Understanding the UAE’s Corporate Tax Landscape
Since its official implementation on 1 June 2023, the UAE corporate tax regime continues to evolve — and in 2025, it remains a top priority for both local and international businesses operating in the region. Designed to align with global standards while maintaining the UAE’s competitive business environment, the law introduces a 9% federal tax on the net profits of companies exceeding AED 375,000.
For many businesses — especially SMEs and foreign investors entering the UAE — navigating the nuances of compliance is critical. Missteps can lead to penalties, while strategic structuring can yield significant advantages.
This guide unpacks what businesses need to know in 2025 to stay compliant, optimise their tax strategy, and avoid costly oversights.
Who Is Subject to UAE Corporate Tax?
The UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) applies to:
- UAE-incorporated entities (including mainland, free zone, and offshore companies)
- Foreign companies with a permanent establishment or nexus in the UAE
- Natural persons conducting business activities in the UAE exceeding AED 1 million in annual turnover
However, certain entities are exempt or eligible for special regimes, including:
- Government and government-controlled entities
- Extractive and non-extractive natural resource businesses (under conditions)
- Public benefit entities and pension or investment funds (if qualifying)
- Free Zone Persons that meet specific criteria to benefit from a 0% tax rate
Free Zones: 0% Tax – But With Strings Attached
One of the most critical (and misunderstood) areas is the treatment of Free Zone Persons. While many Free Zone companies may still qualify for a 0% corporate tax rate in 2025, this is not automatic.
To maintain the benefit, companies must:
- Maintain adequate substance in the Free Zone
- Earn qualifying income (e.g., transactions with other Free Zone Persons, or income from qualifying activities such as holding shares, reinsurance, logistics, or fund management)
- Avoid conducting business with the UAE mainland, unless explicitly allowed under the law
Non-qualifying income, or failure to meet the criteria, can trigger full taxation at the standard 9% rate.
What Income Is Taxable Under UAE Corporate Tax?
Taxable income includes most revenue from business activities conducted in the UAE, minus allowable deductions. This typically includes:
- Revenue from goods and services
- Income from IP, royalties, and licensing
- Investment income (unless exempt)
- Real estate income (depending on structure and ownership)
Notably, certain income remains outside the scope for natural persons — including employment income, most real estate income, and personal investments, provided they are not part of a licensed business.
Deductible Expenses and Common Pitfalls
Businesses can deduct a wide range of expenses, including:
- Employee salaries and benefits
- Rent and utilities
- Professional and legal fees
- Depreciation on capital assets
However, some costs are either non-deductible or capped, such as:
- Fines and penalties
- Donations to non-approved charities
- Excessive interest payments (subject to interest deduction limitations)
Tip: Maintain clear records and contracts for all expenses — especially for intra-group services and shareholder payments.
Key 2025 Considerations for Foreign Companies
If you’re a foreign company entering the UAE — or running a regional office here — consider:
- Permanent Establishment (PE): Do your activities create a taxable nexus?
- Transfer Pricing: Are your intercompany transactions arm’s length and documented?
- Withholding Tax: While set at 0% for now, this may evolve; proper structuring matters.
Additionally, UAE has over 140 tax treaties. Structuring through the UAE may offer significant treaty benefits — but only if substance and economic presence are adequately demonstrated.
Tax Registration, Filing, and Deadlines
All taxable persons must:
- Register for corporate tax with the Federal Tax Authority (FTA)
- File annual returns — typically within 9 months of the end of the financial year
- Pay any due tax by the return filing deadline
For businesses with a calendar-year end (31 December), the first tax return will be due by 30 September 2025.
Penalties apply for late registration, incorrect filing, or underpayment.
Strategic Moves for 2025 and Beyond
To stay compliant — and competitive — companies should consider:
- Reviewing corporate structures: Do they still serve your commercial and tax goals?
- Evaluating Free Zone status: Are you still eligible for 0% — or exposed to 9%?
- Assessing related party transactions: Are you transfer pricing compliant?
- Documenting substance: Can you prove economic activity in the UAE?
At ASTRUC & Co, we help businesses from Europe and beyond structure efficiently under UAE tax law. Whether you’re a growing SME, a group restructuring into the region, or a Free Zone company navigating the new criteria — we’re here to provide clarity and strategy.
