UAE Corporate Tax Guide: 9% Rate, Free Zones, Pillar Two 2026
The UAE introduced federal Corporate Tax (CT) at 9% effective June 2023 (financial years starting on or after 1 June 2023). The 9% rate applies to taxable profits exceeding AED 375,000. Profits below this threshold are taxed at 0%. Qualifying free zone entities can maintain 0% CT. Large multinationals (EUR 750M+ global revenue) face 15% under Pillar Two rules. Here is how UAE Corporate Tax works in 2026.
UAE Corporate Tax is an enterprise tax levied on business profits under Federal Decree-Law No. 47 of 2022. It applies to all UAE companies and branches, including those in free zones (which have special rules). The CT regime is one of the most competitive in the region and globally. Unlike traditional corporation tax systems, the UAE does not impose withholding tax on dividends, interest, or other payments. There is no capital gains tax on asset disposals by companies (capital gains are treated as ordinary income and taxed at the standard CT rate). Individuals are not subject to CT on employment income →
Real-world example: A Dubai-based trading company has annual profits of AED 2,000,000. The first AED 375,000 is taxed at 0% = AED 0. The remaining AED 1,625,000 is taxed at 9% = AED 146,250. The effective CT rate is 7.3%. For a free zone company in DIFC with qualifying income of AED 5,000,000, the CT is 0% (assuming full compliance with qualifying conditions). The same profits taxed in Singapore would incur ~AED 425,000 in tax (17% headline rate), in the UK ~AED 475,000 (25% headline rate), and in Germany ~AED 1,500,000 (approximately 30% effective rate). Free zone CT 0% conditions explained →
Corporate Tax Rate Structure
The UAE CT regime applies a three-tier rate structure:
- 0%: Taxable profits up to AED 375,000 — effectively a small business exemption
- 9%: Taxable profits exceeding AED 375,000 — applies to all businesses including branches
- 15%: Large multinational groups with global consolidated revenue exceeding EUR 750 million (Pillar Two / GloBE rules)
Qualifying free zone entities that meet compliance conditions may benefit from 0% CT on qualifying income. Non-qualifying income of free zone entities is subject to 9% CT. All businesses must register for CT, file annual returns, and maintain audited financial statements (if turnover exceeds AED 50 million).
Free Zone Corporate Tax (0%)
Qualifying Free Zone Persons (QFZPs) can benefit from 0% CT on qualifying income. Conditions include: maintaining adequate substance in the free zone (office, employees, management in the UAE), deriving qualifying income (income from transactions with non-free zone parties outside the UAE, income from free zone-to-free zone transactions), and electing to be treated as a QFZP. Non-qualifying income (e.g., income from mainland UAE sources, certain excluded activities) is taxed at 9%. QFZPs must submit audited financial statements and maintain transfer pricing documentation. Free zones include DIFC (Dubai International Financial Centre), ADGM (Abu Dhabi Global Market), JAFZA, Dubai Multi Commodities Centre (DMCC), and over 40 other designated zones.
Small Business Relief (AED 375,000 Threshold)
Businesses with taxable profits of AED 375,000 or less pay 0% CT. This threshold applies per tax period. There is no minimum tax or alternative minimum tax for small businesses. The threshold is not prorated for short periods. Small businesses can benefit from simplified transfer pricing documentation requirements. The AED 375,000 threshold is designed to exempt the vast majority of micro and small businesses from any CT liability while still requiring registration and compliance.
Pillar Two — 15% Rate for Multinationals
The UAE has committed to implementing the OECD's Pillar Two (Global Anti-Base Erosion or GloBE) rules. Large multinational enterprise (MNE) groups with consolidated group revenue of EUR 750 million or more in at least two of the last four years will be subject to a 15% effective tax rate. If the UAE effective rate falls below 15%, a top-up tax will apply. The UAE introduced the Domestic Minimum Top-up Tax (DMTT) effective for financial years starting on or after 1 January 2025. This ensures the UAE collects any top-up tax rather than ceding it to another jurisdiction under the Income Inclusion Rule (IIR).
No Withholding Tax
The UAE does not impose withholding tax on dividends, interest, royalties, management fees, or other payments to non-residents. This is a significant advantage for UAE holding companies. Companies can repatriate profits to shareholders anywhere in the world without tax deduction at source. The UAE's extensive network of Double Taxation Avoidance Agreements (over 100) may provide additional benefits, including reduced rates on certain payments into treaty partner jurisdictions. There is no branch remittance tax either.
Who needs to register for UAE Corporate Tax?
All UAE businesses including mainland companies, free zone entities, branches of foreign companies, and sole proprietors conducting business must register. Natural persons are generally exempt unless earning business income exceeding AED 1 million annually from a single or related source.
What is the difference between mainland and free zone CT?
Mainland companies pay 0% on first AED 375,000 and 9% thereafter. Free zone qualifying entities can receive 0% on qualifying income. Non-qualifying income for free zone entities is taxed at 9%.
Is capital gains taxable under UAE CT?
Capital gains are treated as ordinary income and included in taxable profit at the standard rate. However, participation exemption may apply for share disposals if the shareholding is 5% or more and held for 12+ months. Dividend income may also be exempt under certain conditions.
Does UAE Corporate Tax apply to oil and gas companies?
Oil and gas companies are subject to emirate-level corporate tax (typically 55% in Abu Dhabi, lower elsewhere) rather than the federal 9% CT. They are excluded from the federal CT regime.