FAQs on Corporate Tax for New Businesses

Introduction

With the implementation of the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022), effective from 1 June 2023, many new businesses and startups are navigating corporate tax obligations for the first time. The Federal Tax Authority (FTA) has issued several guidelines, but new entrepreneurs often have questions on how the law applies to their operations.

This article addresses the most frequently asked questions (FAQs) on corporate tax for new businesses in the UAE.

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1. Who is subject to Corporate Tax in the UAE?

All juridical persons (LLCs, PJSCs, PSCs, LLPs, etc.) and certain natural persons engaged in business or commercial activities are subject to corporate tax. Sole proprietors and freelancers may also fall under the law if their annual business income exceeds the relevant threshold.

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2. What is the Corporate Tax rate?

• 0% on taxable income up to AED 375,000 (supporting SMEs).

• 9% on taxable income exceeding AED 375,000.

• 0% / exempt for qualifying free zone entities on qualifying income (subject to conditions).

• Special rules apply for large multinational enterprises under OECD Pillar Two.

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3. When should a new business register for Corporate Tax?

• Registration with the Federal Tax Authority (FTA) is mandatory for all businesses, regardless of income levels.

• New companies must register soon after obtaining their trade license, in accordance with FTA deadlines.

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4. Do startups with no profits still need to file returns?

Yes. Even if the business makes a loss or zero profits, it must:

• Register for corporate tax.

• File annual tax returns within 9 months of financial year-end.

• Carry forward eligible tax losses to offset against future taxable income.

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5. What income is exempt from Corporate Tax?

Certain income streams are exempt, such as:

• Dividends and capital gains from qualifying shareholdings.

• Income from foreign permanent establishments (under conditions).

• Qualifying intra-group transactions and restructurings.

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6. How are Free Zone Businesses taxed?

Free zone companies classified as Qualifying Free Zone Persons (QFZPs) can enjoy a 0% tax rate on qualifying income, provided they:

• Maintain adequate substance in the UAE.

• Derive only qualifying income (e.g., transactions with other free zones or exports abroad).

• Comply with Transfer Pricing and reporting obligations.

Non-qualifying income may be taxed at 9%.

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7. What expenses are non-deductible?

Businesses cannot deduct:

• Fines and penalties.

• Bribes and illegal payments.

• 50% of entertainment expenses.

• Dividends distributed.

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8. What are the record-keeping requirements?

Businesses must:

• Prepare accounts in line with IFRS.

• Maintain records for at least 7 years.

• Retain supporting documents for income, expenses, and intercompany dealings.

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9. How does Transfer Pricing affect new businesses?

Even SMEs must comply with Transfer Pricing (TP) rules if they have related-party transactions. This means:

• Pricing must follow the arm’s length principle.

• Intercompany agreements must be documented.

• Benchmarking may be required depending on thresholds.

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10. What happens if a business misses deadlines?

Missing registration, filing, or payment deadlines can result in:

• Administrative penalties.

• Additional tax assessments.

• Increased audit scrutiny from the FTA.

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Conclusion

For new businesses in the UAE, understanding corporate tax obligations is crucial for long-term success. By registering early, maintaining accurate records, and ensuring compliance with exemptions, deductions, and TP rules, companies can avoid costly mistakes in their first year.

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✍️ Prepared by Sheikh Anwar Accounting and Auditing LLC – Registered Auditor with the Ministry of Economy (Auditor Entry No. 5817, Company Entry No. LC4695-01). We specialize in Corporate Tax, Transfer Pricing, VAT, and AML Compliance, helping new and growing businesses in the UAE navigate their tax journey with confidence.

📧 Contact us: info@sa-auditors.com

🌐 Visit us: www.sa-auditors.com