The UAE tax landscape is distinctively advantageous for residents and businesses, known for its absence of several traditional taxes. There are a lot of tax advantages in UAE. Notably, there is no personal income tax, inheritance tax, or gift tax in UAE, positioning it as a tax-friendly environment that attracts professionals and entrepreneurs from around the world. However, in a historic shift, the UAE introduced a corporate tax system that became effective on June 1, 2023.
Tax Advantages for Businesses in UAE
The legal foundation for the UAE’s corporate tax system is set out in Federal Decree-Law No. 47 of 2022, which formally introduced corporate tax to the country. Under the decree, corporate tax is applied uniformly across the UAE, with all businesses—whether domestic or foreign corporations operating in the UAE—required to adhere to the stipulated tax obligations based on their income levels.
Individual Emirates retain a degree of autonomy to impose additional taxes, particularly within specific sectors. For instance, the oil and gas industry, which plays a critical role in the UAE’s economy, is subject to higher corporate tax rates that can reach up to 55 percent. Similarly, certain foreign banks may face taxes of up to 20 percent, primarily reflecting each Emirate’s efforts to capitalize on revenue generated by key industries while maintaining favorable conditions for other business sectors.
To further incentivize business growth, the law includes several tax reliefs and exemptions. For example, Small Business Relief is available to qualifying small enterprises with annual revenues under AED 3 million, exempting them from tax obligations and promoting an entrepreneurial culture. Businesses operating within the UAE’s many free zones can benefit from a 0 percent corporate tax rate on qualifying income, provided they meet specified compliance criteria. Other incentives, such as Business Restructuring Relief and Foreign Tax Credits, assist companies with mergers, acquisitions, and cross-border transactions by minimizing tax liabilities, making the UAE a strategic base for multinational operations.
In addition, provisions such as Loss Carry Forward allow businesses to offset future profits with prior losses, offering financial resilience against economic fluctuations.
Helpful for you: How to Register for Corporate Tax in UAE
Types of Tax Incentives in UAE
Small Business Relief
This specific measure offers a full exemption from corporate tax to eligible small businesses with annual revenue under AED 3 million. This exemption allows smaller enterprises to reinvest earnings and focus on expansion without the additional burden of tax liabilities. Businesses that are part of an MNE Group or classified as a Qualifying Free Zone Person are not eligible for this relief.
This provision applies to tax periods ending before December 31, 2026, and is intended to boost the entrepreneurial landscape. However, companies that intentionally split operations solely to meet the AED 3 million threshold are subject to scrutiny and potential adjustments by the Federal Tax Authority (FTA).
Participation Exemption Regime
Another significant feature of the UAE’s corporate tax incentives is the Participation Exemption Regime. This applies to certain domestic corporations, exempting dividends and capital gains from qualifying shareholdings to encourage the formation and growth of holding companies. By relieving these income sources from corporate tax, the Participation Exemption supports a favorable environment for both local and international investment.
Loss Carry Forward
Loss carry forward provisions in the UAE allow taxable entities to offset current losses against future taxable income.
Did You Know?
- The number of losses that can be offset each year is typically capped at a certain percentage of taxable income, often 75 percent.
- To leverage loss carry forward, businesses must meet specific criteria, such as:
- Maintaining accurate financial records;
- Adhering to transfer pricing rules;
- Ensuring compliance with the UAE’s economic substance requirements; and,
- Maintaining continuity of ownership or activity.
Tax Grouping
A group of UAE tax resident companies may choose to form a tax group, which allows them to be treated as a single taxable entity, provided they meet the following conditions:
- The parent company must hold at least 95 percent (either directly or indirectly) of the subsidiary’s share capital, voting rights, profits, and net assets.
- Both the parent company and the subsidiary must share the same financial year and use the same accounting standards for preparing their financial statements.
- Neither the parent company nor the subsidiary can be classified as an Exempt Person or a Qualifying Free Zone Person, which would otherwise qualify for the 0 percent UAE corporate tax rate.
The tax group is required to prepare consolidated financial statements in line with the accounting standards applicable in the UAE. The parent company will consolidate the financial results, assets, and liabilities of each subsidiary during the relevant tax period, ensuring that any intercompany transactions are eliminated.
Foreign Tax Credits
The UAE provides Foreign Tax Credits to prevent double taxation for UAE-based businesses with overseas operations. Under this incentive, UAE taxable persons can claim credits for taxes paid abroad on income that is also subject to UAE corporate tax. However, this credit is limited to the amount of UAE corporate tax owed on the same income, and any unused portion cannot be carried forward or applied retroactively. This approach not only simplifies tax compliance but also encourages international business activity by reducing tax exposure on foreign earnings.
Business Restructuring Relief
Another essential tax incentive for international companies operating in the UAE is Business Restructuring Relief. This relief is available for companies engaged in mergers, acquisitions, and other restructuring activities, provided they meet specific conditions. For instance, the restructuring must involve a legitimate transfer of assets, shareholdings, or ownership interests in exchange for equity rather than cash. The goal is to promote efficient corporate restructuring without immediate tax burdens, thus facilitating seamless growth, consolidation, and reorganization of operations within the UAE.
Free Zone-Specific Tax Benefits
Entities operating within Free Zones may be designated as Qualifying Free Zone Persons (QFZPs), allowing them to access significant tax advantages. QFZPs benefit from a 0 percent corporate tax rate on qualifying income, provided they meet regulatory standards, including maintaining an adequate presence within the Free Zone, deriving qualifying income, and complying with transfer pricing requirements.
Furthermore, QFZPs enjoy additional benefits beyond the corporate tax rate, such as:
- Exemptions from import and export duties;
- Full repatriation of profits; and,
- No withholding taxes on dividends or royalties.
Compliance Requirements
For entities wishing to qualify for these incentives, compliance with UAE’s financial reporting, record-keeping, and operational transparency requirements is mandatory.
- Businesses must prepare and maintain audited financial statements, which clearly differentiate qualifying and non-qualifying income.
- Adherence to UAE transfer pricing rules is mandatory.
- Companies must demonstrate substantial business activities within the UAE or Free Zone.
- Detailed and accurate records must be kept for all transactions and operations.
- Documentation must be available for inspection to verify compliance with tax laws.
The UAE’s tax landscape provides an exceptional environment for businesses looking for growth, investment, and expansion opportunities while enjoying substantial tax benefits.
Tax Advantages in UAE for Foreigners
The UAE is widely recognized as a tax haven for expatriates, foreign entrepreneurs, and multinational corporations. Several tax benefits make it an attractive destination:
1. No Personal Income Tax
Foreign individuals working in the UAE do not pay personal income tax, making it one of the few countries where professionals can retain their entire salaries without deductions.
2. No Capital Gains Tax
Foreign investors and entrepreneurs benefit from zero capital gains tax on investments, stock market earnings, and real estate transactions.
3. No Inheritance or Wealth Tax
Unlike many Western countries, the UAE does not impose an inheritance tax, ensuring wealth can be passed on to heirs without deductions. Similarly, there is no wealth tax on personal assets or savings.
4. Business-Friendly Corporate Tax Rates
The 9% corporate tax rate for businesses exceeding AED 375,000 in annual profits remains among the lowest globally, encouraging foreign companies to establish operations in the UAE.
5. 100% Foreign Ownership in Free Zones
Foreign investors can establish businesses in UAE Free Zones, where they benefit from:
- 100% foreign ownership without needing a local sponsor.
- 0% corporate tax on qualifying income.
- No import/export duties.
- Full repatriation of profits and capital.
6. Double Taxation Agreements (DTAs)
The UAE has signed over 100 DTAs, ensuring that foreign investors and expatriates do not pay taxes twice on the same income in their home country and the UAE.
7. Exemptions for Offshore Companies
Foreigners establishing offshore companies in the UAE enjoy:
- 0% corporate tax.
- No VAT obligations.
- Minimal reporting requirements.