The UAE imposes Corporate Tax at only two rates under Article (3) of Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses: a 0% rate on the portion of Taxable Income that does not exceed an amount set by the Cabinet, and a 9% rate on the portion exceeding that amount. Cabinet Decision No. (116) of 2022 fixed that amount at AED 375,000 exactly.
Article (3): The 0% and 9% Rates
Article (3) of the Corporate Tax Law provides that Corporate Tax is imposed on Taxable Income at the following rates:
- A rate of 0% on the portion of Taxable Income that does not exceed the amount specified in a decision issued by the Cabinet at the suggestion of the Minister.
- A rate of 9% on the Taxable Income exceeding that amount.
The law itself therefore did not fix the exact threshold amount separating the two rates, leaving that determination to a separate executive decision issued by the Cabinet on the Minister of Finance's proposal.
The AED 375,000 Threshold Under Cabinet Decision No. (116) of 2022
Cabinet Decision No. (116) of 2022 on Determining the Annual Income Subject to Corporate Tax provides that the portion of a Taxable Person's Taxable Income that does not exceed AED 375,000 is subject to Corporate Tax at 0% for the Tax Period, regardless of the number of businesses or business activities the Taxable Person carries out during that period. Conversely, the Decision provides that Taxable Income exceeding AED 375,000 is subject to Corporate Tax at 9% for the relevant Tax Period.
Anti-Fragmentation Rule Against Abuse of the 0% Rate
As a safeguard against improper use of the 0% rate, the same Decision provides that if the Federal Tax Authority determines that one or more persons have artificially separated their businesses or business activities, resulting in income exceeding AED 375,000 being subjected to Corporate Tax at 0%, this shall be considered an arrangement to obtain a Corporate Tax advantage under Clause (1) of Article (50) of the Corporate Tax Law. To verify whether such artificial separation has occurred, the Authority examines whether the arrangement was entered into for a legitimate commercial purpose and whether the persons largely carry on the same business or business activity, taking into account all relevant facts and circumstances, including their financial, economic and regulatory links.
Illustrative Example
If a Taxable Person's Taxable Income for a given Tax Period equals exactly AED 375,000, that entire amount is subject to Corporate Tax at 0% and no Corporate Tax is due, because it does not exceed the threshold fixed by Cabinet Decision No. (116) of 2022 as explained above. Any portion of Taxable Income above AED 375,000 is subject to Corporate Tax at 9% only on that excess amount, not on the entire income. This graduated design is meant to ease the tax burden on small and start-up businesses while keeping the tax base effective on larger income.
Legal References
- Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses — Article (3).
- Cabinet Decision No. (116) of 2022 on Determining the Annual Income Subject to Corporate Tax — Articles (1), (2) and (3).
For questions about your specific situation, you can ask the UAE Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.