Taxes in the UAE 2025: Are the Emirates still attractive for business relocation

In 2018, VAT was introduced in the UAE, and in 2022, a corporate tax was implemented. In this article, we will discuss these and other payments.

In the UAE each tax and fee in the UAE is regulated by a separate legislative act. As clarifications are issued, government authorities release additional regulations, guides or explanations.

For example, corporate tax is regulated by Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (as amended on October 1, 2024). Amendments were made by Federal Decree-Law No. 60 of 2023, along with the issuance of 19 Ministerial Decisions, 8 Cabinet Decisions, 8 Federal Tax Authority (FTA) Decisions and 17 guides.

Penalties for violations of tax laws in the UAE are also regulated by a separate document — Cabinet Decision No. 40 of 2017 (as amended on December 30, 2021). Additionally, there is a Cabinet Decision No. 75 of 2023 (as amended on January 22, 2024), which regulates penalties specifically related to corporate tax.

All taxes and fees in the UAE can be divided into two major categories: direct and indirect taxes.

Direct taxes are levied on the income or property of the taxpayer. These include: сorporate tax, tax on the income of foreign banks, tax on the income of oil and gas companies.

Indirect taxes are included in the price of goods, works or services. In the UAE, these include VAT (Value Added Tax), excise tax, import duties and municipal taxes and fees.

Additionally, the country has a well-developed system of non-tax fees:

• annual payment for license renewal,
• fees for registering real estate transactions,
• charges from tenants and property owners, etc. (fees may vary in different emirates).

In this article, we will discuss the main taxes: corporate tax, VAT and excise tax.

Corporate Tax is a direct tax paid by companies, businesses, and certain individuals on their taxable income.

Taxable income is calculated based on financial statements and adjusted for tax benefits, deductions, losses, expenses, and other circumstances specified in the law.

The corporate tax rate can be 0% or 9%, depending on the company's profit for the reporting period:

• if the profit is less than AED 375,000 (approximately $ 100,000) for the reporting period, the corporate tax rate is 0%;
• if the profit exceeds AED 375,000 (approximately $ 100,000), the corporate tax rate is 9% on the profit exceeding AED 375,000;
• large companies with revenue exceeding 3.5 billion AED (approximately 1 billion $) may have a tax rate of 15%.

Exempt from corporate tax:

• salaries,
• personal investment income,
• income from real estate investments.

Mandatory Registration and Reporting for All Companies
Companies with an annual revenue of over 1 million AED (approximately USD 270,000), even those eligible for the 0% tax rate, are required to:

• register for corporate tax purposes;
• maintain accounting records and prepare financial statements;
• submit a tax return to the FTA (Federal Tax Authority).

The tax return must be submitted within 9 months after the end of the reporting period. The reporting period may vary for companies — it does not necessarily start on January 1.

If the revenue is less than 3 million AED (approximately USD 800,000) for the reporting period, the tax rate will be 0% even if the profit exceeds AED 375,000 (approximately USD 100,000). This relief is valid until December 31, 2026.

The authorities have made exceptions for companies registered in free zones. If a company is a Qualified Free Zone Person (QFZP) and meets certain conditions, it can apply a 0% tax rate on its qualifying income.

In May 2024, a detailed Corporate Tax Guide for Free Zones was issued. It contains everything related to the definitions of qualifying and non-qualifying income, qualifying activities and excluded activities.

However, even if a company applies the 0% tax rate, it is still required to register for corporate tax purposes, maintain accounting records and submit a tax return to the Federal Tax Authority (FTA).

The tax applies to tax periods starting from June 1, 2023. It must be paid annually within 9 months after the end of the tax period, based on the tax return.

For example, if the financial year ends on December 31, 2023, the tax must be paid by September 30, 2024. The tax return must also be submitted within the same deadline.

The main law regulating corporate tax, which we have already mentioned, is Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (as amended on October 1, 2024). However, certain issues are regulated by other documents:

• Cabinet Decisions (e.g., defining qualifying income for free zones, determining penalties),
• Ministerial Decisions (e.g., rules for filing tax returns, exemptions and tax relief),
• Federal Tax Authority (FTA) Decisions (instructions on taxpayer registration procedures, rules for conducting tax audits, procedures for appealing tax decisions).

Penalties for Violations Related to Corporate Tax are regulated by Cabinet Decision No. 75 of 2023 On the Administrative Penalties for Violations Related to the Application of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (as amended on January 22, 2024).

If the tax return is not submitted within the deadlines established by law, the penalty will be AED 500 (approximately $ 136) for each month of delay, and if the delay exceeds one year, the penalty will increase to AED 1,000 (approximately $ 272) for each month.

If data, records and documents are not provided in Arabic, the penalty will be AED 5,000 (approximately $ 1,300).

The first corporate tax payments will be due by March 31, 2025 (for the tax period from July 1, 2023 to June 30, 2024).

VAT (Value Added Tax) is an indirect tax applied to the added value of most goods (works, services) and property rights.
The tax must be paid by both mainland companies and free zone companies, provided they operate within the UAE.

The main VAT law is Federal Decree-Law No. 8 of 2017 on the Value Added Tax (as amended on September 30,2024). However, certain VAT-related issues are regulated by other documents:

• Cabinet Decisions (e.g., defining tax periods, tax exemptions and determining penalties),
• Ministerial Decisions (e.g., rules for filing tax returns, exemptions and tax relief),
• Federal Tax Authority (FTA) Decisions (instructions on taxpayer registration procedures, rules for conducting tax audits, procedures for appealing tax decisions).

*Added value is the market value of the products created by a company, minus the costs incurred outside the company (such as the cost of raw materials, supplies and services purchased from suppliers).

Registration is required only if the company’s revenue exceeds AED 375,000 (approximately $ 100,000). In this case, the taxpayer is obliged to register with the UAE tax authority and obtain a tax number for VAT purposes. When the revenue reaches AED 187,500 (approximately $ 50,000), VAT registration is voluntary.

VAT must be paid within the deadline set for submitting the tax return, which is usually 28 days after the end of the tax period.

The standard tax period for a taxable person is three calendar months.

For example, if the tax period ends on March 31, 2024, the tax must be paid no later than April 28, 2024. The tax return must also be submitted by the same deadline.

For example, the penalty for late VAT payment is:

• 2% of the unpaid tax amount for a delay of up to one month,
• 4% for each subsequent month of delay.

The maximum penalty can reach 300% of the unpaid tax amount.

Certain goods and services are subject to a zero rate. For example, this applies to international transportation and related supplies, as well as the education sector, provided specific conditions are met.

In addition, there are activities that are exempt from VAT. For example, local passenger transport services are not subject to VAT.

There are also special VAT rules for Designated Zones. Designated Zones are specific free zones defined under Cabinet Decision No. 59 of 2017.

The supply of goods within these zones is not subject to VAT if the goods are intended for resale or manufacturing within the zone. However, services provided in these zones are subject to VAT under the general rules, just like in the rest of the UAE.

Companies in Designated Zones are required to register for VAT and comply with all reporting and tax payment obligations.

Excise tax is an indirect tax introduced in 2017 and levied on certain goods that are harmful to human health or the environment (Federal Decree-Law No. 7 of 2017
Excise Tax, as amended on September 26, 2022).

The tax rate depends on the category of the product. As of today, the following excise tax rates are applied to excisable goods (in accordance with Cabinet Decision No. 52 of 2019):

• carbonated beverages, excluding plain water — 50%,
• sweetened beverages containing sugar or other sweeteners — 50%,
• energy drinks — 100%,
• tobacco and its derivatives — 100%,
• electronic cigarettes and the special liquids used in them — 100%.

Excise taxpayers include importers, manufacturers and those who store excisable goods within the country. All these companies are required to register independently as taxpayers and regularly submit information about their transactions to the competent authority. Tax payment must be made on the day the tax return is submitted.

Large penalties are provided for taxpayers — over AED 50,000. For example, if the price of an excisable good is not indicated inclusive of tax, the penalty will be AED 5,000 AED.

The Federal Tax Authority (FTA) conducts tax audits, which can cover up to 5 years, while for corporate tax, companies are required to retain accounting records for 7 years.
Reports are prepared in English and submitted online. In case of inquiries from the tax authority, all interactions are generally carried out remotely.
On-site inspections are possible for both VAT and corporate tax. The main penalty for violations is fines, which can reach up to 300% of the unpaid tax amount.

The Central Bank is another regulatory authority. It conducts anti-money laundering (AML) procedures and monitors all transactions to ensure compliance with licensing requirements.
The Central Bank can impose administrative and financial sanctions. For example, providing false information in documents can result in imprisonment for up to 2 years and/or a fine of up to 5 million AED.
To understand the regulations the Central Bank follows during audits, it is important to review Federal Decree-Law No. 14 of 2018 Central Bank & Organization of Financial Institutions and Activities (as amended on October 2, 2023).

For a long time, the UAE did not have a conventional tax system — it has been developing before our eyes.

The UAE remains an attractive country for business and startups. However, to minimize risks, it is advisable to study "9 laws to confidently start a business in the UAE" and take advantage of the Real Law service.