UAE Corporate Tax Guide 2026

Overview

The UAE introduced a federal Corporate Tax (CT) regime through Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. The law became effective for financial years starting on or after 1 June 2023. For businesses operating on a calendar year (January to December), the first CT period began on 1 January 2024.

Corporate Tax in the UAE is levied on the net profit (or taxable income) of businesses. The regime was designed to be competitive globally while aligning the UAE with international tax standards, including the OECD Base Erosion and Profit Shifting (BEPS) framework and the Inclusive Framework on Pillar Two (Global Minimum Tax). The Ministry of Finance oversees tax policy, while the Federal Tax Authority (FTA) administers and enforces the Corporate Tax law.

The UAE CT regime applies to all businesses and commercial activities in the UAE, with certain exceptions. Government entities, extractive businesses (oil and gas subject to Emirate-level taxation), and certain public benefit entities are excluded from the scope of CT. Qualifying Free Zone Persons benefit from a 0% rate on qualifying income, subject to meeting specific conditions.

Tax Rates

The UAE Corporate Tax regime features a tiered rate structure that is intentionally designed to support small businesses and maintain the UAE's position as one of the most competitive tax jurisdictions globally.

The 0% band applies to the first AED 375,000 of taxable income. Only the portion exceeding AED 375,000 is taxed at 9%. For example, a business with taxable income of AED 1,375,000 would pay CT of AED 90,000 (9% of AED 1,000,000, the amount exceeding the AED 375,000 threshold).

The 15% minimum tax rate for large Multinational Enterprises (MNEs) is aligned with the OECD/G20 Inclusive Framework on Pillar Two. This applies to MNEs with consolidated global revenues of EUR 750 million or more in at least two of the four preceding financial years. The Domestic Minimum Top-up Tax (DMTT) ensures that qualifying MNE groups pay at least 15% effective tax in the UAE.

Taxable Persons

UAE Corporate Tax applies to several categories of taxable persons. Understanding which category your entity falls under is essential for determining your CT obligations.

Resident Persons

A juridical person is considered a resident if it is incorporated or established in the UAE, or if it is incorporated in a foreign jurisdiction but is effectively managed and controlled in the UAE. Resident juridical persons include UAE companies (LLCs, JSCs), Free Zone entities, and branches of foreign companies established in the UAE.

A natural person (individual) is subject to CT only if they conduct a business or business activity in the UAE and their total turnover from such activity exceeds AED 1 million in a calendar year. Wage income, investment returns (from personal investments), and real estate income (from personal real estate not conducted through a licence) are generally not subject to CT.

Non-Resident Persons

Non-resident juridical persons are subject to UAE CT if they have a Permanent Establishment (PE) in the UAE, derive State-Sourced Income from the UAE, or have a nexus in the UAE (for natural persons). A PE generally exists if a foreign entity has a fixed place of business in the UAE, a dependent agent who habitually exercises authority to enter contracts on behalf of the entity, or any other connection prescribed by law.

Exempt Persons

The following are exempt from Corporate Tax:

• UAE Federal and Emirate Government entities and their departments
• Government-controlled entities listed by Cabinet Decision
• Extractive businesses (subject to Emirate-level fiscal arrangements)
• Non-extractive natural resource businesses (subject to Emirate-level fiscal arrangements)
• Qualifying public benefit entities (listed by Cabinet Decision)
• Qualifying investment funds (meeting specific conditions)
• Public or private pension and social security funds

Small Business Relief

Small Business Relief (SBR) is a simplification measure introduced by Ministerial Decision No. 73 of 2023 to reduce the compliance burden for smaller businesses. When a taxable person elects to apply SBR, they are treated as having no taxable income for the relevant tax period, meaning they pay zero Corporate Tax.

Eligibility

To be eligible for Small Business Relief, a resident taxable person must meet the following conditions:

• Revenue for the relevant tax period and all previous tax periods (starting from or after 1 June 2023) does not exceed AED 3 million per tax period
• The taxable person is not a Qualifying Free Zone Person (QFZP)
• The taxable person is not a member of a Multinational Enterprise Group with consolidated revenue exceeding AED 3.15 billion (EUR 750 million)
• An election is made in the CT return for each tax period in which relief is claimed

Implications of Electing SBR

When SBR is elected, the taxable person is treated as having no taxable income and therefore no CT liability. However, there are important implications:

• Tax losses: Tax losses cannot be generated or carried forward in periods where SBR is applied
• Tax credits: Foreign tax credits cannot be claimed in SBR periods
• Transfer pricing: Transfer pricing documentation requirements are simplified but arm's length rules still apply to related party and connected person transactions
• Filing: A CT return must still be filed, with the SBR election made in the return

Exempt Income

Certain categories of income are exempt from UAE Corporate Tax. Exempt income is excluded from the calculation of taxable income, meaning it is not subject to the 0%/9% rate structure. Expenses related to exempt income are also not deductible.

Dividends and Profit Distributions

Dividends and other profit distributions received from a UAE resident juridical person are exempt from CT. Dividends from foreign entities are also exempt if the participating interest meets certain conditions: the taxable person must hold at least a 5% ownership interest (or an acquisition cost of at least AED 4 million) in the entity paying the dividend, and the interest must have been held for at least 12 months. The distributing entity must also be subject to a tax of at least 9% or meet other qualifying criteria.

Capital Gains on Qualifying Shareholdings

Capital gains from the disposal of a qualifying participation (known as the "participation exemption") are exempt from CT. The same conditions that apply to the dividend exemption (5% ownership, 12-month holding period, subject to minimum tax) must be met. This exemption prevents the double taxation of profits that have already been (or will be) taxed at the subsidiary level.

Foreign Branch Profits

A UAE resident taxable person may elect to exempt the income of its foreign permanent establishment (branch) from UAE CT. This is an irrevocable election per branch. If the election is made, the foreign branch's income and losses are excluded from the UAE taxable income calculation. Losses of the foreign branch cannot be used to offset UAE taxable income.

Disallowed Expenses

While most ordinary and necessary business expenses are deductible for CT purposes, the UAE CT law specifies certain categories of expenses that are either fully or partially disallowed when calculating taxable income.

Entertainment expenditure includes hospitality, meals, accommodation, transportation, and admission fees incurred for entertainment, amusement, or recreation of customers, shareholders, suppliers, or other business contacts. Only 50% of such expenses are deductible. Expenses incurred for employees in the course of their employment (such as travel for business purposes) are generally fully deductible, provided they are incurred wholly and exclusively for business purposes.

Tax Losses

When a taxable person's deductible expenses exceed their income in a tax period, the resulting tax loss can be carried forward to offset taxable income in future periods. The UAE CT regime does not allow tax losses to be carried back to prior periods.

Carry Forward Rules

Tax losses can be carried forward indefinitely, but the amount of carried-forward losses that can be used to offset taxable income in any given tax period is limited to 75% of the taxable income for that period. This means at least 25% of taxable income will always be subject to CT, regardless of accumulated losses. For example, if a business has AED 1 million in taxable income and AED 2 million in carried-forward losses, only AED 750,000 (75%) of the income can be offset, leaving AED 250,000 subject to CT.

Transfer of Tax Losses

Tax losses may be transferred between entities within a group under certain conditions. The transferor and the transferee must both be UAE resident juridical persons, at least 75% of either must be owned by the other (or at least 75% of both must be owned by a common parent), and neither entity can be an exempt person or a QFZP. Both entities must have the same financial year. The transfer must be approved by both parties and disclosed in the CT returns.

Change of Ownership

If there is a change in ownership of 50% or more in a taxable person, carried-forward losses from periods before the change may be forfeited unless the entity continues the same or a similar business after the change. This anti-avoidance rule prevents trading in loss-making entities solely for the purpose of using accumulated tax losses.

Transfer Pricing

The UAE CT regime includes comprehensive transfer pricing rules aligned with the OECD Transfer Pricing Guidelines. These rules require that all transactions between Related Parties and Connected Persons be conducted at arm's length, meaning the terms and pricing should reflect what independent parties would agree to under comparable circumstances.

Related Parties & Connected Persons

A Related Party includes entities within the same group, entities where one controls the other (directly or indirectly with 50% or more ownership, voting rights, or control), natural persons who control the entity, and relatives (up to the fourth degree) of controlling individuals. Connected Persons include a partner in an Unincorporated Partnership, a director or officer of the entity (or related party), and any other person as prescribed by the Minister.

Documentation Requirements

Taxable persons meeting certain thresholds must maintain transfer pricing documentation, including:

• Master File: Overview of the MNE group's global business, organizational structure, intangibles, intercompany financial activities, and financial and tax positions
• Local File: Detailed information on the local entity's related party transactions, financial data, comparability analyses, and the transfer pricing methods applied

Businesses with revenue of AED 200 million or more, or those that are part of an MNE group, are required to maintain the Master File and Local File. The FTA can request a Country-by-Country Report (CbCR) from UAE Ultimate Parent Entities of MNE groups with consolidated revenue of AED 3.15 billion or more.

Transfer Pricing Methods

The UAE CT law accepts the five standard OECD transfer pricing methods: Comparable Uncontrolled Price (CUP), Resale Price Method, Cost Plus Method, Transactional Net Margin Method (TNMM), and Transactional Profit Split Method. The most appropriate method should be selected based on the nature of the transaction and the availability of reliable comparable data.

Interest Deductibility

The UAE CT law includes a General Interest Deduction Limitation Rule (GIDLR) that restricts the deductibility of net interest expenditure. This rule is aligned with OECD BEPS Action 4 recommendations and is designed to prevent excessive debt financing arrangements that erode the tax base.

The 30% EBITDA Cap

Net interest expenditure (interest expense minus interest income) is deductible only up to 30% of EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation) or AED 12 million, whichever is higher. EBITDA for this purpose is calculated based on the accounting income before deduction of interest, tax, depreciation, and amortisation, adjusted for CT purposes.

Carry Forward of Disallowed Interest

Net interest expenditure that is disallowed under the GIDLR can be carried forward for up to 10 tax periods to be deducted against future taxable income, subject to the 30% EBITDA limit in each future period. Similarly, unused interest capacity (where net interest is less than 30% of EBITDA) can be carried forward for 10 periods.

Specific Interest Deduction Rules

In addition to the GIDLR, interest on loans from Related Parties that do not meet the arm's length standard under transfer pricing rules may be disallowed. Interest on loans used to finance exempt income (such as qualifying dividends) is also not deductible.

Tax Groups

The UAE CT regime allows eligible groups of companies to form a Tax Group and file a single consolidated CT return. This simplifies compliance and allows profits and losses within the group to be offset against each other.

Eligibility Requirements

To form a Tax Group, the following conditions must be met:

• The parent company must hold at least 95% of the share capital and voting rights (directly or indirectly) in each subsidiary
• All members must be UAE resident juridical persons
• No member may be an exempt person or a Qualifying Free Zone Person (QFZP)
• All members must have the same financial year
• All members must prepare their financial statements using the same accounting standards

How Tax Groups Work

Once a Tax Group is formed, the parent company files a single CT return on behalf of the group. Transactions between group members are eliminated for CT purposes (similar to consolidation for accounting). The parent is jointly and severally liable for the CT obligations of the group. A Tax Group can be dissolved by the parent or by the FTA if the eligibility conditions are no longer met.

Filing & Deadlines

All taxable persons are required to register for Corporate Tax with the FTA and file an annual CT return. The filing and payment deadlines are based on the entity's financial year end.

CT Registration

Every taxable person must register for CT with the FTA and obtain a Tax Registration Number (TRN). This includes existing businesses, newly established entities, and non-residents with a PE or State-Sourced Income in the UAE. The FTA has established specific registration timelines based on the date of licence issuance.

Filing Deadline

The CT return must be filed, and any tax due must be paid, within 9 months after the end of the relevant tax period (financial year). For example, a company with a financial year ending on 31 December 2024 must file its CT return and pay any tax due by 30 September 2025.

Penalties for Non-Compliance

Administrative penalties apply for various CT non-compliance, including:

• Late CT registration: AED 10,000
• Late filing of CT return: AED 500 for each month (or part thereof) for the first 12 months, AED 1,000 per month thereafter
• Late payment: Monthly penalties on unpaid tax amounts
• Failure to maintain records: AED 10,000 (first offence), AED 20,000 (repeat within 24 months)