Corporate tax is the question almost every founder asks me before they ask anything else, and the answer is simpler than the noise around it suggests. The UAE introduced corporate tax for financial years starting on or after 1 June 2023. This is a plain-English guide to what it means for a founder setting up now. It is not tax advice, and your own position should be confirmed with a qualified tax adviser, but it will give you the shape of the answer.
The headline: 9% above AED 375,000
UAE corporate tax is charged at 0% on taxable profit up to AED 375,000, and 9% on the profit above that. The first AED 375,000 of taxable income is effectively tax-free. So a company with AED 500,000 of taxable profit pays 9% on AED 125,000, not on the whole amount.
Two things founders often confuse:
- It is a tax on profit, not revenue. Your allowable costs come out before the rate applies.
- The 9% rate is low by international standards, and there is no personal income tax on the salary or dividends you draw in the UAE.
The 0% free zone question
Free-zone companies are the part people get wrong most often. A free-zone company is not automatically tax-free. It pays 0% only on its qualifying income, and only if it meets the conditions to be a Qualifying Free Zone Person. Income that does not qualify is taxed at 9%.
The conditions include maintaining adequate substance in the UAE, earning the right kind of income, staying within the limits on non-qualifying income, and applying arm's-length pricing on related-party deals. The 0% rate is real and valuable, but it is earned by meeting the conditions, not granted by the address on your licence. Getting the structure and activity right at setup is what keeps that 0% available, which is one reason the structure decision matters so much.
Small business relief
There is a separate relief for smaller companies. A UAE business with revenue of AED 3 million or less can elect to be treated as having no taxable income for the period, which removes the corporate tax calculation and reduces compliance. Under the current rules this relief is available for tax periods up to the end of 2026, so treat it as a present benefit rather than a permanent one, and confirm whether it still applies to your period before relying on it.
VAT is a separate tax
Corporate tax and VAT are different things, and founders often merge them in their heads. VAT is 5%, and registration becomes mandatory once your taxable supplies pass AED 375,000 in a rolling 12-month period (there is also a voluntary threshold below that). VAT is a tax you collect from customers and pass on, not a tax on your profit. Most operating businesses end up registered; the timing depends on your turnover.
Registration and the practical steps
Whatever your structure, a few things hold:
- Corporate tax registration is required for taxable persons, including free-zone companies, even those expecting to pay 0%. Register on time, and confirm the current deadlines, because late registration carries penalties.
- Keep proper books from day one. The rate is only as reliable as your records, and some companies need an audit.
- Decide the structure with tax in mind, not after. Mainland, free zone, and the 0% qualifying-income question all interact with how you will actually trade. Retrofitting compliance later is more expensive than setting it up correctly at the start.
None of this should change whether you set up in the UAE; the headline rates remain among the most competitive anywhere. It should change how you set up, so the structure supports the treatment you want.
Where this fits your setup
Tax is one input into the structure decision, alongside where your customers are, your banking, and your visa needs. If you are weighing mainland against a free zone, our mainland versus free zone comparison covers the trade-offs, and our business setup service in Dubai sets the company up with the tax position built in rather than bolted on. Book a call with me, or ask River any question about UAE corporate tax and it will point you to the next step.