UAE New Corporate Tax in 2025: What They’re Not Telling You!"

The new UAE corporate tax rules are focused on foreign investors, giving them additional flexibility on their UAE income. There are two new updates that are issues under the country's corporate tax rules. These new rules apply to the foreign investments that investors proceed through "qualifying funds" in the UAE. In other words, as per the new regulation, the non-resident investors who are in qualifying investment funds and real estate investment trusts, they are subjected to corporate tax.

Zero Corporate Tax On Investment Funds

The rules for considering any qualifying funds as a zero corporate fund, the following rules are to be ensured:

• There should be less than 10% of the funds in assets pertaining to real estate.
• There should be less than 10 investors in these funds and for the funds' individual ownership, the interest should be less than 30%. If the number of investors exceeds more than 10, then the ownership inception should be less than 50%.

According to Section 5 of the Corporate Tax Law, the tax applies to the following:

1. UAE-Incorporated Companies:
   Any company registered in the UAE, mainland or Free Zone, is subject to corporate tax, regardless of where the business is managed or controlled from.
2. Foreign Companies Managed from the UAE:
   If a foreign company is effectively managed and controlled from within the UAE, it is also liable. Management and control are determined by where core commercial and strategic decisions are made. It’s not just what’s written on paper that will define or determine the steps that need to be taken.
3. Non-Resident Companies with a UAE Presence:
   Non-resident companies with a permanent establishment (fixed business presence) in the UAE are taxed on income attributable to that establishment.
4. Natural Persons Conducting Business:
   Individuals conducting business activities in the UAE without a company, with an annual turnover above AED 1 million, are also subject to the tax.

A major misconception is that Free Zone companies are completely exempted from the 9% tax. That’s not true.

Yes, Free Zone entities fall under the definition of juridical persons incorporated in the UAE, and hence are subject to corporate tax, unless they qualify for specific exemptions. Juridical persons are similar to the artificial or legal persons, basically the non-human entities recognized by law. They can hold all the rights and duties that are similar to natural persons. Some of the examples of Juridical persons are corporations, government agencies, NGOs, and international organisations.

Who Qualifies for 0% Tax?

A Free Zone entity may qualify for 0% corporate tax if:

• They earn “qualifying income” which is mostly from other Free Zone businesses. A qualifying income is the one that you get in a tax year from self employment and property.
• They engage in specific approved activities like:
  1. Manufacturing
  2. Holding shares/securities
  3. Ship management
  4. Fund or wealth management
  5. Treasury and headquarters services

Most Free Zone businesses such as e-commerce, digital services, software, or consulting do not qualify under these exemptions.

For many small businesses, this is the most important and beneficial provision of the new law. If your revenue is less than AED 3 million (~USD 820,000) in a given tax year then:

• You can elect to receive Small Business Relief.
• You will be treated as having zero taxable income.
• You are exempted from calculating taxable income or filing a full tax return.

These benefits apply across all relevant and previous tax periods which definitely qualifies to be a major advantage for small-scale operators.

In general, all business income generated in the UAE is taxable unless it is specifically exempted from the taxable income ceiling.

Exempt income includes:

• Domestic dividends from other UAE companies.
• Foreign permanent establishment income, provided:
  1. The income is taxed in the foreign country at a rate of at least 9%.
  2. The UAE entity and foreign branch operate as independent businesses.

So, for example, if you own both a UAE company and a U.S. LLC (limited liability company), and the LLC pays dividends to your UAE company, this income is not double taxed under the UAE corporate tax regime.

Deductions are allowed but must be done wholly and exclusively for business purposes only.

Entertainment Expenses

Only 50% of entertainment-related expenses are deductible. These include:

• Meals
• Accommodation
• Transport
• Admission fees for clients, suppliers, or partners

Yes, you can deduct your own salary as the Director or employee of your company—but it must follow the Arm’s Length Principle. It means the salary must be reasonable and in line with what you’d pay a third party for similar work.

What you cannot do:

• Deduct excessive salaries just to avoid tax
• Deduct dividends or bonuses paid to yourself

Registration Is Mandatory

Every taxable person must register for corporate tax, even if you qualify for the small business relief. If you fail to register then it can lead to fines and compliance issues.

Accounting Methods

• Businesses with revenue under AED 3 million can use cash accounting.
• Others must use accrual accounting. The concept of accrual basis of accounting follows a method of accounting that recognizes revenues and expenses and that too in the period in which they are earned or incurred, rather than when cash is received or paid.
• Audits are not mandatory unless your revenue exceeds AED 50 million or you are a qualifying Free Zone entity.

In the end, to wrap up our navigation through the new UAE Tax landscape, the 9% UAE corporate tax is here to stay, but that doesn’t mean it spells doom for businesses.

• Many companies will continue to operate tax-free under small business relief.
• Others can structure operations smartly to stay compliant and efficient.
• Free Zone status doesn't guarantee exemption—but qualifying income and proper setup can still help you benefit

Because of the ongoing confusion and bad advice circulating in the market regarding the new UAE Corporate tax rules, it’s essential to get help from professionals who actually read and follow the law.