Corporate Tax in the UAE (2025): Legal Obligations & Risk Areas

As the UAE transitions from a tax-free to a more regulated fiscal environment, corporate tax has become a key focus for businesses operating in the region. The introduction of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses marks a significant shift in the country’s economic policy, aligning it with global tax standards and the OECD’s BEPS (Base Erosion and Profit Shifting) framework.

In 2025, the enforcement of corporate tax has matured, and businesses are now expected to fully comply with the law or face financial penalties and reputational damage. This blog outlines the legal obligations, exemptions, and key risk areas that companies should be aware of under the UAE’s corporate tax regime.

Overview of the UAE Corporate Tax Regime

Effective from 1 June 2023, the UAE levies corporate tax on net profits of businesses exceeding a certain income threshold. The tax is administered by the Federal Tax Authority (FTA).

Corporate Tax Rates:

• 0% on taxable income up to AED 375,000 (to support small businesses and startups)
• 9% on taxable income exceeding AED 375,000
• 15% or higher for certain multinationals (as per OECD Pillar Two rules)

Who Is Subject to Corporate Tax?

Corporate tax applies to:

• UAE mainland companies
• Free zone entities (unless qualifying for exemptions)
• Branches of foreign companies operating in the UAE
• Partnerships and joint ventures (subject to their legal structure)
• Natural persons conducting business activities in the UAE (with licensing and income thresholds)

 Exempt Entities

Certain entities are exempt from corporate tax, including:

• Government entities and government-controlled entities
• Extractive businesses and non-extractive natural resource businesses (under specific conditions)
• Charities and public benefit entities (upon approval)
• Pension and social security funds (approved by the Cabinet)
• Qualifying investment funds

Key Legal Obligations for Businesses in 2025

1. Corporate Tax Registration

Every business subject to corporate tax must register with the Federal Tax Authority and obtain a Tax Registration Number (TRN).

 Deadline: Registration deadlines vary depending on license issuance dates. Failure to register on time can result in administrative penalties.

2. Taxable Income Calculation

Taxable income is calculated based on the accounting net profit reported in the financial statements, adjusted for specific inclusions and exclusions under the law.

Businesses must maintain audited financial statements, especially those with revenues exceeding AED 50 million, or operating in free zones seeking exemption as a Qualifying Free Zone Person (QFZP).

3. Filing Corporate Tax Returns

Companies must file an annual corporate tax return within 9 months of the end of their financial year.

• The return must include: income statement, tax computation, supporting schedules, and disclosures.
• No advance tax payments are required, but accurate self-assessment is essential.

4. Transfer Pricing (TP) Compliance

Businesses with related-party transactions must comply with Transfer Pricing rules in line with OECD guidelines.

This includes:

• Maintaining Master File and Local File
• Filing a TP Disclosure Form with the tax return
• Demonstrating the arm’s length principle in intra-group dealings

5. Record-Keeping Requirements

All businesses must maintain financial records and supporting documents for at least 7 years, including:

• Accounting records
• Invoices
• Contracts
• TP documentation (if applicable)

Risk Areas and Compliance Challenges

While the law is clear, implementation across diverse sectors brings specific risk areas:

1. Misclassification of Entities

Incorrectly assuming tax exemption status (e.g., free zone companies not meeting the QFZP criteria) can result in full taxation and penalties.

2. Failure to Register or File on Time

Businesses that delay tax registration or fail to submit returns face penalties starting from AED 10,000, along with daily fines for continued non-compliance.

3. Incorrect Tax Computation

Errors in determining taxable income due to unadjusted accounting items or misunderstanding tax adjustments may lead to underreporting.

4. Transfer Pricing Oversights

Groups with related entities often neglect to prepare robust TP documentation, putting them at risk of audits and assessments. The FTA has already indicated that TP compliance is a priority area.

5. Improper Restructuring or Tax Avoidance

Some businesses attempt to restructure operations to avoid tax. However, the law includes anti-abuse provisions that empower authorities to disregard artificial arrangements lacking commercial substance.

6. Inadequate Financial Reporting

Unaudited or non-compliant financial records can render tax returns unreliable and trigger investigations. This is particularly risky for SMEs and family-owned businesses.

Special Considerations for Free Zone Companies

Free zone businesses can benefit from a 0% corporate tax rate on qualifying income, but only if they meet strict conditions, such as:

• Maintaining adequate substance in the free zone
• Deriving income from permissible activities (e.g., international trade, holding company services)
• Not conducting business with the UAE mainland (unless through a taxable branch)

Failure to meet any of these conditions disqualifies the entity from the 0% rate, and the 9% rate applies to total income.

How GCC Law Can Help

With corporate tax now fully operational in the UAE, proactive legal and tax planning is more important than ever. At GCC Law, our corporate and tax advisory team assists businesses with:

• Tax registration and compliance
• Corporate structuring to optimize tax outcomes
• Drafting tax-efficient shareholder agreements
• Transfer Pricing compliance
• Risk audits and legal due diligence
• Tax dispute resolution and representation