Understanding the UAE Corporate Tax Rate in 2026

What Is the Corporate Tax Rate in the UAE?

The corporate tax rate in the UAE is 0% on taxable income up to AED 375,000 and 9% on taxable income exceeding that amount . This rate applies to financial years beginning on or after 1 June 2023, as established by Federal Decree-Law No. 47 of 2022 . The corporate tax rate structure is designed to support small businesses while ensuring larger enterprises contribute fairly to the national economy .

The Basic Structure of the Corporate Tax Rate

The corporate tax rate follows a progressive tiered system. A business with AED 500,000 in taxable income pays 0% on the first AED 375,000 and 9% on the remaining AED 125,000, resulting in an effective rate of 2.25% on total profits. This corporate tax rate applies to all UAE companies, foreign entities with a permanent establishment, and individuals conducting business activities exceeding AED 1 million annual turnover .

How the Corporate Tax Rate Applies to Different Businesses

Mainland Companies and the Corporate Tax Rate

For mainland companies, the corporate tax rate is straightforward. All taxable income above the AED 375,000 threshold is taxed at 9%. The Small Business Relief (SBR) provides an additional exemption for businesses with total revenue at or below AED 3 million, allowing them to elect zero taxable income for tax periods ending on or before 31 December 2026 . This transitional measure means even if a business exceeds the AED 375,000 taxable income threshold, it may pay no corporate tax rate if it qualifies for SBR and makes the election with the Federal Tax Authority (FTA) .

Free Zone Entities and the Corporate Tax Rate

Free zone entities can benefit from a 0% corporate tax rate on qualifying income if they meet the conditions to be a Qualifying Free Zone Person (QFZP) . To qualify for this preferential corporate tax rate, a business must maintain adequate substance in the free zone, derive qualifying income, comply with transfer pricing rules, and have non-qualifying revenue that does not exceed the de minimis threshold .

The 0% corporate tax rate on qualifying income is not automatic. Free zone businesses must actively qualify each year. If a company fails to meet any QFZP condition, it loses the preferential corporate tax rate for the current year and the next four years . This means the standard 9% corporate tax rate applies to all taxable income above AED 375,000 .

Comparing the Corporate Tax Rate Across Business Types

When Does the Corporate Tax Rate Apply?

Taxable Income Defined

The corporate tax rate applies to taxable income, not total revenue . Taxable income is calculated by taking accounting net profit (prepared under IFRS) and making adjustments for exempt income, non-deductible expenses, and available reliefs . For example, a business with AED 600,000 in revenue but AED 300,000 in allowable expenses has AED 300,000 in taxable income—below the AED 375,000 threshold—and pays 0% corporate tax rate on all of it .

Timing of the Corporate Tax Rate

The corporate tax rate applies annually, with the tax liability calculated by the Taxable Person on a self-assessment basis . The corporate tax rate return must be filed within nine months of the financial year-end, with any tax due paid by the same deadline . For a company with a 31 December year-end, the first corporate tax rate return was due by 30 September 2025 .

Calculating Your Liability Under the Corporate Tax Rate

Starting Point: Accounting Net Profit

The calculation begins with the accounting net profit as per financial statements prepared under IFRS or applicable accounting standards . Businesses with revenue under AED 3 million may use cash basis accounting. The corporate tax rate is then applied after making adjustments to determine taxable income.

Adjustments to Determine Taxable Income

Several adjustments are required to determine the income subject to the corporate tax rate:

• Adding back non-deductible expenses (fines, political contributions, excessive interest)

• Excluding exempt income (dividends from UAE companies)

• Applying participation exemption for qualifying shareholdings

• Deducting available reliefs (Small Business Relief, free zone benefits)

Example Calculation

A UAE mainland company with AED 500,000 accounting profit, AED 10,000 non-deductible expenses, and AED 5,000 exempt income has taxable income of AED 505,000. The corporate tax rate applies as follows:

• First AED 375,000: 0% = AED 0

• Remaining AED 130,000: 9% = AED 11,700

• Total corporate tax rate liability: AED 11,700

Who Is Exempt From the Corporate Tax Rate?

Automatic Exemptions

The corporate tax rate does not apply to government entities and government-controlled entities specified in a Cabinet Decision . Extractive businesses and non-extractive natural resource businesses may also be exempt, subject to notification and conditions .

Application-Based Exemptions

Qualifying public benefit entities, qualifying investment funds, and public or private pension funds can be exempt from the corporate tax rate upon application and approval . Wholly-owned UAE subsidiaries of these entities may also qualify for exemption from the corporate tax rate .

Penalties for Non-Compliance

Late Registration Penalties

Failure to register for corporate tax on time attracts an AED 10,000 penalty . All taxable persons must register for corporate tax and obtain a Corporate Tax Registration Number, regardless of whether they expect to pay the corporate tax rate or are exempt.

Filing and Payment Penalties

Late return submission incurs AED 500 per month for the first 12 months, increasing to AED 1,000 per month thereafter. Unpaid tax attracts a 14% annual penalty. These penalties apply regardless of the corporate tax rate that ultimately applies to the business.

Dedicated Customer Testimonials

"Al Babtax helped us understand how the corporate tax rate applies to our mainland business. Their experts calculated our taxable income correctly and ensured we benefited from Small Business Relief. We paid no tax and stayed fully compliant."

"As a free zone company, we needed to qualify for the 0% corporate tax rate on our qualifying income. Al Babtax guided us through the QFZP conditions, helped us maintain adequate substance, and filed our return correctly. Highly recommended!"

"The corporate tax rate of 9% seemed daunting until we engaged Al Babtax. Their team showed us how deductions and reliefs work in practice. We now have a clear tax strategy for our Dubai operations."

Frequently Asked Questions (FAQs)

What is the standard corporate tax rate in the UAE?
The standard corporate tax rate is 0% on taxable income up to AED 375,000 and 9% on taxable income exceeding that amount.

How does the corporate tax rate apply to free zone companies?
Free zone companies can benefit from a 0% corporate tax rate on qualifying income if they meet Qualifying Free Zone Person conditions. Non-qualifying income is taxed at 9%.

What is the Small Business Relief and how does it affect the corporate tax rate?
Small Business Relief allows businesses with total revenue at or below AED 3 million to elect zero taxable income, effectively paying no corporate tax rate for that period.

Why does the corporate tax rate have an AED 375,000 threshold?
The threshold supports small businesses by exempting income up to AED 375,000 from the 9% corporate tax rate, ensuring the tax burden falls primarily on larger enterprises.

What happens if a free zone company fails QFZP conditions?
It loses the 0% corporate tax rate for the current year and the next four years, and the standard 9% rate applies to all taxable income above AED 375,000.

Expert Guidance on the UAE Corporate Tax Rate

Navigating the corporate tax rate in the UAE requires careful attention to your business structure, revenue, and qualifying activities. Professional support ensures accurate calculations, timely filings, and optimisation of available reliefs. Whether you are a mainland company, a free zone entity, or a large multinational, understanding how the corporate tax rate applies to your specific situation is essential for compliance and growth.

Al Babtax, established in 2017, is a trusted UAE-based auditing, accounting, and tax advisory firm. Our experienced professionals specialise in Corporate Tax, VAT, Audit, AML, and Virtual CFO services. We deliver reliable support to startups, SMEs, and large enterprises across Dubai and the UAE.

Take control of your corporate tax rate compliance today. Contact Al Babtax to get started with expert financial solutions tailored to your needs. Visit our website or call us to schedule a consultation.

Serving businesses across Dubai and the UAE—contact us through our website to get started with expert financial solutions.

Author Bio: AL BAB Accounting & Tax Consultancy FZE-LLC, established in 2017, is a trusted UAE-based auditing, accounting, tax, and financial advisory firm helping businesses achieve compliance and sustainable growth through expert, tailored solutions. Our experienced professionals specialise in Corporate Tax, VAT, Accounting, Audit, AML, and Virtual CFO services, delivering reliable support to startups, SMEs, and large enterprises across the UAE.

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