The United Arab Emirates has introduced a corporate tax framework that replaces its previous zero‑rate regime. The new rules create a baseline 9 % tax on profits above US $100 000 and a higher 15 % rate for companies whose global revenue exceeds US $750 million. Understanding the thresholds, allowable deductions, and compliance requirements is essential for businesses operating in free‑zone or mainland entities.
Tax rates and revenue thresholds
- 9 % corporate tax – Applies to most UAE‑registered companies on profits exceeding US $100 000.
- 15 % corporate tax – Applies only to firms with global revenue > US $750 million. The tax is levied on net profit, not on revenue.
- The 15 % rate is currently limited to the highest‑earning firms, but the government has indicated that the threshold may be lowered over time (e.g., to US $250 million, then US $80 million, and potentially US $7.5 million).
Free‑zone versus mainland companies
- Free‑zone companies were initially exempt from the 9 % tax, but the legislation allows the government to extend the tax to free‑zone entities in future phases.
- Mainland companies engaged in activities such as car rentals, consulting, or other commercial services are subject to the 9 % rate from the start.
Deductible expenses and tax credits
- Companies can claim a refundable tax credit for salaries paid to senior executives and key personnel who perform critical business functions that generate economic value in the UAE.
- Salaries and dividends are treated as expenses, reducing taxable profit, but the tax authority will scrutinize amounts that are not aligned with market standards.
Practical salary and dividend planning
- Excessive salary payments are not automatically accepted. For a firm generating US $10 million in profit, typical executive compensation in the UAE market ranges from US $250 000 to US $350 000.
- Paying a disproportionate salary (e.g., US $9 million) to the owner or related parties would be considered non‑compliant and could be classified as tax evasion.
- Reasonable expense categories include office rent, equipment, and legitimate business‑related purchases (e.g., vehicles, studio space).
Compliance considerations for expatriates
- UAE residents enjoy zero personal income tax and zero capital gains tax, but corporate profits are taxed as described above.
- U.S. citizens remain liable for U.S. federal taxes on worldwide income, regardless of UAE residency.
- Companies must ensure that salary levels and dividend distributions are consistent with market benchmarks to avoid challenges from the UAE Federal Tax Authority.
Risks and enforcement
- The tax authority may reject inflated salary or dividend structures that lack commercial justification.
- Adding family members or unrelated parties as employees with unusually high compensation can trigger investigations for tax fraud.
- Non‑compliance could lead to penalties, reputational damage, or restrictions on banking services.
Outlook and strategic planning
- The 15 % corporate tax is unlikely to be reduced in the next two to three years, but the revenue threshold may be adjusted downward gradually.
- Businesses should maintain a Plan B: keep alternative jurisdictions or additional corporate structures ready in case future tax reforms increase the burden.
- Diversifying residency or citizenship can provide flexibility if UAE tax policy becomes less favorable.
Overall, the UAE’s new corporate tax regime aims to align with OECD standards while preserving the country’s appeal to high‑net‑worth individuals and multinational corporations. Companies operating in the region must adapt their tax planning, ensure salary structures reflect market norms, and stay vigilant about evolving regulatory thresholds.
