The UAE's corporate tax regime — a 9% levy on taxable income exceeding AED 375,000, introduced under Federal Decree-Law No. 47 of 2022 — has moved definitively from introduction to enforcement. The Federal Tax Authority is conducting reviews, issuing assessments, and imposing penalties with increasing frequency. The era of informal compliance is over.
Rate Structure
The architecture is deceptively simple: 0% on the first AED 375,000 of taxable income, 9% on everything above. Qualifying Free Zone Persons pay 0% on qualifying income. A separate 15% rate applies to large multinational enterprises with consolidated global revenues exceeding EUR 750 million, implementing the OECD's Pillar Two framework.
Exempt Income
Several categories are exempt: dividends from UAE resident companies (participation exemption), capital gains on qualifying shareholdings (subject to holding period and percentage conditions), qualifying investment fund income, foreign branch profits (where elected), and income of certain public benefit entities. Each exemption carries specific conditions that must be satisfied — the participation exemption, for example, requires minimum ownership percentages and holding periods.
Transfer Pricing
Transfer pricing rules require arm's length pricing for related-party transactions, with documentation following OECD Transfer Pricing Guidelines. Groups with aggregate revenue exceeding AED 200 million must prepare Master File and Local File documentation. Transfer pricing adjustments can result in both primary tax adjustments and penalties — making this an area where upfront investment in documentation is substantially less expensive than retrospective correction.
Tax Groups and Loss Relief
UAE resident companies under common ownership (95%+ holding) may elect to form a tax group, filing a single consolidated return. Tax grouping provides administrative simplification and the ability to offset losses within the group. However, the interaction between group relief and QFZP status for free zone members requires careful analysis — improperly structured groups can inadvertently disqualify free zone entities from their 0% rate.
The UAE's corporate tax is not punitive — at 9%, it remains among the lowest globally. But it is real, it is enforced, and it rewards those who plan for it rather than react to it.
Compliance Calendar
Tax registration must be completed within prescribed timeframes. Returns must be filed, and tax paid, within nine months of the tax period end. Late registration attracts AED 10,000 penalties. Late filing starts at AED 500 per month. Late payment triggers percentage-based penalties on outstanding amounts. Each obligation is separate — a company can be penalised for late registration, late filing, and late payment simultaneously.
Polaris provides end-to-end corporate tax advisory: registration, income classification, QFZP assessment, transfer pricing documentation, and EmaraTax filing. Contact us at info@polaris.ae.