conducting business activities generating turnover exceeding AED 1 million annually.
Taxable income: Accounting income adjusted for specific provisions of the corporate tax law. The UAE has adopted a broad-base, low-rate approach — most accounting deductions are permitted, with limited add-backs.
Filing and payment: Annual corporate tax returns must be filed within 9 months of the end of the relevant tax period. Payment is due by the same deadline.
Free Zone Regime: 0% on Qualifying Income
Qualifying Free Zone Persons (QFZPs) — entities registered in UAE free zones that meet specific conditions — are taxed at 0 percent on qualifying income. This includes entities in ADGM, KIZAD, Masdar City Free Zone, and twofour54.
Conditions for qualifying:
- Maintain adequate economic substance in the free zone
- Derive qualifying income (generally, income from transactions with other free zone entities or entities outside the UAE)
- Not have elected to be subject to the standard corporate tax rate
- Comply with transfer pricing and documentation requirements
- Prepare audited financial statements
Non-qualifying income: Income from transactions with mainland UAE entities is generally subject to the standard 9 percent rate, even for free zone entities. This is the critical nuance — the 0 percent rate applies to qualifying income, not to all income of free zone entities.
Excluded activities: Certain activities are excluded from the qualifying income definition, regardless of transaction counterparty. These include income from immovable property in the UAE (other than transactions with other free zone persons) and income from activities that do not meet the substance requirements.
Personal Income Tax
Rate: 0%
There is no personal income tax in Abu Dhabi or anywhere in the UAE. Salary, wages, bonuses, investment income, rental income received by individuals, and capital gains realised by individuals are not subject to any personal tax.
This remains the UAE’s most powerful incentive for attracting international talent and high-net-worth individuals. The absence of personal income tax, combined with the golden visa programme, creates a residency proposition that is difficult for high-tax jurisdictions to compete against.
Value Added Tax (VAT)
Rate: 5%
VAT was introduced across the UAE on 1 January 2018 at a rate of 5 percent. The tax applies to most goods and services, with certain exemptions and zero-rated supplies.
Zero-rated supplies (0% VAT, but input tax recoverable):
- Exports of goods and services outside the UAE
- International transportation
- First supply of residential property within 3 years of completion
- Certain education and healthcare services
Exempt supplies (no VAT, input tax not recoverable):
- Subsequent supply of residential property (resale)
- Certain financial services
- Bare land
- Local passenger transportation
Registration threshold: Mandatory VAT registration is required for businesses with taxable supplies exceeding AED 375,000 in the preceding 12 months. Voluntary registration is available at AED 187,500.
Capital Gains Tax
Rate: Generally 0%
There is no separate capital gains tax in the UAE. For individuals, gains on the disposal of assets — including property, shares, and other investments — are not taxed.
For corporate entities, capital gains are generally included in taxable income and subject to the 9 percent corporate tax rate. However, a participation exemption applies to gains on disposals of qualifying shareholdings (generally, holdings of 5 percent or more in a subsidiary, held for at least 12 months, where the subsidiary meets certain substance requirements). This exemption is designed to facilitate holding company structures.
Withholding Tax
Rate: 0%
The UAE does not impose withholding taxes on dividends, interest, royalties, or other payments to non-residents. This is a significant structural advantage for holding companies and entities that distribute profits to international shareholders.
The absence of withholding tax simplifies cross-border corporate structures and eliminates a layer of tax leakage that investors in many other jurisdictions must plan around.
Social Security Contributions
UAE and GCC national employees are subject to social security contributions:
- Employer contribution: 12.5% of salary (for UAE nationals) or 15% in Abu Dhabi specifically
- Employee contribution: 5% of salary (for UAE nationals)
- Non-national employees: No social security contributions
The absence of social security contributions for non-national employees significantly reduces the cost of employing expatriate workers, which comprise the majority of the private sector workforce.
International Comparison
| Tax Type | Abu Dhabi | Bahrain | Singapore | Hong Kong | UK | US |
|---|---|---|---|---|---|---|
| Corporate tax | 9% | 0% (standard) | 17% | 16.5% | 25% | 21% |
| Personal income tax | 0% | 0% | Up to 22% | Up to 16% | Up to 45% | Up to 37% |
| VAT/GST | 5% | 10% | 9% | 0% | 20% | Varies |
| Capital gains (individual) | 0% | 0% | 0% | 0% | Up to 20% | Up to 20% |
| Withholding tax | 0% | 0% | Up to 15% | 0% | Up to 20% | Up to 30% |
| Property tax (annual) | 0% | 0% | Varies | Varies | Varies | Varies |
Abu Dhabi’s total tax burden — the aggregate of all taxes an investor pays on income, gains, and consumption — is among the lowest of any major financial centre globally. The introduction of the 9 percent corporate tax means Abu Dhabi is no longer a zero-tax jurisdiction for companies, but the rate remains roughly one-third of the average in G7 economies.
Tax Planning Considerations
Free zone vs mainland: The choice between free zone and mainland registration has direct tax implications. Free zone entities can achieve 0 percent on qualifying income but face restrictions on mainland trading. Mainland entities pay 9 percent but have unrestricted operational flexibility. The optimal structure depends on the source and nature of income.
Holding company structures: ADGM’s combination of English common law, 0 percent corporate tax on qualifying income, 0 percent withholding tax, and participation exemption on qualifying disposals creates one of the most efficient holding company platforms globally.
Tax residency: Establishing UAE tax residency (spending 183+ days or having the centre of financial and personal interests in the UAE) is increasingly valuable for individuals from jurisdictions that tax worldwide income. The UAE has a growing network of double taxation agreements (100+ treaties) that provide certainty on residency status and income allocation.
Transfer pricing: The UAE’s corporate tax law includes transfer pricing provisions aligned with OECD guidelines. Related-party transactions must be conducted on an arm’s-length basis, and entities meeting certain thresholds must prepare transfer pricing documentation. This is particularly relevant for free zone entities seeking the 0 percent rate, as transactions with related mainland entities will be scrutinised.