Corporate tax rate in UAE follows a stratified design, and most owners only grasp it after running their first numbers. Profits up to AED 375,000 sit in a zero band. Profits above that line are charged at 9%. The sample cases below show how this plays out in practice.
Federal Decree-Law No. 47 of 2022 sets the framework, and it applies to financial years starting on or after 1 June 2023. Knowing when your financial year begins matters almost as much as knowing your profit.
Why Timing Matters
The regime does not apply to every year at once. It starts with the first financial year beginning on or after 1 June 2023. A company with a calendar year-end therefore entered the regime for the year beginning 1 January 2024. Businesses with other year-ends need to check their own start date, because that date determines which year is the first covered period.
The Zero Band and the 9% Band
Picture the first AED 375,000 of taxable income as an untaxed room. Anything beyond that room is charged at 9%. The higher rate never reaches the full profit, and that is the main reason effective rates stay well below 9% for most mid-sized firms.
Why taxable income is the figure that counts
Turnover plays no part in the test. The starting point is taxable income, which is accounting profit adjusted for allowable deductions and tax rules. The two figures often diverge, so the adjusted number is the one to measure against the line. Owners who track only their bank balances or sales totals frequently misjudge where they stand.
Sample Calculations
The three cases below assume a December year-end, no losses carried forward, and no other reliefs. They demonstrate the mechanics only, and real outcomes will reflect each company’s adjustments.
Case one: a trading firm with AED 300,000 taxable income
Every dirham sits inside the zero band. Tax due is AED 0. This is the outcome many small trading businesses should expect, provided their adjusted profit stays under the line.
Case two: a consultancy with AED 500,000 taxable income
Income above the line totals AED 125,000. Nine percent of that amount is AED 11,250. Measured against the whole profit, the bill comes to roughly 2.25 percent. That gap between the headline rate and the effective rate is what the tiered structure creates.
Case three: a holding business with AED 1,200,000 taxable income
Income above the line totals AED 825,000. Nine percent of that amount is AED 74,250. The average rate across the full profit is roughly 6.19 percent. Each additional dirham earned above the line still attracts 9%, so growth planning should account for the marginal rate.
Free Zone Entities and the Qualifying Test
A free zone entity may reach 0% on qualifying income. That result depends on meeting the Qualifying Free Zone Person criteria, which cover permitted income types and substance requirements. Earnings outside those criteria, including certain sales to mainland clients, generally face the 9% rate. Each entity needs its own review, and a free zone licence alone does not decide the outcome.
Pitfalls We Encounter
Three errors come up repeatedly. Some owners read the AED 375,000 figure as a sales cap. Others apply 9% to the entire profit. Some skip allowable expenses before testing the line. Organised bookkeeping prevents all three, and it also makes the annual filing far less stressful.
Planning Ahead
The most useful habit is monthly review. Update the taxable income estimate each month rather than waiting for year-end. This shows early whether profit is likely to cross the line, and it leaves time to review expenses, timing of costs, and available reliefs. Filing generally follows nine months after the period ends, so a steady process beats a rushed one.
Corporate Tax Rates: Frequently Asked Questions
Does the first AED 375,000 of income escape tax?
Yes, subject to the rules that apply to your entity. Qualifying free zone income may also reach 0%, provided specific conditions are met.
How is the threshold measured, and over what period?
It is AED 375,000 of taxable income for each tax period.
Does crossing the line tax the whole profit?
No. Only the portion above AED 375,000 carries the 9% rate.
Which year did the regime begin?
It covers financial years starting on or after 1 June 2023. A company with a calendar year-end first became covered for the year beginning 1 January 2024.
Does revenue influence the result?
No. Taxable income drives the calculation, so a high-turnover business can still owe nothing.
Can a free zone business assume 0% by default?
No. Only qualifying income can benefit, and the Qualifying Free Zone Person conditions must be satisfied first.
Working With NovaFin
Tax positions depend on the facts, and guidance changes over time. NovaFin helps UAE companies compute taxable income, test free zone eligibility, and prepare and file returns. Each position is checked against current Federal Tax Authority guidance before submission.
Whether you are preparing for your first return or reviewing a position you have filed before, a short consultation can clarify the figures. Speak with the NovaFin team about your position.
This article offers general information only and is not tax advice.