The UAE’s corporate tax regime, effective from June 2023, represents a significant shift for businesses operating in the country. If you’re an SME preparing for your first filing, here’s what you need to know.
The Basics
The UAE corporate tax rate is 9% on taxable income exceeding AED 375,000. Income below this threshold is taxed at 0%, which provides meaningful relief for smaller businesses.
The tax applies to all UAE businesses and commercial activities, including free zone companies — though qualifying free zone entities may benefit from a 0% rate on qualifying income.
Who Needs to Register?
All businesses that fall within the scope of UAE corporate tax must register with the Federal Tax Authority (FTA), even if their taxable income is below the AED 375,000 threshold. This includes:
- Mainland companies
- Free zone companies
- Foreign companies with a permanent establishment in the UAE
- Individuals conducting business activity above AED 1 million in revenue
Key Deadlines
Your corporate tax period aligns with your financial year. You must file a tax return within 9 months of the end of your tax period. For example, if your financial year ends on 31 December 2024, your filing deadline would be 30 September 2025.
Registration deadlines vary — check the FTA’s timeline for your specific situation.
How to Prepare Your Financials
The starting point for your corporate tax calculation is your accounting income — the profit or loss shown in your financial statements. This means the quality of your bookkeeping directly impacts your tax position.
Here’s what you should focus on:
Maintain IFRS-Compliant Books
The UAE corporate tax law uses accounting standards (IFRS or IFRS for SMEs) as the basis for determining taxable income. If your books aren’t prepared in accordance with these standards, you’ll need to make adjustments.
Understand What’s Deductible
Not all expenses are deductible for corporate tax purposes. Key non-deductible items include:
- Fines and penalties
- Donations to non-qualifying organisations
- Entertainment expenses (partially restricted)
- Interest expenses above certain thresholds (for larger businesses)
Know the Exemptions
Certain income is exempt from corporate tax, including:
- Dividends received from UAE resident companies (in most cases)
- Income from qualifying shareholdings
- Qualifying income earned by free zone entities
Keep Proper Records
The FTA requires businesses to maintain financial records for at least 7 years. This includes accounting records, bank statements, invoices, contracts, and any documentation supporting your tax return.
Common Mistakes to Avoid
- Assuming free zone companies are automatically exempt (they must meet specific conditions)
- Not registering on time with the FTA
- Mixing personal and business expenses
- Failing to account for related party transactions at arm’s length
- Not seeking professional advice before filing
How Bayswater Financials Can Help
Our tax team helps SMEs across the UAE prepare for and file their corporate tax returns. We work with you to ensure your books are in order, identify all available deductions and exemptions, and file accurately and on time.
If you haven’t started preparing yet, now is the time. The earlier you get your financials in order, the smoother the process will be.