Adapt to UAE’s New Corporate Tax Today

UAE Corporate Tax Shifts: What it Means for Business Banking

The UAE has been a global trade hub for years and is growing through enormous trade opportunities day by day. With the global tax standards, the UAE is bringing strategic changes to be credible, more competitive, and compliant in international trade and finance. The Federal Corporate Tax on businesses creates profits that exceed AED 375,000 in 2024. Furthermore, in 2025  UAE government introduced a 15%  Domestic  Minimum  Top-Up Tax (DMTT). The new taxes were introduced to target the alignment of the OECD's Pillar Two Global Tax Framework. These new taxes would enhance transparency and support to gain sustainable economic growth in the long term in the UAE. 

In this article below, we will cover how recent corporate tax affects businesses and banks and and businesses manage their strategic approach. 

Corporate Tax Changes in the UAE

To bring growth in the UAE's economic system, base erosion and transparency must be prevented. In 2023, the UAE officially changed the tax-free environment, introduced Federal corporate tax, and brought significant changes. Fundamentally, Corporate tax is a form of direct tax imposed on the net income of corporations and businesses. This is governed by Federal Decree-Law No. 60 of  2023. It was an Amendment of Certain Provisions of the Federal Decree Law No. 47 of 2022 on taxation of Corporations and Businesses. The tax reforms aim to enhance fiscal clearance, aligning global standards and diversifying the revenue beyond oil-based and tourism. The structure of the new taxation includes-

• 0% tax on taxable income up to AED 375,000

• 9% tax on income that exceeds AED 375,000

• 0% tax for qualifying free zone persons meeting specific criteria 

• Exemptions of taxation for government entities, some public benefit organisations, and extractive industries. 

Introduction of the Domestic Top-Up Tax in 2025 in the UAE

The UAE government will implement the Domestic Minimum Top-Up Tax (DMTT) from January 2025. These tax reforms align with the  OECD's  Pillar Two global tax framework. Large multinational enterprises (MNEs) pay a minimum effective tax rate of 15% on profits earned in the UAE due to this reform. The domestic Top-Up tax is applied to meet 15% standard if the Multinational enterprises falls below the threshold. 

Benefits of Corporate Tax in the UAE

• Corporate tax supports small businesses. The 0% tax rate for profits below AED 375,000 is a good incentives for startups and small enterprises. They can retain more capital for expansion of business.

• The UAE's corporate laws are really competitive compared to other economy. So, this makes the UAE the attractive investment hub in the world.

• Many incomes are exempt from the tax, so this offers businesses to remodel financial structure and reduce tax liabilities. 

Maximizing Benefits of UAE's Corporate Tax

• Businesses can leverage this to navigate new tax landscape and identify opportunities and ensure compliance with the help of a tax expert.

• The technological advancements and tax management softwares tools can help streamlining and compliance the process and eliminate the administrative pressure.

• Enterprises must explore new revenue streams to be exempt from corporate tax. For example, capital achievement to reduce tax liabilities. 

Entities that are Affected by these Tax Laws

The Corporate tax reform is a change brought by the UAE government for transparent and sustainable economic growth. Many entities have been affected by this reform as well. The multinational enterprises that have consolidated global revenues of AED 2.99 billion in the last 2 of the past four years. Moreover, the free zone companies are also affected by this. The companies that enjoy a 0% corporate tax rate but are part of a larger Multinational Enterprise group will be liable for DMTT if the tax rate in the UAE falls below the 15% threshold. The MNEs that have low effective tax rates due to deductions and credits.

Implications for the Affected Entities Due to Corporate Tax in the UAE

• The new Corporate tax in UAE has affected many large and small businesses. So, affected businesses and MNEs must aasess their tax position and calculate their tax rates in global standards. And after that, they prepare for DMTT filings.

• Implement new reporting standards. The financial statements should align with OECD Globe Model Rules with IFRS. Moreover, other additional documents are necessary to be prepared.

• The Free Zones may need to evaluate their structures to avoid the top-up tax.

Exempted Entities of Corporate Tax

• The UAE free zone registered businesses can enjoy 0% corporate tax rate through maintaining certain Federal Tax Authority conditions 

• The Government Entities and public institutions are totally exempted from corporate tax.

• The extractive sector companies are under emirate level taxation and exempted from corporate tax.

• Non profit entities and Charities are exempted from corporate tax. In this case if they are approved by the FTA and aligned with public benefit purposes.

• Businesses and individuals earning below AED 375,000 in annual taxable profits they are exempt from paying corporate tax. But, they must register with the FTA for compliance. 

Subjected Entities of Corporate Tax

• The Mainland businesses such as, all commercial, professional and industrial activities are subject to 9% corporate tax if their profit exceeds AED 375,000.

• If the free zone entities earn from mainland businesses without qualifying as a limited distribution business, they need to fil corporate tax.

• If the fail to meer the croteria of QFZP defined by the FTA then they have to pay tax.

• Any foreign company that earns with UAE sourced income, they must comply with the corporate tax.

• The freelancers, and consultants must comply with corporate tax if their revenue exceeds the threshold. 

Future Prospects of New Corporate Tax

The UAEs business environment is continuously changing through innovation and technological advancements. The introduction of tax rate of 15% for large multinational enterprises from January 1, 2025 under the Domestic Top up tax is aligning with global standards. They are introducing a refundable tax credit for highly professional employing companies. This incentives are applying for C-suite executives, specialists and high value role in technological sectors. Moreover, companies that encourage and invest in research and development that will be eligible for expenditure based tax credits ranging from 30% to 50%.

Conclusion

The corporate tax is a transformation for the business landscape of UAE. With the 15% domestic top up tax rate the region is aligning with global standards. Consequently, businesses are being reactive to proactive business finance management. For every kind of enterprise, there need a structured, compliant and technology drived tax management model to be aligning with the global trend.