In June 2023, the UAE introduced a federal Corporate Income Tax (CIT) at 9% on business profits exceeding AED 375,000 — a landmark shift for a country historically known for tax-free business operations. The Federal Tax Authority (FTA) administers CIT alongside VAT.
Who Is Subject to UAE CIT?
- All juridical persons registered in the UAE (LLCs, PSCs, branches of foreign companies)
- Foreign entities with a material Permanent Establishment in the UAE
- Natural persons conducting business activities in the UAE
The UAE CIT Rate Structure
| Taxable Income (annual net profit) | CIT Rate |
|---|---|
| Up to AED 375,000 | 0% (exempt) |
| Above AED 375,000 | 9% on the portion above the threshold |
Pillar Two note: Multinational groups with global revenues exceeding EUR 750 million are subject to a minimum effective rate of 15% under OECD's Pillar Two rules, even if UAE CIT would otherwise be lower.
Fully Exempt Entities
- Federal and local governments and government-related entities
- Qualifying public benefit entities (approved charities, non-profits)
- Qualifying investment funds
- Pension and social security funds
- Oil and gas companies (subject to emirate-level taxes)
Free Zone Companies: The 0% Option
Free zone companies can maintain 0% CIT if they qualify as a "Qualified Free Zone Person (QFZP)" — which requires:
- Generating income only from qualifying activities (international trading, services outside mainland)
- Maintaining adequate economic substance in the free zone
- Complying with transfer pricing documentation requirements
- Not conducting any taxable activity on the UAE mainland
Any mainland business activity immediately subjects the entire entity to 9% CIT.
Calculating Taxable Income
Start from the accounting net profit, then apply adjustments:
- + Non-deductible expenses (entertainment above limits, fines, personal costs)
- − Exempt income (dividends from UAE subsidiaries, qualifying capital gains)
- ± Tax group adjustments (for entities filing as a tax group)
- − Tax losses carried forward (capped at 75% of taxable income per year)
Registration and Filing Deadlines
- Registration with FTA is mandatory before the first tax period ends
- Annual CIT return must be filed within 9 months of the financial year end
- Tax payment is due simultaneously with the annual return
- Some large entities may be required to make quarterly advance payments
Strategic Implications for UAE Businesses
The introduction of CIT requires business owners to rethink:
- Financing structure: Interest on debt is deductible; equity is not — plan accordingly
- Profit distribution timing: Dividends between UAE companies are generally exempt
- Transfer pricing: Intra-group transactions must be at arm's length with documentation
- Group structure: Consider registering as a tax group to simplify compliance
- Full documentation: Every transaction needs records to survive an audit
Erpegy provides the financial statements, audit trails, and profit/loss reports formatted for UAE Corporate Tax assessments — giving your accountant everything needed at year-end.