Corporate Tax in the UAE for International Companies
Understand the tax intricacies to ensure your business outside the Emirates pays 0%.
Updated: 01.08.2025 | Author: Aleksandr Ponomarjov
Understanding UAE Corporate Tax: your Key to Zero Rate
As of June 1, 2023, the United Arab Emirates introduced a corporate tax, marking a significant change in the country’s tax system. However, businesses whose main activities and clients are outside the UAE still have opportunities to apply for a zero rate (0%) corporate tax. It’s important to understand the conditions and nuances to utilize these benefits
General Corporate Tax Rules
The basic corporate tax rate in the UAE is:
- 0% for taxable income up to AED 375,000 per year.
- 9% for income exceeding AED 375,000.
- For very large multinational corporations falling under the global BEPS Pillar Two rules, a 15% rate may apply.
All companies must register for corporate tax purposes and file annual tax returns, even if their profits don’t exceed the AED 375,000 threshold or they qualify for a zero rate.
Tax Features for Companies in Free Economic Zones (FEZs)
Companies registered in Free Economic Zones can qualify for 0% corporate tax on what’s called “Qualifying Income”. This is a key point for businesses focused on exporting services or goods outside the UAE.
To apply for the zero rate, several strict conditions must be met:
- Type of Activity: Your company must engage in “qualifying activities”. The list of such activities is approved by the Cabinet of Ministers and includes operations typical for international business and not oriented towards the local market.
- Economic Substance: Your company must maintain adequate economic substance in the UAE. This means having a real office (if required for your activity), appropriate number of employees, and conducting core management activities in the UAE.
- Income Source: The main income must come from operations with other companies in free zones or with foreign legal entities. Income derived from mainland UAE is typically taxed at the standard 9% rate.
- No Standard Regime Election: The company must not voluntarily opt for the standard tax regime (9%).
If the company’s income doesn’t meet the “qualifying” criteria, it will be taxed at 9% (in some cases from the first dirham).
Offshore Companies (International Business Companies – IBCs)
Classic offshore companies registered in the UAE (for example, in Ras Al Khaimah or Ajman), traditionally exempt from taxes as they are prohibited from conducting business in the UAE, are now subject to corporate tax but can continue to enjoy a zero rate if their activities are conducted entirely outside the UAE and they have no “permanent establishment” or UAE-sourced income. It’s also important to comply with conditions for obtaining the 0% rate, similar to the requirements for FEZ companies.
Mainland Companies
Companies registered in mainland UAE are subject to corporate tax at 0% on profits up to AED 375,000 and 9% on profits above this threshold. Having clients or activities outside the UAE does not exempt them from corporate tax.
Value Added Tax (VAT)
VAT in the UAE is 5%.
- Companies in free zones that export goods or services outside the UAE may qualify for a zero VAT rate (0%).
- However, if a company (whether in FEZ or mainland) supplies goods or services to customers within the UAE, VAT applies at the standard rate of 5%.
Conclusion
Zero corporate tax rate for businesses with foreign clients in the UAE is possible, but requires careful compliance with conditions, especially for companies in free zones and offshore companies. It’s important to maintain economic substance and ensure your income qualifies as “qualifying”.
To obtain accurate information and ensure full compliance with all UAE legal requirements, we strongly recommend consulting qualified tax specialists. This will help you avoid mistakes and effectively utilize all the advantages of the UAE tax system.
Our specialist will answer your questions.