The introduction of corporate tax in the UAE marks a major shift in the country’s fiscal landscape. While the UAE has long been recognized as a tax-friendly jurisdiction, the implementation of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses establishes a new compliance framework for companies. As we enter 2025, businesses must ensure they understand the law and meet their obligations to avoid penalties.

Overview of UAE Corporate Tax

Corporate tax in the UAE was officially introduced in June 2023 and applies to financial years starting on or after 1 June 2023. The tax aims to align the UAE with global tax standards, enhance transparency, and prevent harmful tax practices.

Key Highlights of Corporate Tax:

• Standard Rate: 9% on taxable income exceeding AED 375,000.

• Exemption Threshold: 0% on taxable income up to AED 375,000, supporting small businesses and startups.

• Free Zone Entities: Qualify for a 0% rate on qualifying income, provided they meet substance and compliance requirements.

• Multinationals: Subject to different rules under the OECD’s Pillar Two (global minimum tax).

Who Is Subject to Corporate Tax?

• UAE companies and other legal entities incorporated in the UAE.

• Foreign entities with a permanent establishment in the UAE.

• Individuals engaged in business or commercial activities in the UAE (not employment or personal income).

Exemptions from Corporate Tax

Certain entities remain exempt, including:

• Government entities and government-controlled entities.

• Extractive industries (subject to local emirate-level taxation).

• Charities and public benefit organizations (subject to Cabinet approval).

• Investment funds that meet regulatory conditions.

Compliance Requirements in 2025

1. Corporate Tax Registration
   All businesses must register with the Federal Tax Authority (FTA) and obtain a Corporate Tax Registration Number, regardless of whether they are liable to pay tax.

2. Maintaining Accounting Records
   Companies must maintain accurate accounting records prepared under accepted accounting standards (e.g., IFRS).

3. Filing Corporate Tax Returns

   • Tax returns must be filed electronically with the FTA within 9 months of the end of the financial year.

   • Only one return per financial year is required—no advance or provisional returns.

4. Transfer Pricing Compliance
   Companies engaging in transactions with related parties must comply with transfer pricing rules and maintain supporting documentation.

5. Audit Requirements
   Certain entities, including large corporations and free zone companies, must have audited financial statements to comply with corporate tax rules.

Penalties for Non-Compliance

The FTA has outlined strict administrative penalties for non-compliance, which may include:

• Fines for late registration or late filing.

• Penalties for inaccurate or incomplete returns.

• Additional penalties for failure to maintain proper records.

What Businesses Should Do in 2025

• Review Corporate Structure: Assess whether your business falls under mainland, free zone, or multinational categories.

• Conduct a Tax Impact Assessment: Evaluate how corporate tax affects profits, pricing, and cross-border operations.

• Ensure Substance Compliance: Free zone entities must demonstrate adequate substance to benefit from 0% tax on qualifying income.

• Update Accounting Systems: Align financial reporting systems to meet FTA’s corporate tax filing standards.

• Seek Professional Guidance: Tax laws are evolving, and professional advice helps avoid mistakes.

Conclusion

The UAE’s corporate tax regime is now an essential part of doing business in the country. By 2025, companies must have robust compliance processes in place—from registration and reporting to transfer pricing documentation. Businesses that adapt quickly will not only avoid penalties but also demonstrate financial responsibility and transparency.

For expert assistance with UAE corporate tax compliance, Falcon Law offers tailored advisory services to ensure your business meets its obligations confidently and efficiently.