The UAE introduced corporate tax on 1 June 2023. Businesses must plan early to understand the impact and optimise their structures. These ten tips will help SMEs and startups stay compliant and efficient.
1. Know the threshold & register early
The 0 % rate applies to taxable income up to AED 375 000. Profits above that are taxed at 9 %. Companies must register with the FTA within three months of obtaining their licence and should plan cash flows for tax payments.
2. Understand your tax residency
Generally, companies incorporated in the UAE are tax‑resident here. Foreign entities with management and control in the UAE may also be tax‑resident. Keep board minutes and management decisions in the UAE to support residency.
3. Determine qualifying free‑zone status
Free‑zone companies may benefit from a 0 % corporate tax rate if they meet substance requirements, derive qualifying income and maintain audited financial statements. Non‑qualifying income must remain below the de‑minimis threshold (currently 5 % or AED 5 million). Monitor your revenue mix closely; if non‑qualifying income exceeds the threshold, the 9 % rate applies to all profits for five years.
4. Plan your group structure
Consider forming a holding company and subsidiaries to separate activities and protect the free‑zone tax benefit. Group relief is available for transfers of assets and losses between members if a parent owns at least 95 % of a subsidiary. Special Purpose Vehicles (SPVs) can help consolidate shareholding and simplify future exits.
5. Know what is deductible and what is not
Deductible expenses include salaries, rent, utilities, depreciation, interest up to 30 % of EBITDA and professional fees. Non‑deductible expenses include fines and penalties, bribes, personal expenses and donations to non‑qualifying charities.
6. Manage transfer pricing & inter‑company transactions
If you deal with related parties, ensure that prices are at arm’s length and supported by documentation. The FTA has introduced transfer pricing disclosure forms and may request a master file and local file from larger groups.
7. Maintain robust documentation
Keep invoices, contracts, bank statements and accounting records for at least seven years. Digital archives must be accessible in Arabic or English. Documentation will support your corporate tax returns, VAT filings and any FTA audits.
8. Budget for corporate tax payments
Tax is due nine months after the end of the financial year. Put aside funds monthly or quarterly to avoid cash‑flow strains. Forecast the impact of tax on dividend distributions and reinvestment decisions.
9. Leverage exemptions & incentives
Free zones, small business relief (for revenue ≤ AED 3 million) and qualifying investment funds may be exempt or taxed at 0 %. Consider whether your activities could qualify; for example, manufacturing and R&D may benefit from investment incentives.
10. Seek professional advice
Corporate tax is new in the UAE, and guidance continues to evolve. Engage a qualified tax advisor to review contracts, structure transactions and file returns correctly. Penalties for late filing and under‑payment can be significant.