The UAE's corporate and tax landscape has been fundamentally reshaped since 2022, with the introduction of federal corporate tax, expanded VAT enforcement, and sweeping reforms to commercial company law that collectively impose material new obligations on businesses operating across all emirates.
Key takeaway
Federal Decree-Law No. 47 of 2022 introduced a 9% corporate tax applicable from financial years beginning on or after 1 June 2023, ending the UAE's longstanding zero-tax reputation for most businesses. Free zone entities may qualify for a 0% rate on qualifying income, but must satisfy substance, non-exclusion and audit requirements. Simultaneously, Federal Decree-Law No. 32 of 2021 on Commercial Companies overhauled onshore ownership and governance rules. Practitioners must now advise clients across an integrated framework of tax, corporate, substance and beneficial ownership obligations.
Corporate Tax: Scope, Rates and Taxable Persons
Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses imposes corporate tax (CT) at a standard rate of 9% on taxable income exceeding AED 375,000, with a 0% rate applying to income up to that threshold. The law applies to juridical persons incorporated in the UAE, foreign entities effectively managed and controlled from the UAE, and natural persons conducting business subject to registration thresholds set by Ministerial Decision. Exempt persons include qualifying government entities, qualifying public benefit entities, and — subject to conditions — qualifying investment funds.
Taxable income is determined by reference to the audited financial statements prepared under applicable accounting standards, subject to specific adjustments prescribed in the law and implementing decisions. Deductible expenditure broadly follows accounting treatment, but certain payments to related parties require arm's-length justification under the transfer pricing rules. Interest deductions are subject to a general interest limitation rule capping net interest expenditure at 30% of EBITDA, with a AED 12 million de minimis threshold.
Free Zone Qualifying Income and the 0% Regime
A Qualifying Free Zone Person (QFZP) may apply a 0% CT rate to qualifying income, provided it maintains adequate substance in a UAE free zone, derives income from transactions with other free zone persons or from specified qualifying activities, and does not elect to be subject to the standard regime. Qualifying activities are defined in Ministerial Decision No. 265 of 2023 and include fund management, treasury and financing activities for related parties, manufacturing, ship and aircraft operations, and reinsurance, among others. Excluded activities — such as transactions with UAE-resident natural persons and immovable property income from commercial real estate outside a free zone — taint the QFZP status only if they exceed the de minimis threshold of 5% of total revenue or AED 5 million, whichever is lower.
A QFZP that derives non-qualifying income above the de minimis threshold loses 0% treatment for the entire tax period and becomes subject to 9% CT on all taxable income. This cliff-edge effect requires careful ongoing monitoring of revenue composition. Free zone entities must also have their financial statements audited annually to maintain QFZP status, a requirement that represents a new compliance cost for many smaller operators.
Businesses structured across both a free zone entity and an onshore mainland entity within the same group must carefully manage intra-group transactions and consider whether to form a tax group under the CT law. A tax group allows a parent company holding at least 95% directly or indirectly in subsidiaries to consolidate results, but the parent must be a UAE-resident juridical person and all members must apply the same financial year and accounting standards.
Value Added Tax: Current Obligations and Enforcement Trends
Federal Decree-Law No. 8 of 2017 on Value Added Tax, as amended, imposes VAT at 5% on most supplies of goods and services made in the UAE. Businesses with taxable supplies exceeding AED 375,000 per annum must register with the Federal Tax Authority (FTA); voluntary registration is available above AED 187,500. Zero-rated categories include exports, international transport, and certain healthcare and education services. Exempt supplies — principally residential property and local financial services — do not give rise to input tax recovery.
The FTA has significantly intensified its audit and penalty programme since 2022. Administrative penalties for tax evasion can reach 300% of the evaded amount under Federal Decree-Law No. 28 of 2022 on Tax Procedures, which also introduced a voluntary disclosure mechanism allowing taxpayers to correct errors with reduced penalties provided disclosure is made before an FTA audit commences. Businesses should maintain VAT records for a minimum of seven years and ten years for real estate-related transactions.
Onshore Company Structures under Federal Decree-Law No. 32 of 2021
Federal Decree-Law No. 32 of 2021 on Commercial Companies replaced the previous Companies Law and eliminated the mandatory 51% UAE-national ownership requirement for most mainland limited liability companies (LLCs) and joint stock companies, permitting 100% foreign ownership subject to a Negative List maintained by Cabinet Resolution. Certain strategic sectors — including oil exploration, security services, and military activities — remain restricted. Practitioners must verify the applicable licence category against the current Negative List rather than assuming full foreign ownership is available.
The LLC remains the most common vehicle for foreign investors operating onshore. Minimum capital requirements were abolished for LLCs under the 2021 law, though sectoral licensing authorities may impose their own capitalisation thresholds. A sole-shareholder LLC is now expressly permitted. The law also strengthened fiduciary duties of managers, introduced mandatory audit requirements for LLCs meeting size thresholds, and enhanced minority shareholder protections through pre-emption rights on share transfers.
Public joint stock companies (PJSCs) must have at least ten founding shareholders and a minimum share capital of AED 30 million, while private joint stock companies require a minimum of AED 5 million and at least two shareholders. Corporate governance requirements for listed PJSCs are additionally governed by Securities and Commodities Authority (SCA) regulations, including mandatory board committees, independent director quotas, and annual disclosure obligations.
DIFC: English Law Jurisdiction and Financial Services Framework
The Dubai International Financial Centre operates as a federal financial free zone governed by DIFC Law No. 1 of 2004 and a body of DIFC legislation modelled substantially on English law. The DIFC Courts apply common law principles and their judgments are enforceable across the UAE under a protocol with onshore courts, making the DIFC a preferred seat for complex commercial disputes and financial transactions. Companies incorporated in the DIFC — including LLCs, companies limited by shares, and recognised companies — benefit from 0% tax on profits and assets under the DIFC's own regime, subject to alignment with the federal CT framework.
Financial services in the DIFC are regulated by the Dubai Financial Services Authority (DFSA) under the Regulatory Law 2004 and associated rulebooks covering banking, asset management, insurance, and capital markets. A DFSA licence is required before conducting any financial service in or from the DIFC; operating without one constitutes a criminal offence. Authorised firms must meet fit-and-proper requirements, capital adequacy standards, systems and controls obligations, and ongoing disclosure duties to the DFSA.
The DIFC also provides a dedicated arbitration centre through the DIFC-LCIA Arbitration Centre (now rebranded as the DIFC Arbitration Centre following the dissolution of the LCIA partnership) operating under the DIFC Arbitration Law. Arbitral awards rendered in the DIFC are recognised as onshore judgments without separate ratification proceedings, a significant procedural advantage for cross-border commercial matters.
ADGM: Abu Dhabi's International Financial Centre
The Abu Dhabi Global Market was established by Abu Dhabi Law No. 4 of 2013 and operates under a dedicated legal framework applying English common law directly through the Application of English Law Regulations 2015. Companies incorporated in ADGM include private companies limited by shares, public companies, foundations, and restricted scope companies. The ADGM Registration Authority handles company formation, while financial services regulation falls to the Financial Services Regulatory Authority (FSRA).
ADGM has distinguished itself through its frameworks for digital assets, family offices, and investment holding structures. The FSRA's Digital Assets Framework, updated in 2023, provides a licensing pathway for virtual asset service providers that is among the most detailed in the region. Family offices may establish as single or multi-family office structures with reduced regulatory requirements compared to full fund management authorisations, making ADGM attractive for high-net-worth wealth structuring.
Economic Substance, UBO and AML Compliance
Cabinet Resolution No. 57 of 2020, as amended, requires UAE-incorporated entities conducting relevant activities — including banking, insurance, fund management, holding company, intellectual property, headquarters, shipping, distribution and service centre activities — to demonstrate adequate economic substance in the UAE. Entities must file an economic substance notification and, where applicable, a report with their relevant regulatory authority annually. Failure to satisfy the substance test or file accurately attracts tiered administrative penalties and, for persistent failures, spontaneous exchange of information with foreign tax authorities.
Ultimate Beneficial Owner (UBO) registration obligations arise under Cabinet Resolution No. 58 of 2020, requiring all mainland companies and free zone entities to maintain a UBO register identifying individuals who ultimately own or control 25% or more of shares, voting rights, or who otherwise exercise control. This register must be filed with the relevant licensing authority and updated within 15 days of any change. Failure to comply carries financial penalties and can result in suspension of commercial licence renewal.
Anti-money laundering obligations are imposed by Federal Decree-Law No. 20 of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism, supplemented by Cabinet Decisions and CBUAE guidance. Designated non-financial businesses and professions (DNFBPs) — including lawyers, accountants, real estate brokers and corporate service providers — must register on the goAML platform, conduct customer due diligence, maintain transaction records for five years, and file suspicious transaction reports. The UAE's 2022 FATF mutual evaluation and subsequent grey-listing accelerated enforcement, with the UAE's exit from the grey list in 2024 reflecting materially enhanced compliance infrastructure.
Transfer Pricing and International Tax Obligations
The CT law and Ministerial Decision No. 97 of 2023 on Transfer Pricing introduce OECD-aligned arm's-length requirements for transactions between related parties and connected persons. Businesses with related-party transactions above specified thresholds must prepare and maintain a master file and local file, and disclose related-party transactions in a disclosure form filed with the CT return. The UAE has also committed to the OECD Pillar Two global minimum tax framework; domestic implementing legislation for the Qualified Domestic Minimum Top-up Tax (QDMTT) is expected to apply to large multinational groups with consolidated revenue exceeding EUR 750 million.
Country-by-Country Reporting obligations already apply to UAE-headquartered multinational groups under Cabinet Resolution No. 44 of 2020, requiring submission of CbCR reports to the Ministry of Finance for group revenue exceeding AED 3.15 billion. The UAE has signed the OECD Multilateral Convention to implement BEPS measures and has an extensive network of double tax treaties, providing withholding tax relief and dispute resolution mechanisms for cross-border structures. Practitioners should verify treaty application carefully, as the UAE does not impose withholding tax domestically but treaty residence certification may still be required to access benefits in counterparty jurisdictions.
Practical Compliance Calendar and Risk Priorities
CT returns must be filed within nine months of the end of the relevant tax period. For entities with a December financial year-end, the first return for the period ending 31 December 2024 was due by 30 September 2025. Quarterly or annual VAT returns depending on the FTA's determination must be filed within 28 days of the period end. Economic substance notifications are generally due within six months of the financial year-end and reports within twelve months. UBO registers must be current at all times, with updates filed within 15 days of change.
The most common compliance failures observed in practice are: failure to register for CT on time; misclassification of free zone income as qualifying when excluded activities exceed de minimis thresholds; inadequate transfer pricing documentation; and stale or inaccurate UBO registers following corporate restructurings. Businesses with complex group structures should conduct an annual regulatory health check covering CT, VAT, economic substance, UBO, AML, and licensing obligations across each UAE entity. Engaging qualified tax and legal counsel before restructuring — rather than retrospectively — remains the most effective risk management approach.
Practical checklist
- Register with the Federal Tax Authority for Corporate Tax and confirm the correct tax period start date for each UAE entity.
- Assess whether each free zone entity qualifies as a Qualifying Free Zone Person and monitor non-qualifying income against the 5% de minimis threshold on an ongoing basis.
- Prepare or update transfer pricing documentation — master file, local file, and related-party disclosure — for each CT filing period.
- Verify that UBO registers are current and filed with the relevant licensing authority, and update within 15 days of any ownership or control change.
- Confirm economic substance notification and reporting deadlines for all entities conducting relevant activities and collate evidence of UAE-based management and decision-making.
- Register on the goAML platform if the business qualifies as a DNFBP and implement a compliant AML/CFT policy with customer due diligence procedures.
This article is for general information only and does not constitute legal advice. For advice on a specific matter, please contact us. Last updated: 26 September 2026.